Is an HSA better than regular insurance
The HSA is often overlooked but a powerful source of building wealth, so what are the pros and con’s and should you look into applying for one.
You have a certain amount of money, more than enough for you right now, and good health, but it will not stay forever. It will help if you have some savings for unseen tragedies because none of us knows what lies around the corner. Many unforeseen incidents like road accidents, illness, and disabilities can create tremendous pressure on you and your family in bad times. It is mandatory to select the right tool for investment to achieve the saving-wealth goals. The HSA is often overlooked but a powerful source of building wealth. When someone hears about HSA, many common questions emerge in mind, like, “what HSA is” and “is an HSA better than regular insurance?” In this article, we will have a deep insight into HSA, its advantages, and disadvantages to evaluate if it is better than traditional insurances or not.
What is an HSA?
HSA is an abbreviation of Health Saving Account, a handy way to save for unseen health tragedies. It reduces the taxable amounts. A Health Saving Account is used to meet qualified healthcare expenses at the time of need. The employer or the individual contributes to the account. But the individual owns the money and has complete money control in HSA. However, the contributions made are limited to a maximum amount each year. The invested contributions can be utilized to pay for medical expenses such as vision care, medical, dental, and prescribed drugs. However, with the outbreak of pandemic and initiatives of aids, a slight change in the policy has been introduced. Now the HSA can be used for over-the-counter medications even without the prescriptions.
What is HDHP?
The US government sets the high-deductible health plan. In the United States, it is a health insurance plan with minimum premiums and maximum deductibles. The deductibles are the payments you make to cover the health expenses before the insurance company covers its shares for non-preventive health services. Only those eligible for Health Saving Account (HSA), enrolled under High-Deductible Health Plan (HDHP).
How does HSA work?
As mentioned above, those who are enrolled in High Deductible Health Plan qualify for HSA. The individual must meet the standards set by Internal Revenue Service (IRS). A person is eligible only if he;
- has qualified HDHP
- is not enrolled in other health Coverage
- is not registered in Medicare
- does not depend on someone’s tax returns
For 2019: the IRS defined the minimum deductible of $1350 for a single person and $2700 for a family. Moreover, the yearly out-of-the-pocket amount/expense was $6750 for an individual and $13,500 for a family.
For 2020: the IRS defined the minimum deductible of $1400 for a single person and $2800 for a family. Moreover, an HDHP’s yearly total out-of-the-pocket expenses were up to $6900 for an individual and $13,800 for a family.
For 2021: The maximum contribution for an HSA account this year is $3600 for a single person and $7200 for the family.
These yearly limitations are applied to the total amount contributed by an individual or employer. All the contributions can be made using cash, whereas employee and employer can fund the employer-sponsored HSAs.
Is an HSA better than regular insurance?
Like every other insurance, an HSA account has its pros and cons side-by-side. It entirely depends on a person and his career. You need to weigh your choices, budget, and healthcare you will need in the future. If you are healthy and want to save for the upcoming future, then a Health Saving Account is the best viable option. Or if you are going to retire, a Health Saving Account makes sense again and looks attractive. This is because the saved amount can be used to offset the cost of medications after retirement.
The HSA can be problematic if you need the medical care right next year and find it difficult to meet high deductibles. While comparing it to regular insurance, HSA can be a better health care savings option.
Where HSA is known for a tax-deductible, it has perks and benefits;
- It covers a wide range of health care expenses, including medical, vision, dental, mental health, etc.
- Anyone who wants to add to your HSA can contribute to your account. However, the IRS allows it on certain limitations.
- Usually, pre-tax contributions are made, and they are not included in the gross income.
- If you contribute with an after-tax amount, you can deduct these paid dollars from your gross income on the tax returns. It will ultimately reduce the tax bill for the year.
- If you aim to withdraw the money for medical expenses, you enjoy a tax-free withdrawal.
- The earning and interests on the money are tax-free
- Unlike other insurances, if you have money left in your Health Saving Account at the end of the year, it will automatically roll over to next year
- Most HSAs issue a debit card to meet the expenses right away. As soon as you get the medical bill in your mailbox, you can quickly contact the billing center and make the payment without delays. Moreover, if you have already paid the invoice, then you can reimburse yourself out of an HSA.
- Paid Tax on non-qualified medical expenses
- Monthly Fee or Pre-Transaction fees
If you qualify for a Health Saving Account, the tax advantages and ability to roll over unused amounts are appealing and more beneficial than regular insurances. However, high-deductibles do not suit everyone. It is recommended to take professional assistance, evaluate your budget and needs if you need medical care shortly. But if you have time, health, and money, then Health Saving Account is the best choice over other insurances.