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Wednesday, March 26, 2008

HSA Account – Real Life Example

Later this year, I am getting married. Once we are married, I will cancel my health insurance and go onto my wife's plan. Overall, this will give us the best combination of benefits and cost.

Since I did not expect any large healthcare charges before the marriage, I elected to sign up for my company's HSA instead of the traditional plan. By combining my contributions with my company's funding of the HSA balance, I expected to save money on premiums and end up with a small balance in my HSA when I switch plans.

Unfortunately, I had an unexpected trip to the hospital for emergency surgery and even had to spend the night in the place. In terms of cost – that is gonna leave a mark. I figure I will have to come up with the entire deductible (I think $1,200) + 20% of everything above that up to $2,400.

Despite my bad outcome, I still think a HSA is a good choice for many single people. Had I been in the plan a few years, I would certainly have had enough money saved in my HSA account to pay off the entire deductible.

If you have an HSA, I would recommend the following strategy:

  1. Do not tap your HSA for small, infrequent charges such as a one off doctor visit (cold, flu, etc) or a one off prescription.
  2. Build up the HSA balance to the deductible amount so any large loss (such as a hospital visit or surgery) doesn't impact your normal lifestyle. Remember, this fund is for emergencies, not a $10 prescription for generic antibiotics.

1 comment:

Kimberly said...

I disagree with your strategy. An HSA is the MOST tax-advantaged product on the market. An individual can contribute up to $2900 a year (total of all contributions including employer portion) to their HSA pre-tax and withdraw it for medical expenses tax-free. I say put in as much as you can and use it whenever you can. Just remember that Tylenol and teeth cleaning don't go towards your healthcare plan's deductible, so still keep enough in there to at least cover the deductible.