Making Smart Choices for Future Health Costs: The Benefits of an HSA
Jake Newby
| 4 min read
For many, the health plan open enrollment period is right around the corner. When that time arrives, you’ll want to be prepared to make the smartest possible choices for yourself and your family.If your employer offers a Health Savings Account (HSA)-compatible health plan, enrolling or staying in the plan during open enrollment is a smart choice.
Advantages of an HSA-compatible health plan
An HSA is a tax-advantaged savings account that lets you set money aside to pay for qualified medical expenses. With an HSA, you’ll have lower premiums, comprehensive benefits, and access to Blue Cross Blue Shield of Michigan’s (BCBSM) extensive network of doctors and hospitals. Plus, you can continue to build tax-free health care savings through your HSA.
Benefits of an HSA
If you're generally healthy and you want to save for future health care expenses, an HSA is an attractive choice. Or if you're near retirement, an HSA may make sense because the money can be used to offset the costs of medical care after retirement. You can use the money saved in your HSA to pay for everything from medical, dental and vision care to your deductible and certain over-the-counter medications. The same way you’d set aside money for your children’s college tuition, a family vacation, or a new car, you should consider doing the same for health care expenses.
For younger members
You can give yourself a head start on financial security by contributing to your HSA and building tax-free wealth that can be applied toward health-related expenses. When you are young and relatively healthy, you may not think about getting sick or needing health insurance. But if you contribute to your HSA now, you will have money saved as you age and need to spend more on health care.
If you can't afford much now, contribute a small amount to start building your savings. Remember, your HSA balances roll over from year to year, so there’s no need to worry about “using it or losing it.” The account is something that you own, so the money goes with you if you select a new medical plan or change jobs.
When looking toward the future
An HSA is a great savings tool to help build your retirement nest egg. You can maximize contributions to boost retirement savings and prepare yourself for health care costs during retirement. As you start to think about retiring, you may be surprised at the expected cost for health care as you grow older. That’s why now is good time to boost your HSA savings to prepare for health care expenses in retirement.
There is also an advantage of having a plan that allows claims or out-of-pocket expenses to be paid with pre tax dollars, which is essentially what HSA plans provide. That is the benefit of having HSA-qualified insurance; you’re virtually buying your insurance services on sale.
Your insurance and Medicare will only pay a portion of your retirement health care expenses, but you can use your HSA to set money aside to help cover health-related expenses in retirement. Health care costs — including insurance, medical services, medical supplies, and prescription drugs — can increase as you grow older.
Your HSA is great long-term savings tool to prepare for these costs. If you’re 65 or older, you’re not limited to using the money in your HSA for health care expenses. You can also pay for premiums with pre-tax funds once you are 65. This could lead to savings of $500 or more. Simply put, maximizing your annual HSA contributions means you'll have more money to use on Medicare premiums plus claims once you retire.
And, once your HSA balance reaches a certain amount, you can invest in a selection of mutual funds to boost your savings. If you’re 55 or older, you can make a catch-up contribution above the annual maximum each year until you enroll in Medicare. If you retire before age 65 and aren’t yet eligible for Medicare, you can use money in your HSA to pay your pre-retiree medical coverage premiums.
Remember, once you’ve enrolled in Medicare, you’ll no longer be able to contribute to your HSA. However, you can continue to invest the money already in your HSA and pay for qualified health care expenses. Since you don’t pay taxes on contributions, you’ll need to pay income taxes on amounts used for non-health care expenses.
For a full list of eligible expenses, visit your Blue Cross Blue Shield of Michigan member account or irs.gov. Visit bcbsm.com/hsa to learn more.
Photo credit: Getty Images
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