Why hsa reddit?

Your employer may offer a health savings account (HSA) as a way to keep medical expenses down. Employers generally subsidize a majority of the cost so the premium you pay via payroll deduction isn’t even close to the full amount. While HSAs are attractive in terms of costs and in terms of taxes, they may not be for everyone. Here’s what you need to know about HSAs so you can decide if they are right for you. Also, consider working with a financial advisor to find all the ways possible to cut your healthcare expenses.

HSAs have risen in popularity over the past few years because, in combination with high-deductible health plans (HDHPs), they can vastly reduce the monthly premium you and your employer pay. A higher deductible means lower premiums and that could mean huge savings for you and your employer. Salaries and healthcare are generally the two biggest expenses for a business.

The basic premise behind the HDHP/HSA combo is pretty simple: you cover the (relatively) small things like when you get sick and need antibiotics and the insurance will cover the big things like broken bones after you meet your deductible.

This way you are insuring against things that are unlikely to happen while paying out of pocket for minor medical issues without involving a third party like an insurance company.

Not everyone has heard of HSAs but large numbers of employers offer them because they can save everyone a lot of money. Most employers even offer an HSA contribution on your behalf in addition to reduced premiums in order to incentivize employees to switch.

If you’ve been faced with the decision of opting for an HSA/HDHP combo you may have some questions. HSAs are riskier than traditional plans, but they are also a lot less costly. So how do you know if the HSA option is right for you? To some extent, it depends on how prone you are to get sick or need medical attention.

If you never – or rarely – need to see the doctor, then you can take your employer’s contribution and the monthly premium savings and add them straight to your HSA account every year. After a few years, you could potentially have a large nest egg built up that is tax-free when used for medical expenses.

The other attractive feature of HSAs is the money stays with you (not your employer) and you can use it at any point in your life. So even if you’re the model of perfect health right now, you can invest that money for 30-40 years and use it when you’re retired. Money in your HSA can even be applied to deductibles, coinsurance, and copays if you decide to switch back to a traditional plan in the future.

A lot of people are scared to switch to HSAs because of the fear of getting sick and having to pay that big deductible. But it’s important to consider the premium savings and employer contribution (if applicable). Your monthly savings are generally pretty significant when you switch from a traditional PPO/HMO plan to an HSA/HDHP combo so you can add that savings to your HSA every year. In addition, you can contribute money to your HSA so that if there is a gap, you can pay for it with tax-free dollars.

Ultimately though, HSAs definitely have more risk but there can be a large potential upside. HSAs are the only retirement account that is triple tax-free: the money you put in is tax-free, the money you take out is tax-free and the investment gains are tax-free.

You can calculate your yearly savings by opting for the HSA (just add up the employer contribution and premium savings) and compare that to the HDHP deductible. That way you know what your breakeven point is, or how long you have to go without any major medical care before the HSA/HDHP combo saves you money.

HSAs might not make sense if you have some type of chronic medical condition. In that case, you’re probably better served by traditional health plans. HSAs might also not be a good idea if you know you will be needing expensive medical care in the near future.

When you have a copay, you know how much it will cost to visit the doctor but it can be difficult to find out the cost of medical care when you are paying yourself. Also, the desire to keep money in an HSA may prevent some people from seeking medical treatment or emergency department care when they really need it. Plus, if you take money out of your HSA for non-medical expenses, you will have to pay taxes on it.

An HMO, or health maintenance organization, is a network of medical care providers that you get access to at a discounted rate if you’re part of the network’s insurance plan. When you select an HMO you’ll likely get a better price than an HSA but you will also be much more restricted in what doctor you can see because expenses for out-of-network physicians or hospitals won’t typically be covered. An HMO will often have a very low deductible or none at all. Some expenses might be covered under an HMO if your doctor refers you to a facility that is out-of-network. Check out our resource on HSA vs. HMO to learn more.