Coupling High Deductible Health Plans and Health Savings Account

posted in Office News

As health insurance costs continue to rise, more and more people are looking for cost- effective ways to cover themselves and/or their families. One such alternative that is gaining popularity is a high deductible health care policy (HDHP).  These programs allow you to enjoy a lower premium cost, but carry a higher than average deductible. Under the current tax law, HDHPs must set a minimum deductible and a limit (or maximum) on out-of-pocket costs. For calendar year 2020, the minimum deductible is $1,400 for individuals and $2,800 for families, with a maximum out-of-pocket of $6,900 for individuals and $13,800 for families.

Although an HDHP may be a good option for those who don’t usually have a high rate of use of medical services, those that do may find the HDHP too costly.Before you give up on exploring if an HDHP is right for you, see if there is an option to couple a HDHP with a HSA (health savings account). HSAs can be a great deal, and they certainly make a HDHP easier to live with. The idea behind coupling a HSA to a HDHP is to save the money that you would be otherwise spending on higher premium plans to pay for medical expenses that are not covered by your HDHP and/or your deductible. A HSA is the only account with a triple tax advantage: You get a tax deduction on your contributions, the money inside the account is exempt from capital gains and dividend taxes, and your distributions from the account are also tax-free.

It is recommended that you keep at least enough in your HSA to cover one year’s worth of deductible. The good news is that if you do not use all of the funds by the end of the year, these funds roll over. The money in a HSA can keep growing year after year. At age 65 you can use funds from your HSA for any purchase without incurring a penalty (although non- medical withdrawals will be subject to income tax).

Coupling these two cost savings tools can be a great way to enjoy great medical coverage in a cost-effective manner.

Sandra, Practice Manager