As the ACA matures and plan deductibles and maximum out of pocket continue to rise; along with monthly premiums, the smart way to buy health insurance has changed.
For most adults who are reasonably healthy buying the plan with the lowest deductible and max out of pocket makes no sense. These plans also have the highest monthly premiums; meaning you are not spending your healthcare dollars efficiently or effectively.
The alternative is to buy a high deductible plan with no fixed copays so when you need any service you pay the contracted rate the insurance company has with the provider. Simple enough, yet very complicated. Buying this type of health insurance opens other doors to help keep the cost of insurance as reasonable as possible.
These plans are called HSA’s or health savings accounts and are the smart way to buy insurance because it also helps you save for retirement. The components of these plans are simple. The HSA’s do not have any fixed copays for any services but once you reach the maximum out of pocket, the plan pays all health costs for the remainder of the year. That factor, having no fixed copays, allows you to set up a savings account to pay for out of pocket medical expenses. The benefit is you put the money away pre-tax, meaning the savings and interest earned is not taxable if you use it for medical expenses.
This allows you to put away $3550 per year (2020 allowable maximum) for single people and $7100 for couples. If you are over 55, you can put another $1000 per year called a catch-up event. This comes off your gross income and is not taxed. Here’s the real benefit; the money you put away is yours and not taxed unless you use it for anything other than actual medical expenses.
Consider for a moment that you have a catastrophic medical event happen and you reach your maximum out of pocket. The maximum out of pocket is reached whether it’s from a combination of fixed copays, deductibles or simply contracted amounts. The point being you reach the maximum. Doesn’t it make sense to reach that the best way for you? Paying those expenses with pre-tax dollars helps you in many ways. It reduces your gross income, thus less income tax paid while paying for those medical expenses with pre-tax dollars.
Now it gets interesting because once you have accrued more than $2,000 in your HSA account you can invest the rest of the money. That money earns interest which is tax-free and when you use it, it is tax-free so in Nevada it’s a triple benefit; save the money in an HSA, invest the money and spend the money all tax-free. That’s an incredible opportunity to grow your retirement income outside your traditional IRA or 401k. Also, unlike your IRA or 401k, the money you use is not taxable.
Most Americans don’t have enough for retirement do having an opportunity to become insured to protect you from a catastrophic medical event while accumulating retirement income is a great opportunity that most Americans miss. These types of plans are becoming more popular because the cost of health insurance keeps rising with no end in sight.
Do consider setting up an HSA along with your high-deductible health insurance plan and win on both ends. Paying for out of pocket medical expenses with pre-tax dollars while saving more money for retirement.
The Barend Agency Inc.