To help secure your health and wealth, consider using a health savings account (HSA). An HSA is a financial account that provides tax benefits for individuals enrolled in high-deductible health plans (HDHPs) as a means of saving money for eligible medical expenses. With medical expenses comprising 18.3 percent of our GDP, you will likely benefit if you qualify.
I’ve used an HSA since they were introduced nearly 20 years ago to get a triple tax benefit — a tax deduction when I contribute, tax-free income when I invest, and tax-free use for qualified expenses such as medical, dental and vision care as well as prescription drugs. Within limits, it can be used for long-term care costs as well. An HSA can also be used to pay for Medicare premiums (but not supplemental Medigap premiums). Here’s how they work.
To open and contribute to an HSA, you must sign up for an HSA-eligible, high-deductible health plan through your employer. The health plan must have at least a $1,500 annual deductible for individual policies, or $3,000 for a family policy. Its out-of-pocket maximum can’t be more than $7,500 for an individual or $15,000 for family coverage.
This will then allow you to contribute (and deduct) up to $3,850, or $7,750 annually if married, plus an additional $1,000 catch-up for each spouse 55 and older. That can amount to $9,750 this year and, with announced increases, up to $10,300 in 2024. Your employer may also contribute. There are other qualifications for contributing to an HSA (but not needed to keep a current HSA). You can contribute as long as:
- You have no other health coverage (with a few exceptions).
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s 2022 tax return.
Your employer may have selected a financial institution that will invest the money, or it may allow you to select one. Morningstar, an investment research company, has reviewed several of the larger HSA providers. Even if you don’t have a choice while you are still working, you can move the funds after you leave your current employer.
While it’s true that you might pay more out of pocket with a high-deductible health plan, you may find (as I have) that the savings on the insurance premiums plus the tax benefits would still result in net savings — even with some catastrophic health care expenditures. Also, once the deductible is met, the insurance company pays for 100 percent of the remaining covered costs for the year.