We are still a couple of months out from the dreaded open enrollment decision process, the annual chore to pick your benefits for the coming year. Most people don’t think about that choice until it is right on them. In that scenario the easiest choice is to choose the same plan you had this year. You already know how it works, so why change? Here are three reasons why you should do yourself a favor and switch to an HSA qualified plan and account this year.
Reason 1 – 100% chance of lower cost health care premiums
According to the Kaiser Family Foundation/ HRET survey in 2014, the average family HSA plan costs nearly $2,900 per year less than the average HMO plan and $2,800 less than the average family PPO plan. If you are self employed that savings is all yours, but even if your employer picks up 70% of the premium cost, that means your cost would decrease about $70 per month. Better yet, if you redirect those savings into an HSA account, you would have nearly $855 in reserve to pay day-to-day medical expenses and save another $250 in taxes on that deposit if you are in the 25% federal tax bracket and 5% state income tax bracket. Account for the tax savings and you have $1000 in reserve in addition to what your employer may deposit on your behalf.
Think about that. You could bank $1000 that you currently send to an insurance company whether you ever go to the doctor or not. That money is automatically spent – a 100% chance that it is out of your pocket and into the insurance company’s coffers. These numbers vary by state and my industry, but it pays to do the math versus blindly choosing the familiar plan.
Reason 2 – Begin to actively engage in your day-to-day health care
Yes, the high deductible required in an HSA plan will mean you are responsible for day-to-day health care costs. In fact, the average family deductible for an HSA-qualified plan is about $4,400 according to the Kaiser study. But interestingly, the average deductibles for other types of plans are also rising and now HMOs average about $2,400 and PPOs just under $2000 according to that same study.
The difference is that in an HSA plan, the deductible is purposeful. You plan for it. You begin to look at alternatives. You take advantage of the preventive care benefits, nurse lines, and other health resources more often. In other words, you tend to engage more in your day-to-day health decisions because you own it.
And in the case of serious medical issues, the maximum out of pocket in HSA plans is actually much less than most people think, averaging about $7,800 according to Kaiser HRET study. The bottom line is that most people save money and become more actively engaged in their health care in HSA plans.
Reason 3 – It is time to start thinking long-term about your health.
Why is it that everything in health care is decided one year at a time? Your health is definitely a long-term asset. HSAs, for the first time, bring a long-term orientation to planning, saving, and paying for health care. In fact, the first year is the hardest; as you adjust to a new way of interacting with the health care system, figure out how to navigate bills with an HSA card, research alternatives, etc. Most people begin to change their viewpoint at the end of the first year when they realize that they actually have money left over in their HSA account and now go into the second year with some money in the bank.
This feels even better when you start to actively save for your future health care costs. Most people have a big hole in their financial plans for retirement health care costs, which Fidelity predicts will be about $220,000 in retirement for the average US couple retiring at age 65. If you want a more detailed estimate for your self, try Optum’s calculator at healthsavingscheckup.com to incorporate your own health parameters and current financial resources.
An HSA gives you a powerful tool to begin taking control. Everyone should clearly bank the premium savings and take advantage of employer contributions to the account, but the real power of the HSA comes in long-term growth potential beyond today’s medical costs. In 2015, the limits for HSA deposits are $3,350 for individuals and $6,650 for those in family plans, with an additional $1000 for accountholders who are 55 or older. The money grows tax-free, can be invested in mutual funds or other investment vehicles, and comes out tax-free for qualified medical expenses anytime the rest of your life.
So start thinking about an HSA plan now and avoid the last-minute temptation to skip the research and stay in the same old plan. The earlier you get started, the more impact you will have on your long-term health and savings trajectory.
Todd Berkley is an HSA industry veteran who runs AskMrHSA.com, and is the author of the HSA Owner’s Manual.