HSA and HDHP: An introduction to health care savings
When it comes to financial hardship, medical bills are usually high on the list of issues for most Americans. A recent study conducted by the New York Times and the Kaiser Family Foundation found that 68% of insured Americans put off vacations or other major household purchases to pay for medical bills. Among adults 65 and older, 21% reported problems paying medical bills in the last 12 months. So, what does that mean? Most of us can't afford our medical expenses. Luckily, if you're enrolled in a high deductible health care plan (HDHP), you may qualify to open a Health Savings Account (HSA). Learn more about what an HSA is and how it may benefit you below.
What is an HSA?
A Health Savings Account is a financial tool used to pay medical bills and can be used as a savings account for future medical expenses. You can contribute to your account each month or on a yearly basis and it builds wealth over time. You can access HSA funds for qualified medical expenses at any time.
What is an HDHP?
HSAs are great tools for many, but there's a catch: You can only open an HSA if you are enrolled in a qualifying high deductible health care plan (HDHP). Having an HDHP means that you need to pay a larger amount of out-of-pocket costs before your insurance plan kicks in, but you pay less in monthly premiums during the year. An HDHP could make sense if you or your family are at a point in life where your average yearly medical expenses are manageable. If you already have a HDHP through your employer, you could use an HSA to start saving for your medical expenses right away.
- It's a form of savings: Think of your HSA as another savings account. You can automatically deposit money into it, and unlike a Flexible Spending Account, the funds you don't use roll over year-to-year. You won't lose them. HSAs could also play a role in your retirement planning. After you turn 65, you can withdraw cash for non-medical purposes penalty free.
- It's a form of protection: When you set up your HSA, you're putting a buffer in place so that when you do have medical costs, you have funds available to pay the bills.
- It's easy: Think of your HSA as another asset in your financial tool box. HSAs are portable. That means that it's not connected to your employer. An HSA is yours – it travels with you throughout your career and into retirement. By opening an HSA you're building a tax-free fund to use for medical expenses at any time in your life.