This publish might include affiliate hyperlinks and WPF might earn cash or merchandise from firms talked about. Our visitor publish plugin stopped working! Please observe that the authors listed will not be correct right here 🙁 Extra data
You in all probability aren’t enthusiastic about HSA accounts proper now, and are extra involved with the rising value of healthcare. However preserve studying, as a result of whereas it doesn’t make issues higher, you would possibly have the ability to optimize this shitty scenario.
In accordance the the Bureau of Labor and Statistics, 50% of staff had entry to a excessive deductible well being plan (and with that, seemingly an HSA or well being financial savings account) in 2024. In 2015 solely 38% had entry to a HDHP!
We’d want an economist to talk on if that is truly a superb factor by way of general traits (my intestine feeling is that usually talking, it’s nefarious, not on account of some mass awakening and optimization of non-public monetary acumen and instruments).
Whereas I don’t know what the stats had been again in 2018 after I initially wrote this text for my previous weblog, That Frugal Pharmacist, I feel it’s an essential subject to revisit as we close to the tip of 2025.
Please observe, this previous article is introduced with out edits (aside from altering how I “get” to how I “GOT” free healthcare for the title part, plus some added commentary earlier than we dive in.
We’ve been speaking quite a bit about authorized methods to defend your paycheck from the present regime. And when you mostly hear us speak about upping your 401k contributions, the triple tax-advantaged HSA isn’t getting sufficient airplay.
You all have had legit considerations about shoveling extra money right into a 401k (assuming there’s any leftover to take action) when there are sincere discussions available about whether or not we’ll even have entry to that cash by the point all of us hit retirement or if the entire system can have fallen aside. I share these reservations, and I’d prefer to current the HSA in its place that offers you choices to entry your cash sooner, in sure circumstances.
As with all issues, a diversified method by no means hurts. On the time of this intro/replace (late 2025), my HSA account has $99,514 in it, most of which is funding development. By the point you learn this, there’s a superb probability it should have hit 6 figures. I even have spreadsheets going again fairly a couple of years documenting my out-of-pocket medical spending, so I can reimburse myself out of my HSA if I ever have to, earlier than I faucet one thing like a retirement fund and incur penalties.
However most significantly, I feel given the skyrocketing value of medical health insurance, which is predicted to rise considerably for nearly everybody transferring into 2026, many extra individuals might be contemplating choosing the very best deductible plan supplied and doing their finest to avoid wasting cash on their premiums. We have now but to see how unhealthy that is all going to be, as many individuals are nonetheless getting their plan choice info for 2026, and we do not know if the ACA subsidies might be reissued with our ongoing authorities shutdown hanging partly on this issue.
So whereas some could also be contemplating HDHPs on account of undesirable exterior pressures, I don’t essentially suppose it’s a nasty alternative, particularly for those who may be strategic about it. Personally, I’ve solely ever bought for “catastrophic” protection myself till I had an ACA subsidy plan to buy. Then, I used to be incentivized to select one other kind of plan.
Whereas “free medical” or lined premiums will not be one thing you possibly can successfully engineer, and it’s possible you’ll not even get an employer match, I urge you to learn on and get a greater understanding of this little-discussed monetary software and how one can probably take advantage of out of a shitty scenario.
TLDR: If it is sensible on your finances, contemplate enrolling in a HDHP plan and saving the distinction between premiums and your deductible in your HSA or as much as the utmost annual HSA contribution.
Ensure you run some numbers utilizing examples like this:
Instance: Month-to-month premium is $400 for HDHP vs. $750 for the mid-range plan. HDHP deductible if $4,000 — save the $350 distinction month-to-month in your HSA and internet your self $4,200 in financial savings that’s yours perpetually/till you want it (the person most HSA contribution in 2026 in $4,400 and $8,750 for a household). In case you get sick, you’ve already acquired your deductible quantity saved. In case you don’t get sick, you didn’t waste cash on a plan you didn’t use. Most out of pocket spending (MOOP) for a person, *in-network, for 2026 is $10,600. Whereas not insignificant, you’re almost 40% of the best way to your MOOP already.
And now- again to our 2018 deep dive!
What’s an HSA? Simply what it says it’s, a “Well being Financial savings Account.”
Many workers are eligible for both an HSA or a FSA (versatile spending account) as a cash financial savings mechanism for well being purchases when they’re buying insurance coverage.
HSA vs. FSA accounts
The commonest confusion I appear to run into when mentioning my HSA account, even at my physician or dentist’s workplace is: it isn’t the identical factor as a versatile spending account (FSA).
I can see why individuals can be confused. At first look, they’re very comparable. In each you place away cash pre-tax, lowering taxes in your take dwelling pay. You employ the cash from each to pay for eligible purchases similar to copays and workplace go to prices and prescriptions. In each, an employer might contribute along with what the worker provides.
However that’s just about the place the similarities finish. And right here is the largest, most essential distinction:
In an HSA you, the worker, owns all of your cash. In an FSAthe employer owns any funds you don’t use on the finish of the 12 months.
This sounds CRAZY! As a result of I’ve not often used my insurance coverage for various physician visits, I’ve not been keen to place myself in a scenario the place I go away cash on the desk on the finish of the 12 months. I’ve by no means opted to make use of an FSA after I had an HSA as another choice (or at some other time, I’ve by no means used an FSA).
There are another caveats in fact. And anybody who has each introduced to them as an choice ought to fastidiously learn your plan literature in deciding which is for you. In an FSA you might have entry to all the cash from the start of the plan 12 months. In an HSA, you solely have entry to what you might have saved up to now (and any employer match if in case you have it).
Another variations embody you possibly can contribute considerably extra to an HSA than an FSA. Moreover, to participate in an HSA you should be collaborating in a high-deductible insurance coverage plan (aka HDHP). For 2018, which means you should be have a minimal annual deductible of $1350 for a person or $2700 for a household.
One other essential distinction is, so long as you meet the above deductible {qualifications}, you possibly can join an HSA plan by yourself, via many banking/funding organizations. You don’t essentially must undergo an employer. With an FSA, as a result of the employer technically “owns” the funds, you possibly can solely use it for those who join via your employer.
It’s like a 401k, on your well being
I already talked about that your HSA contributions are pre-tax and scale back your taxable earnings. An HSA additionally grows tax free so long as you proceed to make use of it for authorised well being associated bills. When you hit 65, you need to use the cash for something, as if it had been a standard IRA (right here’s some good data on how your HSA charges change after 65). Use it early, and also you’ll be hit with tax penalties.
At a fairly wholesome most contribution price of $3450 for people and $6900 for households for 2018, for those who can max this account out, that’s some severe financial savings you might be placing away for future well being spending. I’ve been maxing out my HSA for 4 years. Even after paying for a child labor and supply and a few main surgical procedure for my husband (on prime of dental visits, eyeglasses, and so forth) I’ve over $25,000 in my HSA accounts.
You gained’t imagine this!
Like a 401k, many employers additionally provide some type of match. My employer gives each a partial match to a sure greenback worth AND they provide bonus HSA contributions for assembly well being targets (similar to BMI or not being a smoker).
“The final word HSA hack”
Between my firm HSA match and my household assembly well being screening targets: my premiums for each medical and dental are successfully FREE!
Critically! Examine the maths in case your employer gives any incentives. I contemplate my employer match cash “free cash” because it goes in to an account I personal. This implies they’re additionally paying the insurance coverage premiums for my household.
So who’s an HSA good for?
As a household who doesn’t spend quite a bit on medical bills, it is a nice choice for us. Why would I wish to pay extra in month-to-month premiums for insurance coverage that I wouldn’t even use?
I want I had the napkins I did all my calculations on, however my logic got here to one thing like this (and I checked this for 2 completely different jobs with HSA accounts):
Greenback for greenback, for those who appeared on the value (my choices) for a standard plan with “excessive” premiums with no HSA versus a high-deductible plan + my month-to-month HSA contribution, I used to be paying near the identical quantity per 30 days for both plan.
Lemme break it down:
I attempted to clarify it like automotive insurance coverage to a different worker. As a result of I do know that I can afford to satisfy my deductible of $3000 earlier than insurance coverage kicks in, I get to pay a a lot decrease premium all year long (this logic applies whether or not or not you determine to open up an HSA account). However as a result of I’m tax incentivized to open the HSA account, I really feel doubly assured that I can pay my deductible if I’ve to, and I develop my cash tax free!
Looks like a no brainer to me! Particularly with the most out of pocket spending on excessive deductible plans outlined by the IRS as $6650 for a person and $13300 for a household for 2018 (which means essentially the most you may be charged in a plan 12 months on your medical care earlier than insurance coverage picks up all the remaining). In case you preserve contributing to the well being financial savings account over time you must have a secure quantity to cowl any catastrophes, childbirth, and so forth.
Consider any firm match for those who get it. You may be throwing cash within the trash not profiting from your HSA plan.
And once you actually begin accumulating you possibly can make investments these funds…
USUALLY. There could also be some plans the place this doesn’t work, so be sure to to learn your plan paperwork. I’d suppose you would roll it over to someplace the place you possibly can make investments additionally. I’m not going to get into this right here, however, it’s an essential a part of your account. Once you’ve reached sure steadiness minimums, you possibly can start investing. That is when the HSA turns into a extremely highly effective software on your retirement planning. When you hit 65 you possibly can usually pay on your medicare or non-public medical health insurance premiums together with your HSA with no penalty OR taxes on prime of standard well being spending.
Hyperlinks:
IRS 2018 HSA and HDHP numbers
