Several years ago, the auto parts company Fram had an advertising campaign for its oil filters that featured the slogan, “You can pay me now or you can pay me later.” The point was you could pay a small amount to replace your oil filter now or you could pay much more for an engine rebuild later. In most cases, preventative maintenance is less costly than repairs that result from lack of regular maintenance. But many of us are guilty of taking better care of our cars than of ourselves (including me).
I am reminded of what Paul wrote in 1 Corinthians 3:16-17: “Do you not know that you are God’s temple and that God’s Spirit dwells in you? If anyone destroys God’s temple, God will destroy him. For God’s temple is holy, and you are that temple.” Much like our cars need preventative maintenance to better serve our needs, we need to take care of our bodies to better serve God. So, what stops us from seeking medical attention? A study conducted by the Society of General Internal Medicine found that 58 percent of respondents cited the high cost. However, there are options available to help us pay for preventative health care costs to improve our health and wellbeing. One such option is selecting a high deductible health plan (HDHP) paired with a health savings account (HSA).
What is a high deductible health plan (HDHP)?
An HDHP is a health insurance plan with a deductible of at least $1,350 per individual and $2,700 per family. In addition, the maximum out-of-pocket for an HDHP plan is $6,750 per individual and $13,500 per family. However, HDHP coverage pays 100 percent of preventative care expenses. Premiums for these plans are typically less than traditional plans with lower deductibles and out-of-pocket maximums.
What is a health savings account (HSA)?
An HSA is a savings account offered by most major financial institutions, including banks, credit unions, investment brokers and insurance companies. Contributions to these plans are tax exempt and can be used to cover plan deductibles, co-pays and many medical expenses not covered by an HDHP plan. Since premiums on HDHP coverage is lower, you can use the savings to fund your HSA contribution. Many employers who offer these plans will also contribute to your HSA account.
What are the advantages of an HDHP with an HSA?
- HSA contributions and payments of expenses are tax free. Whether you make contributions through your employer or an individual plan, amounts go in tax free. In addition, there is no tax on payments for qualified medical expenses
- Qualified medical expenses include many that insurance will not cover. You can use your HSA to pay for acupuncture, glasses, personal care services, even long-term care insurance premiums to name a few.
- Amounts you put in your HSA are yours to keep. The balance in your account is never forfeited and remains yours even if you change employers, insurance carriers or financial institution.
- Your HSA balance earns income. Depending upon where you set up your HSA account, you can earn interest or investment income.
- Your balance can supplement your retirement funds. After you turn age 65, you can withdraw funds for any reason without penalty. Non-qualified withdrawals are subject to income taxes.
What are the disadvantages of an HDHP with an HSA?
- You must purchase a qualified HDHP plan in order to make contributions to an HSA. Even though an insurance plan has a high deductible, it may need meet the qualifications. Make sure the plan qualifies.
- Annual limits on HSA contributions. Annual contributions were limited to $3,500 for individuals and $7,000 for families. Individuals over age 55 can contribute an additional $1,000 per year.
- Individuals enrolled in Medicare cannot make HSA contributions.
- Total cost for those with ongoing medical costs may be higher with HDHP coverage. People who anticipate high medical costs year after year may find that a lower deductible/out-of-pocket plans will save them money overall.
- Penalties for non-qualified HSA withdrawals. If you are under age 65, any non-qualified withdrawals are subject to a 20 percent penalty in addition to income taxes on the amount withdrawn.
It is important for us to maintain our health to better serve God. While health care costs continue to rise, careful planning will help ensure that the cost is not a factor in maintaining your health. Determining the right plan for you requires some research of the various options. Utilize the resources that are available to you through your employer, insurance provider, financial advisor or visit the federal health care website www.healthcare.gov.
Terry Frisk is a partner in the firm B2B CFO, providing financial advisory services to small businesses. He also counsels individuals on personal financial matters through the Cathedral of the Rockies Budget Counseling ministry. He may be contacted through e-mail at [email protected] .