Understanding Health Savings Accounts
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Understanding Health Savings Accounts
Health Savings Accounts can save large amounts of money. But the plan, which allows tax-deferred saving is not for everyone. If you are eligible for these plans where you work, it would be worth looking into provided you fit the profile.
Do You Fit the HSA Profile?
There are special considerations in an HSA. |
Not everyone does. If you are older and have or could possibly have a chronic disease, the requirement of a high deductible health insurance policy may make this plan not worth considering. The high deductible (higher than $2,300 as I write this in 2009) is not always affordable for older workers. granted, the premiums on the plan is probably lower, but if you use the insurance frequently, this can offset any tax-deferred savings you might get, even if you get an employer match.
The plan is best used by younger workers who have few medical problems. They rarely use up the deductible allowing the money in the HSA to continue to grow. Unlike FSA accounts, the money stays with you year after year. Another difference between HSAs and FSAs, the money in your HSA can be used to pay for healthcare or not. If you use it for healthcare, the money is not taxed. Other uses for the money are taxed at your real income tax rate.
Shop, shop, shop
There are several things you can do to keep your costs down and keep that money in your HSA. First, compare plans. Don't simply choose the one your employer might offer. Unless your employer offers a match of some sort.
If the plan you choose allows you to treat it like an investment, do so with great restraint. This is money you might need soon or in the near future. You don't want the balance negatively effective by some crazy market move. Keep it tucked away n the safest corner of the investment world. You can be risky with your 401(k). BUt don't make that mistake with an HSA.
The idea behind an HSA is to keep the costs down by forcing you to choose how to spend the money. The idea is that if you are given this choice, you will be prudent. Prudence means seeing a doctor when you need to. Avoiding medical care because you want to protect the balance in your HSA is not very smart and may actually be counterproductive, leading to greater expenditures later.
Bargain Hunting
You would be shocked to learn that you can get free advice without spending a penny. Many pharmacies offer screenings and vaccines, sometimes for free. Many companies now keep the equivalent of the school nurse on staff. These registered nurse practitioners can often spot problems or offer remedies without going to the doctor.
Keep in mind, these types of clinics are for known problems. If you think it is complicated, see the doctor. Avoid the emergency room if at all possible. Many healthcare plans charge huge fees for this service when the problem may not be an emergency at all. Many hospitals have urgency care clinics with longer hours than regular doctors. If you think you need to see a doctor, most are over-scheduled. But there is always the possibility that they might be able to squeeze you in.
Minor ailments are worth shopping around for; big problems are not.
Additional reading on the subject of healthcare can be found here.
Curious about FSAs?