I have recently learned a lot about a way to save money on paying for your health care, and learned through actually using this neat little item and has truly saved me money and will continue to for a while. It is called a Health Savings Account (HSA).

I knew little about HSAs until recently, as a recent early-retiree, I had make some decisions on my health care insurance.  I was surprised about was how much it would cost to continue carrying the same level of health insurance as I had when I was an employee.  The premiums would more than double what they were before.  But there was an option that is available if your health plan is called a “high deductible health plan” (HDHP).  This means that the health care plan (for 2017) has at least a minimum deduction for a family of $2,600 per year ($1,300 for an individual) and a maximum per year out-of-pocket family expenses of $13,100 ($6,550 for an individual).  The plans have much lower premiums than more traditional health care plans.  For me the HDHP was over $600 lower per month, and it had a $4,000 deductible for me and a $8,000 deductible for my family.

An HSA is an account that you setup with any of several companies that provide them   Then you fund it with as much as $6,750 (for 2017) per family or $3,350 for an individual for the year.  And if you are over 55, you can contribute an additional $1,000.  If you set one up in the early part of the year like I did, you have until tax filing day to fund the prior year (kinda like funding your IRA).  Then as you have out-of-pocket expenses for health care, you pay out of this account.  You can even get a Visa card to use just like a credit card.  Plus, you can invest the money in mutual funds and earn a return.  The beauty of these accounts comes with the “triple tax benefits”, which are:

1. You get a tax deduction on your tax return for your contributions,
2. Any earnings on the accounts are tax-free, and
3. All withdrawals for qualified medical expenses are tax-free.

Unlike health care “flexible” accounts that have a maximum year-to-year carry-over of $500, HSAs have no limit on carry-overs or when the funds may be used. Even if the account is opened through an employer-sponsored program, all money in an HSA belongs to the account owner and can be transferable wherever you go.

These accounts can only be funded up until you are 65, when you qualify for Medicare.  But if you still have money in your HSA you can still use it after you reach 65, for as long as there are funds in it.  And you name a beneficiary when you sign up, and any funded HSA can pass onto someone else at the time of your death.

Many companies are offering high deductible health plans as options to their employees to reduce their health care costs, and HSAs are becoming increasing popular for these folks.  And for early retirees, it is a valuable tool for reducing your tax bill until you qualify for Medicare.  So, if you don’t typically have a high out-of-pocket health care expenses, a high deductible plan is a way to reduce your annual health care costs, and coupled with a HSA makes it even better.  Here is a listing of some of the better rated plans.

Let KMR Financial know if you have questions on these types of accounts.  Happy cost saving!!