There’s a lot of buzz about the tax benefits of contributing to an HSA and enrolling in a High Deductible Health Plan.  But is it right for you?  HSAs or health savings accounts are known to have triple tax benefits.  BUT, they are only available with HDHPs.  They can be great, but are certainly not for everyone.   

 

WHAT ARE HSAs?

HSA stands for health savings account.  It is a special account designed to pay for qualified medical purposes.  They are popular because of their triple tax advantage.

  1. You can contribute to them pre-tax lowering your taxable income
  2. The interest accrued is tax fee
  3. Withdrawals are tax free as long as they are for qualified medical expenses

 

Lowering your taxable income is good for multiple reasons.  First, a lower taxable income means less taxes to pay come filing time or a larger tax return.  Additionally, if you are enrolling in an ACA plan, a lower taxable income may make you eligible for a tax credit saving you possibly thousands of dollars in monthly premiums.

HSAs are interest bearing accounts.  The interest accrued is tax free as well.  So, it’s basically free money!

Finally, withdrawals are tax free as long as funds are used for qualified medical expenses.  Additionally, these accounts roll over from year to year and once you turn 65 you can convert them into a basic retirement account.  At this point, you can use the funds for whatever you’d like.

In 2021, the contribution limit to a HSA for an individual is $3,600 and $7,200 for a family.  Of course, you can contribute more if you are 55 or older.  You can only contribute to a HSA while enrolled in a HDHP.  Should you choose to switch plans, you will not lose the money.  You can leave it to accrue interest or use it for qualifying medical expenses, but you cannot continue to contribute to it. 

 

WHAT IS A HDHP?

HDHP stands for high deductible health plan.  Generally speaking, these plans have higher deductibles with lower monthly premiums.  Plans have set minimum deductibles and max out of pocket maximums to be considered HDHPs.  

In 2021, the minimum deductible for an individual is $1,400 and $2,800 for a family.  Of course they can be much higher.  

In 2021, the max out of pocket maximum for an individual is $7,000 for $14,000 for a family if the plan works with a HSA.  If it’s a HDHP with no HSA the numbers are $8,550 & $17,1000 respectively. Of course they can be much lower.  With some plans, there is no charge for covered in network medical services once you meet your deductible.

Additionally, many preventative services are covered even before you meet your deductible i.e. wellness visits, screenings, vaccinations, etc…You can find a full list on healthcare.gov

 

WHY CHOOSE A HSA/HDHP COMBO?

The main benefit of choosing a HDHP with HSA is cost savings.  The high deductibles may scare people but when you calculate the savings on monthly premiums, usually you will come out on top.  Additionally, if you hope to take advantage of that triple tax benefit of HSAs, then HDHPs are your only option.  

Also, if you are a relatively healthy person with average health needs, it is likely you will benefit quite a bit from a HDHP.  However, they are not for everyone. 

If you are starting a family, a HDHP may not be for you.  Labor and delivery costs can be quite high.  Although your insurance will kick after you’ve met your deductible, it still may not be ideal.  For the same reason, if you have a planned surgery, a HDHP may not be for you.  

Additionally, if you have young children, a HDHP may not be ideal.  Although the basic childhood appointments will be covered, little kids do have a tendency to get sick quite a bit and those doctor’s bills can stack up with HDHPs.  It’s the same if you have a condition that requires recurrent visits with specialists.  If a HDHP is not for you, there are many other ways to save money of health insurance.  Check out this article to learn more. 

You can enroll in a HDHP with HSA through the marketplace.  Some employers also offer these types of plans.  You can also look into insurance off the marketplace if you don’t qualify for a tax credit with ACA plans. 

If you have any questions whatsoever, you can reach us here at iHealthBrokers at 888-918-0518 or schedule an appointment today!