Moving to a high deductible health plan (HDHP) can be a little scary, especially when looking at the amount of the deductible. One great thing about an HDHP is that it costs less in your month to month premium than a traditional plan. The higher the deductible, the lower the premium – that can really save you money in the long run, but what happens when you have healthcare expenses? That’s where an HSA comes in.
HDHPs and HSAs are linked because you must have a high deductible plan to open and contribute to an HSA.
An HSA, or Health Savings Account, is like a personal savings account, but you use it to pay for out-of-pocket health care expenses, like medical, dental, vision, and prescriptions. You choose how much money to put in the account, up to the maximum amount allowed by the IRS. However much you choose to set aside is taken out of your paycheck before taxes, so the money is yours tax free. In addition, if you use your HSA to pay for a qualified medical expense, you won’t pay taxes on that money either. Some employers even contribute money to your HSA, but you own all the money in your HSA – even if you switch jobs!
At the end of the plan year, ALL of your money rolls over to the next year, so you don’t have to fear losing it if you don’t spend it. You can build up a significant amount of money over time and use it down the road when you need it. You can also invest your HSA money to help it grow faster. And once you retire, you can use the money for anything without penalty.
One thing to remember: You must have a high deductible health plan to put money into an HSA, but it allows you to face those high deductibles without fear! HDHPs and HSAs are a healthcare must.