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For best results, take care of your Plan.
There is a little known financial product in the marketplace that you should investigate: The HSA.
HSA stands for Health Savings Account. HSAs were established as part of the Medicare Prescription Drug, Improvement, and Modernization Act signed into law by George W. Bush in 2003. It was estimated that millions of people would take advantage of this account, but it has been slow to take root with Americans. Raise your hand if you have even heard of it.
I have had an HSA for years and will explain how it works for me. If you see yourself in this, e-mail me for more help or information.
The HSA can only be purchased in tandem with an HDHP. That is a High Deductible Health Plan. There are many wealthy but nameless health insurance companies that offer HDHPs but beware when they try to tie their plan to an HSA "partner". The HDHP and HSA are two different things that work together and you want to research BOTH parts. For example, you can get an HDHP WITHOUT an HSA, but you CANNOT get an HSA without an HDHP.
My HDHP has a deductible of $5,000 annually. Yes, that is $5,000 a year in payments I make before the HDHP starts paying. There are wellness exceptions but check each plan before you take my word for it. Mine has the wellness features and pays for some preventative measures.
Once I reach my deductible, the insurance company pays 100 per cent of my claim up to $3 million dollars. I essentially have a health plan for a catastrophe. Most everything from $0-5,000 I pay for, then they pay the rest. Is that a good deal for me?
Let's see. If I went with a traditional health insurance policy with co-pays and smaller deductibles, my premium at my age would be about $425 a month, or $5,100 year. Being a healthy, accident-avoiding-middle-aged man, I have not filed a major insurance claim in over 20 years. (Except for physicals and routine tests.) But even if I did NOT file any claims, I would still be paying $5,100 a year to the wealthy but nameless health insurance company. Every year. In my case, for over 20 years.
Now, with my HDHP and its $5,000 deductible, my premium is $150 a month or $1,850 a year. The traditional health plan costs me over $370 a month more. In my PARTICULAR case, what did I get for paying that extra money to the big insurance company? Nothing but the warm fuzzy feeling I get when I read their earnings reports.
The difference between the two plans is over $4,000 a year. The IRS very kindly allows me to DEPOSIT almost all of that "difference" into a tax-deferred savings account (the HSA) and deduct those deposits from my income for tax purposes. To recap: I pay less to the insurance company, get a tax deduction for the deposits, and get tax-deferred growth of the HSA. Even better, if I use the HSA with a debit card or checks for "medical" stuff, I can get the money out TAX-FREE.
Look at it this way: you can pay the insurance company for the traditional policy and let them have your money up front. Or you can buy the HDHP, put the difference in the HSA, and use it IF YOU NEED IT. And if you don't, it's YOURS! For those who are familiar with FSAs, MSAs, and Archer plans, the HSA does NOT have the same "use it or lose it" limitations. The HSA account can be "rolled over" year after year whether you use it or not, and can be used even after age 65 to pay Medicare premiums and deductibles. After two years my HSA has grown to $8,000, more than enough to cover my deductible.
There is a lot more to an HSA plan than this column has space for and I promise to cover it at greater length in the future. In addition, if you have health issues and will be draining the HSA every year, it defeats the purpose of the plan.
But FIND OUT! Ask me or any financial professional about the HSA and HDHP. It is another one of those little-known and little understood tools that might make a difference in our comprehensive Financial Plan.
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