One of the things that I notice each year is that my health insurance premium always goes up. And, this year, I got an extra kick in the face by having my health insurance premium go up while, at the same time, the prescription benefits associated with the plan went down. So, not only am I paying more in premiums, I am paying more for my prescriptions. We really don’t have a lot of health needs: I have one monthly prescription and my husband has another. Other than that, we go in for preventative care, and usually my son has one extra office visit each year for some sickness he picks up at school.
So it’s frustrating that our health insurance premiums continue to rise while the benefits go down. We keep paying into the system but, unless we end up in the hospital, it’s just a big waste. Until now. This year provided the impetus I needed to seriously get into the whole HDHP/HSA thing.
High Deductible Health Plan and Health Savings Account
For families like mine, with relatively healthy habits and few health costs, a high deductible health plan, combined with a Health Savings Account can be a real help for the finances. I can save around $300 a month on premiums, and, even though I have to pay out of pocket, I come out ahead. Here’s a simple view of my current health costs:
- $600/month premium = $7,200 a year
- $25 copay = $100 a year for office visits
- $155/month prescriptions (our new plan doesn’t pay anything on non-generics, and there aren’t other options) = $1,860 a year
- $200 a year in miscellaneous expenses (based on last year’s spending)
That adds up to $9,360 a year. I am clearly paying too much. Now, if I had a HDHP, this would be my breakdown, if I went with the current plan I am considering:
- $300/month premium = $3,600 a year
- $100 office visit (average in my town) before reaching the deductible = $400 a year
- $155/month for prescriptions (this doesn’t change, since I’m already paying out of pocket) = $1,860 a year
- $500 a year miscellaneous (adding to my estimate to account for more out of pocket)
My new total would be $6,360 a year. I’d save roughly $3,000 a year, even though I’d be paying for office visits out of pocket. And if I get a Health Savings Account to go with that HDHP, I’d be putting my money to work for me, allowing me to use money from the HSA to pay for office visits and other out of pocket expenses.
How the HSA Works for You
One of the best things about the HSA is that it operates like an IRA. You are actually investing the money you put into the account. If I put some of my savings each year on health costs into a Health Savings Account, I would actually be putting money to work for me, since that money would be invested and grow accordingly.
The earnings on the money in your HSA grow tax free — as long as they are used for qualified health expenses. On top of that, as with an IRA, you can get a tax deduction for your contributions. If you reach retirement, and you have money build up in your HSA, you can withdraw the money, following the same rules as withdrawals from a traditional IRA. (You will have to pay taxes on non-health care withdrawals.)
So, instead of just putting money aside and lining the pockets of a health insurance company executive, you can do a little bit for yourself as well. You can save money on premiums, still receive the protection you need in the event of a health catastrophe, and even put money aside for yourself. In the right situation, a HDHP, combined with a HSA, can be a great choice.