Figuring out how to handle potential health-care costs is one of the biggest financial challenges you'll ever face. Whether you're in perfect health or have serious medical conditions, the threat of huge medical bills looms large over even the most financially secure workers. With the unemployment rate high, many out-of-work Americans are dealing with the loss of their employer-provided health insurance.
Yet even those with secure jobs aren't immune from the ever-rising cost of medical care. Increasingly, employers and workers alike are moving toward high-deductible health insurance plans combined with health savings accounts to try to cut costs. HDHPs and HSAs aren't perfect solutions, but in many cases, they give you both flexibility and savings over traditional health insurance -- if you're prepared to take more responsibility for your medical care.
What's the deal?
Traditional health insurance policies tend to have low upfront costs and fairly low out-of-pocket maximums for any given year. For instance, a typical plan might charge you a $25 copayment for an office visit, with your insurance picking up any amount that your doctor charges above that.
HDHPs offer a very different way of handling health-care costs. With HDHPs, which insurers such as Aetna (NYS: AET) and Humana (NYS: HUM) offer, you're on the hook for a fairly large upfront deductible before your insurance pays its first dollar -- typically $1,200 for individual coverage and $2,400 for families. Out-of-pocket maximums can range to as much as $11,900 per year.
Needless to say, if you're used to paying in convenient $25 chunks, coming up with $2,400 takes some getting used to. That's where HSAs come in. Health savings accounts let you save pre-tax money toward future medical expenses, and that money grows tax-free within the account. The general idea is that because HDHP insurance premiums are less than traditional policies, you can contribute the difference to an HSA and still come out ahead.
But what many employers are doing is facilitating a move to HDHPs by making employer contributions to HSAs. That way, employers can cut their own costs of providing valuable benefits to their workers. A couple of years ago, Whole Foods (NAS: WFM) CEO John Mackey argued that HDHPs and HSAs could be a key component of fixing the health care system.
A Wall Street opportunity
Just as financial institutions jumped on the IRA bandwagon when the popular retirement accounts first became available, HSAs represent an investment opportunity. Bank of America (NYS: BAC) , Wells Fargo (NYS: WFC) , and JPMorgan Chase (NYS: JPM) are among the big banks promoting HSAs. In addition, brokerage firm Fidelity administers HSAs as part of its benefits packages to client employers, and even insurance company UnitedHealth Group (NYS: UNH) offers HSAs through its OptumHealth Bank subsidiary.
But the real question is whether HDHPs and HSAs are a good deal for you. Unfortunately, there's no right answer that fits everyone. Here's why:
- If you're in good health, then you'll save a bundle with lower premiums and potentially end up with leftover money in your HSA. Unlike with the flex plans that many workers are familiar with, you can carry forward your HSA money for use in future years.
- If you have large medical bills, then you'll be on the hook for the full out-of-pocket maximum. That might end up being much more than you save on premiums.
- For those in between, some will save while others will end up worse off under HDHPs.
When you're considering an HDHP, you have to look closely at the reduction in cost under the policy, taking into account any money your employer will kick in on your behalf as well as the tax savings that an HSA will give you. Then, as long as you're prepared for much higher out-of-pocket costs if something happens, you can make whichever choice saves you more money.
Healthcare is hard to manage. But with the right tools at your disposal, you can do your best to keep it affordable. If your employer offers an HDHP, be sure to consider it along with all your other options.
If you're fortunate enough to have an HSA that lets you invest in stocks, you'll want only the best. These 13 high-yielding dividend payers give you the income you need to pay doctors' bills while giving you some growth opportunities as well.
At the time this article was published
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