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When you consider whether a high-deductible health plan fits you, compare your other options. Consider your contribution to the premiums and out-of-pocket expenses when receiving healthcare, the coverage itself, and if your doctors are on the plan.
Regardless of your health plan choice, ensure that you have set aside enough money to meet the deductible and any out-of-pocket costs as part of your emergency fund or in a tax-advantaged account such as an FSA (flex spending account) or an HSA (health savings account).
You will pay less for the premiums if you can afford higher out-of-pocket expenses that accompany a high-deductible health plan.
Also, high-deductible plans are often HSA (health savings account) eligible. HSAs eligible insurance enables you to benefit from funding a triple-tax-advantaged HSA for qualified health expenses. Some employers even contribute money to your HSA too.
If your insurance is HSA-eligible, regardless of whether your employer sponsors an HSA, you can open and fund your HSA.
One of the greatest potential benefits of a high-deductible health plan is being eligible to have a triple tax-advantaged HSA. When contributing to your HSA, similar to a traditional 401k, you fund it with pretax dollars. You can invest the money within the HSA without taxable consequences. Unlike a traditional 401k, money withdrawn and used for qualified health expenses will not incur any tax liabilities.
Another advantage is that unlike an FSA (flex-spending account), there is no year-end “expiration date.” Keeping a digital file of your health-related reimbursable expenditures for future qualified withdrawals from your HSA is essential.
A long-term HSA wealth-building strategy may be ideal for you if you can afford to fund your HSA and pay for your out-of-pocket health expenses. But, a non-spouse inheritance of an HSA does not remain an HSA; accordingly, it is subject to all appropriate taxes.
The amount you can fund your HSA with aligns with the type of policy coverage you have. For 2023, you can contribute up to $3,853 for an individual policy and $7,750 for family coverage. You can contribute an additional $1,000 as a catch-up contribution if you are 55 or older.
If eligible, each spouse sharing coverage under a family plan can contribute the catch-up amount. The family amount the spouses contribute combined for 2023 cannot exceed $7,750 combined, even if each has their own HSA.
For example, suppose spouses that share an HSA-eligible policy are 55. They can each fund an HSA with $1,000 and an additional $7,750 combined, regardless of which spouse is the policyholder. This allows them to split it in half, and each put $3,875 in their account for a total of $4,875.
But, if you cannot claim your adult child as a dependant and they are on your family policy, they may also be eligible to fund an HSA at the family limit of $7,750. This unique advantage for young adults allows them to amplify their wealth when it fits.
Wherever you are on your financial journey, let this guide uncover important considerations before choosing your health insurance.
Your human resources department, financial advisor, and CPA are great resources too.
Ask me anything or comment on your journey to determining if a high-deductible health plan is best for you.