HSAs are becoming more popular with our clients and I’m happy about that.
Our clients who purchase HSA-compatible plans usually save money and lower their taxes at the same time. They generally save money on their insurance costs and also on their taxes.
The basic concept has been around for a long time. If you buy a high deductible insurance policy, it will be less expensive than a low deductible plan. If you keep the money you save to pay your deductible, you will almost always come out ahead.
Most people will have no, low or moderate expenses in any given year. Most years, their medical expenses are less than the cost of their insurance policies. If that wasn’t true, the insurance companies would go out of business. Of course going without insurance entirely is bad idea. People do have major accidents and people do get major illnesses. This is why an insurance plan that will cover the big expenses is so important.
This is why an HDHP is so important. An HDHP or high deductible health plan can cover the big expenses and keep your cost down.
If you keep the money you saved by buying the lower cost policy, you will almost certainly have enough money to pay the expenses that are not covered by your policy. Of course, you are likely to have a bad year every once in a while, but the money saved from previous years should pay your deductible and still leave you with money in the bank.
HSAs are tax-deductible. This gives one more, very large incentive to use this strategy. To be clear, the premiums for the insurance policy is not deductible, but the savings account is.
Families who purchase an HSA plan and use the strategy outlined above will almost always pay less when their costs are averaged out over several years. If a family member has major expenses each and every year, this strategy may cost more, but this situation is not the typical one and the costs are attenuated by the savings.
I like the HSA plans and will continue to recommend them to my clients who are comfortable with higher deductibles
HSA Tax Advice
Giving tax advice goes beyond the scope of my training and licensing. Contact your tax advisor for more information.
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