ROCHESTER, N.Y. — As open enrollment season is underway, many people are making decisions about their insurance plans for the upcoming year. If you’re considering a high deductible insurance plan, you should also consider a health spending account (HSA).
Despite its name, an HSA is actually an interest-earning savings account that could benefit your financial health as well.
“To qualify for them, you simply need to be enrolled in a high-deductible savings [insurance] plan either through work or in the open market,” said Andrew Atkins, Vice President and Financial Consultant for Fidelity.
For example, let’s say your health insurance deductible is $6,000. That means you’ll pay $6,000 out of pocket for your prescriptions, diagnostic tests and most office visits until you’ve met that deductible.
“I’d actually encourage most folks that do have a high-deductible plan to consider pairing it with an HSA because you can really superpower your benefit that way,” Atkins said.
That’s because you can use money from your HSA to pay for out-of-pocket expenses before you’ve met your deductible. Your HSA also has big tax advantages.
“Any contributions that we put in are actually pre-tax. Then that money if you can leave it there can actually grow through investments tax-deferred, and then when and if you need it now or in the future that actually comes out completely tax-free for qualified medical expenses,” said Atkins.
That means your health spending account is tax-free times three.
“At the end of the year if you still have some residual money in there, that’s money that can accumulate year after year just like any other savings vehicle,” Atkins said. Fidelity has a calculator which allows you to estimate how much your HSA will grow over time.
However, a high-deductible insurance plan is not right for everyone. If you prefer the predictability of knowing your copay for your primary care doctor is $30 and a specialist is $50, this plan is not for you.
Low-deductible plans have high premiums and if you stay healthy all year, the money is gone. But with an HSA, you’re paying yourself and the money is yours, earning interest until you need it. Click here for more information on how Health Spending Accounts work.
Consumer Alert: An HSA may be key to Physical and Financial Health WHEC.com.
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