A Health Savings Account (HSA) is a tax sheltered account that allows you to buy healthcare with pre-tax dollars. They have to be glued to a high-deductible health plan. They’re really all the rage in personal finance circles. It’s easy to see why. Anything that transfers financial control over your life from business, government, or whomever to you usually gets a good review. In this case financial decision-making is transferred from insurance companies to you. Rather than pre-paying via insurance premiums for that doctor’s visit you seem to end up taking every year. Instead you pay for it out of your HSA. If you read our previous article, you know how great a deal this can be. There are a few questions you should *strongly* consider before making the swap however.
Is the “fully loaded” plan on offer from my employer a good deal?
This is really dependent on your employer, but your enthusiasm for a high deductible plan if you don’t end up seeing very significant premium savings should certainly wane. The point here is to save money, you don’t want to be assuming that you don’t need to spend money on healthcare in the future year. If you’re only saving $20 or $30 per month, unless you have a very special situation, you should likely consider giving the High Deductible plan a pass. Again, this all depends on your situation. Reading a blog online doesn’t absolve you from doing the math.
Am I prone to magical thinking?
A really great way to lose your mind is to sign up for a High Deductible Health plan (HDHP) and then when you have a new health related event say to yourself, “Of course this would happen now. With my luck now that I pay directly for my healthcare I’m having all sorts of health issues!” You should keep in mind that you, right now, are the oldest you have ever been. Likely situation is more bad health stuff will happen to you this year than last year. It isn’t the HDHP’s fault.
Do I take good care of myself?
Yes, anecdotally we all know that chain smoker that lived to 100. We all know a health-nut that dropped dead for no reason at 40. Maybe that’s your excuse to eat a non-stop smorgasboard of bad food. More power to you. The fundamental financial question is always, what is likely. You need to figure out if the fully loaded plans are losing money on you or making money off you on average. Take stock of your health, if climbing the stairs winds you, play with house money. If you’re the healthiest of your co-workers, it shouldn’t take a lot of math to figure that you want to be paying your own medical bills.
Another note on this subject is that you could be the healthiest fellow in the world, but if your idea of a hot Saturday night is base jumping in the dark, load up on all the health insurance they’ll sell you. Don’t just figure that your resting heart rate is 45 bpm so you’ll never see a doctor. Clinging to a rock wall 20 feet up counts as a lifestyle disease for our purposes.
There’s no judgement on any of these things. Just make sure that you’ve weighed the odds when buying your health insurance, not your hopes. With any luck all of our health and life insurance premiums will be wasted money.
Will I cut the “health” budget to the bone?
There are plenty of dumb ways to die that start with refusing to go to the doctor. My problem is that I tend not to notice when I spend money. That’s the personal finance problem I work on. Some people have the opposite issue. They see a $200 price tag on a doctor’s visit, they remember the last time they went, the doctor only told them to go home and drink soup, they figure the money was wasted. If you know that you aren’t going to see a doctor when you’re ill to save $200, a High Deductible plan probably isn’t a great idea. You don’t go to a primary care doctor to fix your illnesses, you go to the doctor so they can flag you if you have the dyin’ flu.
Do I take preventative medicine seriously?
One of the great things about the HDHP/HSA is that you get to capture the benefit of preventative medicine. When you get the flu vaccine and as a result, spend the winter not sick. You saved yourself a substantial amount of money there. Money that will now compound tax free in your HSA. If you regularly ignore doctor’s recommendations, turn that around or stick to your fully loaded plan. If you’re going to play Russian Roulette with your health might as well make your co-workers pay for it. If you think that vaccines cause autism, the HDHP is probably not for you. Also, you should probably take some time out of the day to meditate on how you got that crazy. Unfortunately this could also apply if you can’t use preventative medicine for legitimate reasons (like allergies). People who don’t use vaccines are putting you more and more at risk and you probably should give that risk to the insurance company rather than bearing it yourself.
The tax advantages of an HSA and HDHP are huge. I love mine. That doesn’t mean that it’s a great idea for everyone, and like every other major financial/health choice, you should weigh the money, your health, and your psychology carefully before you commit to it.