Thanks to the changing landscape of health care, more and more companies are pushing health savings accounts to their employees as a viable insurance option. While they push these plans because it saves the employer money on health care costs for employees, it can also save you money as well, both now and in the future. In this post, I am going to walk you through 6 potential benefits you could see if you decide to pick a health savings account as your insurance plan.
6 Benefits of Health Savings Accounts
#1. Reduces Your Taxes
When you put money into your health savings account, you save money on taxes because that money is coming out of your paycheck before taxes are assessed. It is much like your 401k plan where your contributions are taken out before taxes.
Now, having money taken from your paycheck and placed into an account for you might confuse some readers. The way a health savings account works is that your employer opens this savings account for you, and through payroll deductions, you contribute money into the account.
When you have health care bills, you can either pay with the checks or debit card that comes with the account or you can pay out of pocket. If you decide to pay out of pocket, you can submit the receipt to the administrator of the health savings account to get reimbursed.
Finally, unlike flexible spending accounts, the money you save is yours to use whenever you like. You don’t have to use the money within the year or risk losing it. As you will see below, you could choose to use that money in your account 5, 10, or 20 years from now.
#2. Costs Less
While you are contributing to your health savings account, you still have to pay a premium each paycheck. Luckily, the premiums for this health coverage are less than your traditional coverage. This is because you are taking on more of the risk. In other words, you are paying more out of pocket for coverage than the insurance company is.
For me personally, this is why I started to use this type of plan. If I were to pick a traditional insurance plan, I would have been paying close to $100 each paycheck in premiums. With a health savings account, I pay just $35 in premiums each paycheck.
#3. Employer Kick Back
Many times, employers will contribute to your health savings account for you. They might be willing to put in $500 or $1,000 each year, spread throughout the year into your account. This is in addition to what you are contributing into the account as well.
In essence, it is like an employer match with your 401k only this time with your health savings account.
#4. Save Money If Healthy
If you are healthy and typically do not see a doctor, then you can save a lot of money going with a health savings account. This is because your premiums will be lower than traditional insurance plans and you are saving money into an account. That account will earn interest (albeit little as of this writing).
For me, I am young and healthy and only visit the doctor for my regular checkup each year. Since I am saving money in my healthcare account and not using it, it is growing all of the time. If I were to have a traditional insurance plan, this wouldn’t be the case. Me being healthy benefits the insurance company more financially than me.
#5. Earn A Return Investing
The nice thing about putting money into your health savings account is that you can invest it. Each plan provider has minimums and limits, so I won’t get into that here, but most allow you to invest your money.
When you invest the money in your health savings account, it grows tax free. This means when you earn dividends and interest, you pay no taxes on it. When you take the money out, you don’t pay taxes either as long as you use the money for a qualified medical expense.
#6. Allow To Grow For Many Years
Another benefit of a health savings account is long term growth. As I mentioned above, you can choose to pay out of pocket for healthcare costs instead of using your health savings account. This is what I do.
I put around $100 into my account each paycheck and when I have a medical bill, I use money from my regular checking account. I don’t submit the receipt because I want the money in my health savings account to grow.
I currently have around $2,500 in cash in the savings account and the rest invested. The investments are growing tax free for me. In the future, I will use this money to pay for health care costs I incur. The goal is simply to grow my money.
You can read about how many people, including myself, are using a health savings account like a Roth IRA and take advantage of the growth through investments.
At the end of the day, a health savings account could be a smart option for you to save money, especially if you don’t see the doctor very often. If you are at the other end of the spectrum and see the doctor a lot, it also may make sense for you.
You should sit down and look over your medical history and weigh the advantages and disadvantages of these accounts compared to traditional accounts. Be sure to ask lots of questions to your benefits department as well so there are no surprises after you sign up for an insurance plan.