High Deductible Plans are gaining popularity. Here's what you need to know.
Health Savings Accounts, or HSAs, are a way to set aside money tax-free to pay qualified medical expenses. The money can be kept in a bank or a brokerage and is used to pay out of pocket expenses like deductibles and co-payments - much like a Flexible Spending Account (FSA) plan, but there are some key differences:
- Funds in a HSA aren't available until you deposit them. If you are making periodic deposits throughout the year, you can't establish a HSA on January 1st and expect to use it for a major procedure on January 2nd.
- Both you and your employer can contribute to a HSA.
- You don't lose funds if they aren't spent by the end of the year. Funds roll over from year-to-year.
- If you use a brokerage like Fidelity for your HSA, you're able to invest the deposits just like an IRA or 401k plan.
What is a High Deductible Plan?
A high deductible plan is a health insurance plan that has a deductible in the thousands of dollars. ($2,000 is not uncommon.) They have lower premiums and can be paired with a Health Savings Account so that you can set aside tax-free money for out-of-pocket expenses.
HDPs are a great choice for someone with low medical usage, especially if you can set aside the HSA funds in one lump-sum early in the year.
