You'll save up-front in 2 ways:
- Health insurance premiums are lower with a high deductible plan, compared to a traditional co-pay plan. Many of our clients save an average of 40% or more compared to traditional coverage. Premium savings can be substantial or more moderate, but you'll always save.
- Because every dollar deposited into the HSA savings account is tax-deductible, you'll cut your Federal income taxes just by making deposits into your savings account. This is identical to the way taxes are reduced wtih a traditional IRA. But even better than an IRA, you can use tax-dollars you save with an HSA to pay routine medical expenses! It's like having Uncle Sam subsidizing your initial medical expenses every year!
Plus - additional long-term savings:
- Earnings accumulated on the savings funds are tax-deferred. (In addition to a regular savings account, you'll have numerous investment options if you are so inclined.)
- The HSA account itself effectively becomes an IRA-type of retirement account at age 65. the more you save, the more money you'll have to help fund your retirement.
What's the catch?
Truly, there is no "catch" to an HSA-health savings account plan, but there are some rules to keep in mind. The main thing to know is
that you have to play by the rules.
For one thing, there are limits on how much you can contribute to your tax-deductible account each tax year. Otherwise, people would abuse the privilege. For another thing, you can only use funds from the HSA account for qualified medical expenses in order to keep those funds tax-free. If you use HSA funds for non-qualified expenses, a tax penalty is imposed and the amount you spent for non-medical expenses is included in ordinary income for that tax year.
Here are some Quick Links for additional info:
Another important thing to keep in mind is that in most states, you must be insurable to get a new high deductible health plan issued, at least on an individual (non-employer/group) basis. If you have any questions about your insurability, my suggestion is to check first with a duly licensed and experienced health insurance broker (like me). It is a waste of time to try and figure out whether this is a "good deal" only to get declined by an insurance company after you apply. I don't want that to happen to you, so feel free to call me at the number listed at the top of this page if you have any questions or concerns about insurability.
How to Get Started?