My health insurance plan means an emergency could cost me upwards of $6,000, but I'm not worried about it

Clint Proctor

Oct 11, 2019, 23:18 IST

My health insurance plan means an emergency could cost me upwards of $6,000, but I'm not worried about it

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A Health Savings Account (HSA) can make a high-deductible health insurance policy more attractive. But you'll want to consider your personal situation and medical needs before choosing a high-deductible plan.
HSAs offer triple tax benefits, your HSA money is yours for life, and it can even turn into a supplemental retirement account down the road.
I spoke to Jean Chatzky, host of the HerMoney podcast and educational ambassador for HSA Day, about the many benefits HSAs can offer.
Read more personal finance coverage.

My wife and I have had a high-deductible healthcare policy with a $6,000 deductible for the majority of our marriage. That means we've always known in the back of our minds that a medical emergency could cost us thousands of dollars out-of-pocket. And that can be stressful.

But one of the things that took a lot of our anxiety away was the fact that our high-deductible policy qualified us for a Health Savings Account (HSA), and my employer contributed to our family's HSA each month.

At first, I didn't know what an amazing opportunity I was sitting on by having access to an HSA. But, over time, I began to realize that these accounts can offer an incredible range of benefits.

An HSA is a tax-advantaged savings account available to anyone in the US with a high-deductible health insurance plan. With an HSA, you contribute pre-tax money to your account, which you can then spend on any medical expenses that arise.

I spoke to Jean Chatzky, host of the HerMoney podcast and educational ambassador for HSA Day, held this year on October 15th, about why she's working so hard to educate people on Health Savings Accounts and what they have to offer.

An HSA has a few different tax advantages

One of the most impressive things about Health Savings Accounts is that they can save you money on taxes in three different ways. "HSAs work kind of like Roth IRAs or 529 College Savings Accounts, but they're even better in terms of the tax advantages," Chatzky explained.

"First, you get a tax deduction for money that you put in. So you contribute with pre-tax dollars. Then, the money in the account grows tax-free," she continued. "And when you pull the money out eventually somewhere down the road, you don't have to pay taxes on it as long as you use it for a qualifying medical expense."

Your HSA money is yours forever

If you've ever heard of Flexible Spending Accounts (FSAs), you may wonder if they offer the same benefits as HSAs. Although the two medical expense accounts sound very similar (and do share a few features), there is one major difference.

"Flexible Spending Accounts are 'use it or lose it' accounts," Chatzky explained. "You get to put pre-tax money in, which is great from a tax perspective. But if you don't use the money, typically by the end of the year in which you contributed, then you lose the money - it reverts back to your employer."

But that's not the case with HSAs. Once the money is deposited into your Health Savings Account, it's yours forever. "You don't have to use it in the year when you make the contribution," Chatzky said. "It can be invested and it can grow. Not just for years, but decades. It's yours. Even if you change jobs, it's yours."

As Chatzky mentioned, once you reach a minimum threshold, you can even invest your HSA funds. And if you can afford to pay for medical expenses out of your own checking account, you can keep your HSA money invested and pay yourself back later.

"You can save your receipts for years and just pay yourself back down the road," Chatzky said. "No taxes or anything, and the money has had time to grow."

High-deductible policies can be more affordable, but aren't for everyone

If you have the option to choose an HSA health plan through your employer, it's certainly worth looking into. But what if you buy your own insurance? Should you purchase a high-deductible policy in order to qualify for a Health Savings Account?

As Chatzky explained, it really depends on your situation and health needs. "The reason that high-deductible policies are growing so fast as a share of the policies on the market is that they're more affordable in many cases." But, she warned, "You want to make sure that you have enough coverage to cover you in those big emergency situations."

She continued, "You should always take a look at how you and your family use healthcare. If you have a chronic condition and you spend an awful lot of money on healthcare every single year, you may find that a different kind of policy is better for you. "

No matter what kind of policy you decide is best for your situation, make sure to investigate all your options. Chatzky stressed that "taking the time to shop around" for health insurance "is a really important investment of your time."

HSAs become even more flexible after you reach retirement age

Once you hit retirement age, your HSA money can be used for literally any expense without penalty, which makes HSAs a great short-term and long-term savings tool.

"If you use the money in a short period of time, because of the tax advantages, you save about 25% on any health expense that you use it for," Chatzky said. "But if you put the money in and you invest it and let it grow, it can actually turn into a supplemental account for your retirement down the road."

"There's no tax if you use the money for a medical expense," Chatzky emphasized. "But in retirement, you can also use the money for other things and it's treated like money coming out of a 401(k) in that its taxed just like ordinary income."