Should You Have a Health Savings Account?
Our health care system is often frustrating. Even if you make your health insurance payments dutifully each month, you can find yourself hit with big bills that leave you feeling sideswiped. Once you move over to Medicare, those frustrations don’t go away. You may end up surprised by how much you still have to pay out of pocket.
Medical costs are a growing problem in the United States. Medical bills are now the most common reason for bankruptcy. In spite of lots of talk from politicians and attempts to reform health care, patients still regularly feel the burden of overwhelming health care costs. A health savings account (HSA) is one option that can help ease that burden for many people in the United Sates.
What Are the Benefits of Having an HSA?
A health savings account is an option available to people with high-deductible health insurance plans. In addition to the coverage the plan provides, you can create a savings account devoted specifically to health care use. The HSA provides a few significant benefits:
- All contributions to your HSA account are tax deductible
- The interest you earn on your HSA isn’t taxed
- Any withdrawals you make for medical expenses are also tax-free
- It can function as an extra retirement account, especially if you wait to start pulling from it until you’re older and higher health care bills start to kick in
If you’re reading this while you’re still a ways away from retirement, then starting an HSA now and making regular contributions to it in the years to come can pay off big in tax savings now, as well as in future years when you need that money to cover your senior healthcare costs.
If you’ve already retired and are either already on Medicare or approaching the date when you’ll enroll, the situation is a little different.
How Does an HSA Work with Medicare?
Once you enroll in Medicare, you’ll no longer be able to contribute to an HSA. If you already have one with a healthy store of money built up in it, you can continue to pull from it for healthcare expenses for as long as it lasts.
If you choose to go the route of enrolling in a Medicare Advantage plan, you can seek out one that offers a Medical Savings Account (MSA) option. An MSA is similar to an HSA, with one key difference: you can’t contribute your own money. The government will deposit a set amount each year that will be there for you when you need it. If you use everything deposited into the account before the end of the year, then you’ll have to pay out-of-pocket until you reach your deductible, at which point your Medicare Advantage plan will take over paying for your care. You still get the tax benefits, as well as a guarantee that no provider will charge you more than the Medicare-approved rates for coverage.
If you have an HSA or MSA, those medical bills you get hit with won’t feel quite so unmanageable. Starting to invest in one sooner rather than later can leave you feeling more empowered to move forward on the care you need during every doctor’s visit, rather than feeling powerless in the face of bills you don’t know how to handle. Health problems are stressful enough. If you can take steps to reduce the stress of paying for them, it’s worth it.