For many, affording healthcare in America is like walking a tightrope. Between balancing monthly insurance costs and meeting high deductibles, the amount spent on healthcare can be overwhelming. Enter: health savings accounts — or HSAs — which are designed to help make that walk a lot more manageable.
Click to learn the difference between HSAs and FSAs, and why one might work better than the other for you.
“People usually have to meet their high deductible plan one out of every five years,” said Sophia Bera, founder of Gen Y Planning. “So you should be building up money in that account knowing that you might have these higher out-of-pocket healthcare costs one year.”
Health savings accounts (HSAs) are defined as “a savings account used in conjunction with a high-deductible health insurance policy that allows users to save money tax-free against medical expenses.” This method works particularly well for millennials who might not have high healthcare costs right now but are looking to start a family in the near future — something that typically comes attached with a hefty hospital bill.
The money you put into an HSA is tax-deductible and it follows you year after year, just like a regular savings account. This allows it to work in conjunction with a high deductible health plan, giving the beneficiary a lower premium each month versus opting into a PPO.
“You can also invest the money in that HSA once it reaches a few thousand dollars,” Bera added. “So, a lot of people are viewing it as like an IRA for your healthcare.”
You can contribute up to $3,450 per year as an individual on a single healthcare plan, whereas on a family plan the maximum caps out at $6,850. Just remember to use this cash for qualified healthcare expenses only, since if you cash out, you’ll be hit with a 10 percent penalty plus taxes — just like an IRA.
Click through to read about ways to survive rising healthcare costs.