So, what is the best feature of the US Healthcare System? In my opinion, it’s the High Deductible Health Plan (HDHP) and the Health Savings Account (HSA). They go together like…peas & carrots, peanut butter & jelly, fava beans & a nice chianti…. (this would be a good time to mention Mr. Serious’ help with this post!)
Here’s a quick nerd-a-riffic history lesson. Legislation allowing HDHPs and HSAs was signed into law in 2003, so that means this healthcare feature is a teenager, but a responsible, pragmatic teen, not one of those unruly ones. HSAs grew slowly in the marketplace at first, but have boomed in recent years. As of August 2016, The number of HSA accounts was estimated at 18.2 million, holding over $34.7 billion in assets! That’s a lot of money!
Why do you care? Follow me here and my “give-a-cat-a-cupcake-esque” logic train…
- high deductible health plans (HDHPs) result in…
- lower health plan premiums, which gives you…
- more money to save in your HSA, which leads to…
- more tax savings, ultimatly leading to…
- lower health care costs! Whew!
That’s the take-home message, but here’s a little more info on the HDHPs and HSAs of healthcare.
Along with allowing you to contribute to your HSA, most HDHPs have several key coverage features that make them great health insurance plans to buy:
- Preventive care is 100% covered BEFORE meeting your deductible – that’s your annual well checkup, immunizations/flu shots, and age-appropriate tests, e.g., mammogram, colonoscopy, etc.
- Preventive medications are available for a low copay BEFORE meeting your deductible – that’s medication to treat chronic conditions like diabetes, high blood pressure and others.
- An annual out-of-pocket max protects you from financial ruin if you have a big health care need, like an accident or, god-forbid, cancer.
So, if you’re enrolled in the HDHP how does the HSA save you all of this money in taxes?
With an HSA, you get triple tax savings:
- Deposits are exempted from payroll, federal income and most state income taxes – If you contribute $3,000, or $250 per month, and are in the 20% tax bracket, then you’ll save $600! I’ll take that all day long.
- Savings grow tax free – the money in your HSA can rollover from year to year, which means use it or lose it does not apply! With an HSA, think use it or GROW it! While your money is marinating in your account, it can earn interest or you can invest it in mutual funds so it can earn a competitive return.
- Money spent on qualified expenses are income-tax free. This is the game-changer because it’s the only tax-preferred account that allows you to completely avoid taxes on your income! You can pay for qualified medical expenses, and also Medicare Part A & B premiums when you retire. You’ll need it, as healthcare costs for healthy persons in retirement are extimated to be $250K or more!
So, be smart with your healthcare and realize it all works together. Be healthy, have quality health coverage with a HDHP and save on taxes with an HSA now and when you’re old and need a lot more care.
The quiz and giveaways
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Quick Care Quiz — a 2-part quiz that educates people on where to go for proper care when you’re experience a specific health care scenario.
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Do you have a HDHP with an HSA? What are your thoughts?