Advantages of Health Savings Accounts (HSA)
By Robert Fezza and Steve Siders
Health Savings Accounts are far more common since health insurance premiums have increased substantially as a result of the Affordable Care Act. When used in conjunction with high deductible health insurance plans they can be a great way for people under age 65 to lower their tax bill, pay medical bills with pre-tax dollars, and possibly build up “savings” for future medical expenses.
Here’s how it works. Owners of these plans are obligated to pay their own medical expenses out of pocket up to a pre-determined deductible annually. This means every doctor’s visit and lab test has a contracted rate with the insurance company. By paying for the expense from a Health Savings Account (HSA) you technically pay less because the amount contributed to the HSA is tax deductible.
Most insurance plans have deductibles that are very close to the HSA contribution amounts, which means that people who are generally healthy can contribute the maximum allowed annually while spending less than the deductible amount. The “savings” in the HSA accumulate over time and can be used for future medical expenses. In this way you can consider the HSA a “shadow IRA” or a supplemental retirement account.
Since you’ll be paying your deductible out of pocket with your own money, it’s definitely in your best interest to be a good consumer of healthcare options. My recent experience getting an MRI was mind-boggling. The difference in cost between the first provider I called and the one I ended up choosing was $2,000, for the same procedure. That’s $2,000 that stayed in my HSA! When you’re paying the deductible out of your own pocket, it clearly pays to shop around.
Here is some additional advice. If you spend less than the contributed amount ($6750 max family or $3350 single contribution) in a year, the excess or “savings” can be used in future years. Most HSA accounts also offer investment options for dollar amounts in excess of cash requirements. Providers of HSA accounts vary; compare fees and investment options; choose low-cost mutual funds whenever possible. When all of these components are used wisely it is a powerful way to grow the account value over time. Also, there are specific rules on HSAs that relate to your age. To gain more info give us a call, we’re always happy to help.
*Qualified Medical Expenses = doctor fees, hospital bills, lab tests, etc. including long term care premiums, prescriptions, dental and vision care, and Medicare A, B and D premiums.
Robert Fezza, CFP® and Steve Siders, CFP® own Odyssey Personal Financial Advisors, 500 Sun Valley Drive, Suite A-6, Roswell, GA. Their firm specializes in working with people who are serious about making progress towards their financial goals. Odyssey manages portfolios greater than $500,000. 770-992-4444, www.odysseypfa.com. Securities offered through Cetera Financial Specialists LLC, member FINRA/SIPC.