The triple tax break of a Health Savings Account

Brenda Major (L), who said she had a pre-existing condition that made it impossible to find insurance that would cover her until the Affordable Care Act, is examined by Dr. Fernanda Mercade during a routine checkup at the Jessie Trice Center for Community Health clinic on March 22, 2012 in Miami, Fla. Prices for Obama's health exchange packages are out today.

Higher deductibles and rising premiums got you down? We’re getting hammered by the high costs of healthcare and even employers are feeling the pinch.

To help offset some of the costs, many employers are now asking their workers to take a closer look at health savings accounts, or HSAs. With an HSA, you can get a triple tax break while saving money on healthcare expenses.

But are they the right move for everyone?

Kimberly Lankford of Kiplinger’s Personal Finance says there’s not a one-size-fits-all approach. “But it is an option for many more people now that so many of us are dealing with higher healthcare deductibles,” Lankford says.

Who can qualify for an HSA? If your health insurance plan has a deductible of at least $1,250 for an individual and $2,500 for family, you’ll most likely qualify for an HSA. That covers a lot of the Silver and Bronze plans for sale on the insurance exchanges. You can open them up with a bank, brokerage firm and many employers are now offering them to encourage employees to choose a cheaper, higher deductible plan.

Some employers are even contributing as much as $1,000 themselves to get the ball rolling.

Lankford says the benefit is in the tax savings. “It’s a triple break,” she says. “It’s either pre-tax with your employer, or tax-deductible if you’re buying on your own. The money grows tax-deferred, and you can use it tax-free for any medical expenses.”

The money continues to grow and you don’t have to use it every year, unlike a flexible spending account (or FSA). Lankford recommends depositing money every year and letting it grow until retirement and using it for Medicare expenses or even long term care.

The cash can be used to pay for deductibles or Medicare premiums, and even for portions of long-term care costs.

"It's a great way to build a tax-free stash of money for future healthcare costs,” she says.

The best time to jump into an HSA is when you’re young and healthy without too many fixed medical costs. If you’re older with more costs or are dealing with a medical condition, you’ll really need to crunch the numbers to see what kind of plan will leave you better off in the long run.

"For someone with higher fixed costs like diabetes it might not be a great deal,” Lankford says. “You need to not just look at premiums but look at what are your regular expenses for medicine, for doctors. If you have a condition where you have similar medical expenses every year, do the math and add it up. In some cases you may come out ahead with lower premiums but sometimes the higher premiums might leave you with lower expenses at the end of the year."

Employers are excited about the plans because anything that encourages people to take on a higher deductible plan will save the boss some cash.

And who doesn’t want to save their company some money?

About the author

David Lazarus is an American business and consumer columnist for the Los Angeles Times.

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