Tis the season to select our health care plans for the coming year. It brought me a little bit of holiday joy to see that my high-deductible bronze plan only went up 6%, to just over $2,000 a month. This is my lowest increase since Obamacare was enacted.
I wasn’t as pleased when I found out my family $4,500 deductible increased to $6,600, with a maximum out-of-pocket cap of $13,200. After analyzing all the options, I decided to stick with this plan. The way I figure it, the minimum I will pay for health care for my family of four is $3,100 a month. The year before Obamacare my family premium was $660 a month for much better coverage.
Since I have a high-deductible plan, I take advantage of having a health savings account (HSA). An HSA allows me to set aside funds for health costs and receive a tax deduction for the full amount. The limit is $7900 for 2018 and $8000 for 2019 (including an extra $1000 for those over 55). This means that if I chose to use the funds for current health care expenses, I could deduct about half of my annual out-of-pocket expenses.
The HSA rules require that you use the funds for health care expenses, but they set no time limit on when you must use the funds. Many people with HSAs need immediate access to the funds to pay medical insurance. Others, like myself, can afford to cover the deductible out of pocket, allowing the HSA funds to accumulate tax free for future use.
I’ve decided to let my HSA funds accumulate with the intention of creating a financial cushion for future use when Medicare won’t cover a medical need.
Letting an HSA accumulate combines the best features of a traditional IRA and a Roth. Like a traditional IRA, you get to deduct 100% the contribution from your income taxes. Like a Roth, the funds are tax free when you take them out. Another advantage is that the annual $8000 limit is greater than either the IRA or a Roth.
You will need to open a specific account for your HSA. Where you open that account depends on whether you plan to use your account for current health expenses or allow it to accumulate for future use.
Most banks and credit unions offer HSA accounts. These accounts usually carry low costs and work well if you plan to use the funds immediately. However, they are not so good if your intention is to let the funds accumulate.
For long-term accumulation (with over a 10-year time horizon), you need an HSA account that allows you to invest the funds in low-cost equity funds. Like any investment account, you need to pay attention to the fees. A great site, The HSA Report Card, compares the features of various HSAs. It lists the top 10 HSA providers in each of three categories depending on your needs: current spending, interest bearing, and investing.
For long-term accumulation, I went to the invest category. I was pleased to see my current provider, Health Savings Administrators, was listed among the top 10, but not so happy that they only rated a “C” for fees. The top plan is Fidelity, which carries no fees and offers four mutual funds with zero (yes, 0.00%) expense ratios. Opening a Fidelity account online and transferring the funds from my existing HSA account was easy and efficient.
You and I can’t control the rising costs of health care. But by opening and investing with an HSA, we can be smart about how we pay for that care today or in the future.