In my previous post Health Savings Account (HSA): Your Secret Retirement Plan, I discussed the many benefits of an HSA plan and why it might be a good tax-advantaged alternative to traditional retirement plans. The biggest benefits are:
- Double tax-advantaged: your deposits and withdrawals (if used for healthcare expenses) are not taxable.
- Potential growth if you invest the funds in your HSA account. Of course, the flip side of that is you can also lose your money on a bad investment.
- Unlike a Flexible Spending Account (FSA), the money in your HSA account is yours to keep even if you don't spend it all in a year.
At the time of the original posting, I personally did not have an HSA plan available through work. Since then, my employer decided to offer an HSA insurance option for 2016. Let's use this opportunity to examine whether it would be in my financial benefit to take advantage of this new option.
As you can see, the biggest difference between the HSA plan and the traditional health plan is the amount of deductible, coinsurance and Out-of-Pocket maximum.
Let's use myself as a case study. As a relatively healthy asian male in my late 20s, I have little healthcare needs. I have no significant chronic illnesses, no at-risk behaviors and take no prescription medications. Most importantly, I don't expect my healthcare needs to increase in 2016. So using my 2015 healthcare consumption as a gauge, I can estimate what my out-of-pocket expenses will be for 2016.
In 2015, I went to the doctor a total of 4 times, 2 times to my primary care physician (PCP) and 2 times to a specialist. Including 1 claim for some laboratory testing, this resulted in 5 total claims to my health insurance for a total healthcare cost of $594.43, of which I was responsible for $100 as co-pays for the 2 specialist visits. (As a resident, my monthly premium and PCP copays are waived). Assuming the same pattern of healthcare consumption in 2016, this would be my expected responsibilities under each plan:
It is easy to see why I chose the HSA plan for 2016. However, your situation may vary - both your HSA plan offering and your healthcare needs will likely differ from me. In addition, my analysis does not account for any unforeseeable healthcare spending (e.g. emergency appendectomy etc.). But if you can stomach that small degree of uncertainty, I highly recommend taking 30 minutes out of your day, sit down and examine your health insurance offerings. You may be pleasantly surprised by how much money you can save.