I am speaking to folks who have access to a Health Savings Account (HSA) through their employer.
HSA plans are a sweet deal and here's how they compare to a regular plan:
With a regular insurance plan you pay a high monthly premium. Let's use my employer's plan as an example. If I was on single coverage through my current employer and didn't count their subsidy, I would pay about $510 a month for insurance premiums. Because it is subsidized I pay about half that, so a little over 3k for the year. The normal plan has a $350 deductible, which sounds pretty sweet until you realize that the maximum out of pocket is 3k. So, prescriptions and coinsurance could take you up to the 3k easily. That's a total yearly cost of $6000, right?
Wrong.
Because you paid that $3000 for your medical costs in post-tax dollars, you actually paid roughly between $500-$1000 more, depending on your tax bracket. That's right, $3000 in medical care, may actually be costing you $4000.
Then let's compare that to the HSA plan. The premium is a bit lower, a little over $4800, which puts us at almost $400 per month. But the employer pays half. So it's already costing me less, about $2400 for the year. Then there's the actual savings account, which some employers partially fund. My employer gives me almost $700 toward my HSA each year. My deductible is higher at $1500, but my maximum out of pocket is lower at $2500. And I fund the whole thing with pre-tax dollars.
So assuming that I meet my maximum out of pocket every year, I will spend $6500-$7000 on the regular plan and $4200 on the HSA.
Even if my employer only subsidized the premium and gave nothing toward my expenses, I would still only pay $4900 on medical expenses. And the less I actually need the money in the HSA means that costs decrease while savings increases.
This all assumes that you are 100% faithful in funding your account using pre-tax dollars every year. Some people think they should only give when they owe, but slowly funding is the key.
The best part is, if you don't use it, you can hold onto it for a rainy day. Or you can keep anything you don't spend for the following year, or on dental work or glasses. Or you can sock it away for retirement medical costs, which are much harder to pay on a fixed income.
Do the math to figure out what you REALLY pay. I promise it's worth it.
June 09, 2017 at 04:29PM
