This open enrollment season, my husband’s employer offered us a new health insurance option: a high-deductible health plan and a health savings account. This option has been around since the early 2000s, but it was the first time we'd had an employer present it to us.
Legally, a "high" deductible can be as low as $1,300 for singles and $2,600 for families. But those are minimums, and the plan offered to us has a $1,500 deductible for singles and a $3,000 deductible for families. That's more than four times the deductible we would pay under a traditional PPO, which is the plan we’ve had for years.
So why would we even consider it? First of all, the premiums are $900 lower per year. If we manage to be extremely healthy next year, we’ll pay less for health care.
But the real draw is the HSA. Contributions are tax free, investment gains are tax free and withdrawals for qualified medical expenses are tax free. You can take these accounts with you from one job to the next and roll the balance over from year to year. So while you can use an HSA like a flexible spending account for current medical expenses, an even better way to use it, if you can afford to, is like a retirement account.
To be eligible to have an HSA, you must have a high-deductible health plan. That means we’re taking a chance on having higher out-of-pocket medical expenses next year. But my husband’s employer has mitigated the risk significantly by kicking $1,000 into the HSA for families ($500 for singles) for any employee who signs up. Even if we have high medical expenses next year, my calculations show that we’ll come out ahead with the HDHP and the HSA. It helps that both plans we can choose from have the same coverage; the only differences are the deductibles and premiums.
Our goal is to use the HSA as a retirement savings account and not use it for medical expenses until we’re 65. Instead, we’ll try to pay for expenses up to our $3,000 deductible out of pocket. If we get hit with a large bill all at once, we’ll try negotiating a discount or getting a monthly payment plan, both strategies that have worked with us in the past. Once we meet our deductible, we’ll be responsible for 20% coinsurance in network, which we’re used to paying.
We’ll take our $5,750 contribution to the HSA plus the $1,000 from the company—$6,750 is the maximum a couple under 50 can contribute in 2016—and invest it. Investing $6,750 for the next 25 years with an average annual return of 6% will give us more than $30,000 to put toward health care expenses in retirement. The sacrifice we’ll make next year seems small compared to the long-term benefits.
The decision was difficult to come by. But we think it will pay off for us, and it could for you, too. Whether you’re shopping through the Affordable Care Act marketplace or getting insurance through your employer, take a close look at any high deductible health plan that’s offered to you.
Along the way to making this decision, I did a lot of research and discovered that HSAs aren't just a great tool for saving money on current medical expenses; they're an even better tool for saving for retirement. Learn more in my Investopedia articles, How to Use Your HSA for Retirement and Switch to a High-Deductible PPO to Get an HSA? And get the complete scoop on HSAs in my tutorial, How HSAs Work.