In the insurance world, there are a few different major medical plans that are typically available:
- HMO – Health Maintenance Organization
- PPO – Preferred Provider Organization
- EPO – Exclusive Provider Organization
- POS – Point of Service
- HDHP – High Deductible Health Plan
To be honest, the whole insurance world can become incredibly confusing, so I typically just break it down into two categories:
- Great Coverage Plan – Low deductible, high monthly premiums
- Okay Coverage Plan – High deductible, low monthly premiums
If you’re constantly sick and need medical attention often, then you should probably pay extra money each month to get the great coverage plan/low deductible. If you barely know where the hospital is because you’ve never been there, then you should probably stick with the high deductible plan and pay much less in monthly premiums.
For me, I’m hardly ever sick (especially since I got those wicked-awful tonsils out!), so I always sign up for the HDHP – the High Deductible Health Plan. With this selection, I pay very little in premiums each month and I get to enjoy the use of a Health Savings Account.
The Benefits of a Health Savings Account
Before I got my first real job out of college, I knew absolutely nothing about insurance and I CERTAINLY didn’t know anything about Health Savings Accounts. Now that I have been with a few different companies and have been forced to learn and understand insurance in my adulthood, I have grown to love my HSA account. It seems like every couple of months I learn something else that’s awesome about it, which makes me want to dump even MORE money into it!
Of all the awesome details surrounding medical savings, here are the top five benefits of a Health Savings account.
If you are employed and have the option to put money into a HSA, I would highly recommend it for one main reason: you’ll never pay tax on this money EVER. Much like a 401k contribution, the funds get taken out of your paycheck before taxes and dumped into your HSA account. But then – unlike your 401k account – when you take the money out to use for medical bills, you STILL don’t have to pay tax on this money. This is one of the most impressive benefits of a health savings account. For those of us that plan ahead for medical expenses, we’ll have about 30% more money to cover them with because taxes were never in the equation!
2) Don’t Use It? You Won’t Lose It
For those that sign up for the “Great Coverage Plan”, they typically have the option to load up their Flexible Spending Account (FSA) with money for future medical expenses. The FSA is very similar to the HSA, but contrary to the naming convention, the FSA is actually less flexible than the HSA. When the end of the year rolls around, many people find themselves heading to the store to buy cough syrup, Tylenol, and Dayquil because the FSA has a “use it or lose it” policy. If you put money into an FSA account, you’ll have to use it before December 31st or the money will suddenly vanish. This is one of the other excellent benefits of a Health Savings Account. You can load up your account with as much money as you want, because it will be there for life. It’ll never vanish into thin air like the FSA.
3) May Get Big Dollars From Your Company
A few companies in my area actually give their employees some money into their HSA account if they choose the high deductible plan. Since I am never sick, I choose the high deductible plan anyway to save on the monthly premiums, but then on top of this, my company puts $500 into my HSA account. As I continually don’t need to use that money year over year, my account total is climbing into the thousands of dollars. If your company offers to put money into your HSA for you, then this could be one of the largest benefits of a Health Savings Account for you.
All plans are slightly different (depending on the organization that’s holding your HSA), but the majority allow you to invest your funds once you save $2,000 into your HSA account. This is such an amazing benefit that some people even use their HSA fund as a backup retirement fund. After all, regular contributions over your lifetime could total as much as $600,000, and with the average medical expenses in retirement topping $240,000 out of pocket, it’s probably a pretty smart idea!
5) Can Use For Anything When You’re Old
If you take these benefits seriously, then you’ll likely start beefing up your HSA fund in the near future. But be sure that you’re thinking about the long term when you do this, because if you try to pull the money out (for a non-medical expense) before you’re 65 years old you’ll be hit with a 20% penalty on your withdrawal. However, once you hit 65, something magical happens and you no longer get penalized on your non-medical spending.
If you have been putting the maximum amount of money into your Health Savings Account each year since you were young, then you might just end up with $600,000 by the time you’re 65 years old. This is great and all, but will you really need $600,000 for medical expenses? Unless something terrible happens, then likely not. No big deal though, because after the age of 65, you can withdraw the money for anything you want and you’ll only pay tax on the withdrawal (again, much like a 401k withdrawal). There is absolutely no penalty.
The Mammoth Benefits of a Health Savings Account
Let’s recap for a second. With a Health Savings Account, you can:
- avoid taxes forever
- build on the balance year after year
- get HSA contributions from your company
- invest the money that’s in the account
- use the money for anything you want in retirement
The HSA account is simply amazing. No matter what your age, I would recommend that you start contributing money into your HSA on a regular basis. Heck, even if you don’t use a penny until you’re 65, then you could use all that money to pay for your Medicare and long-term care insurance! Wouldn’t it be great to not have to worry about paying for insurance when you reach retirement age? If you haven’t started experiencing the benefits of a Health Savings Account, be sure to start today!