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Is an HSA right for me?

Many employers are now offering health savings accounts instead of or in addition to the traditional health plans we're all used to. This type of health plan allows you to stash cash away in order to cover your medical bills – it includes a high deductible plus a tax advantage. Here's what you need to know about them before you sign up.

Some 45 percent of large companies will provide this option. The appeal for you is lower premiums, typically 10 to 40 percent less than those of a traditional plan. Employers like HSAs because they give you an economic stake in your own wellness.

While you'll save on premiums over a traditional plan, the deductible is a lot higher. You'll pay for all of your medical costs, usually excluding preventive care, up to that amount. To cover costs, you put pretax money in your HSA, up to $3,050 for individuals and $6,150 for families, plus $1,000 more if you're 55 or older. Your employer may also contribute. Withdrawals for medical bills are tax free, and your money rolls over each year, growing without being taxed.

This works for some because they may actually save money by choosing the high deductible plan. Young and healthy people, for example, can fare better because they pay low premiums and don't use much care.

If you have a particularly costly medical condition, such as cancer, you can also benefit. Once you hit the plan's out of pocket maximum, you pay nothing. Comparatively, in traditional plans, you never stop owing co-pays.

If you have cash to pay health bills out of pocket, you might want to use an HSA to supplement your nest egg. Even in retirement, you can tap the funds tax-free for medical needs. And starting at age 65, you can withdraw penalty-free for any reason, although you'll owe income taxes.

The details on these plans vary widely. You'll want to do the math to see if enrolling in an HSA is worth your while.

Published Oct 07 2010, 01:31 PM by moneycoach
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