Is a high-deductible health plan right for you?

For budget-minded health plan shoppers, the option with the lowest monthly premium has obvious appeal. One lower-cost option is a high-deductible health plan, where you trade-off a lower monthly rate for paying higher costs out-of-pocket.

Key factors to consider are your budget and your anticipated yearly healthcare expenses. To help you think through this option, read the following statements. If you answer “YES” to these, then a high-deductible plan with a health savings account (HSA) may be a good choice.

"I'm looking for a tax advantage."

You don't pay taxes on money you set aside in your HSA. When you combine a high-deductible plan with an HSA, you get three tax breaks that allow you to put money aside for medical expenses.

1. You contribute pre-tax dollars to your HSA, reducing the amount of your income that is subject to taxes.
2. Qualified medical expenses paid from HSA funds are not taxed. Your HSA funds can be used to meet your deductible by paying for office visits, coinsurance and other non-reimbursed medical expenses like prescriptions, vision and dental. But if you take money from your HSA for non-medical expenses, you'll then have to pay taxes on it.
3. If you have an HSA plan through your employer, it can automatically deposit money from each paycheck into the account. Some employers even make their own annual contribution to your account, similar to a 401K.

Keep in mind that to qualify for an HSA, you must first choose a high-deductible plan (Premera has two types: Preferred Silver 3000 HSA and Preferred Bronze 5250 HSA.

"I'm healthy and don't anticipate high medical expenses."

With a high-deductible plan, you're responsible for all of your medical expenses until you meet your deductible. So if you're healthy and have few healthcare expenses it might be a good option to consider.

On the other hand, if you have an unexpected medical expense - like an injury from an accident -a high deductible means you have to cover most of the healthcare costs until your deductible is met. This is where that HSA will come in handy because you can use the money to cover your qualified medical expenses.

In 2016, some HSA plans have an “embedded deductible”, which means that only one family member needs to meet the individual deductible - rather than having to pay for expenses until the entire family deductible is met - before the plan benefits kick in and shares more of the cost of medical care.   

"I don't mind having to estimate and track our family's medical expenses."

This type of plan with an HSA requires a bit of bookkeeping. You must track your receipts for medical costs because at tax time, you'll reconcile withdrawals from your HSA account. To take full advantage of an HSA plan, estimate your family's healthcare costs for the coming year so you can plan accordingly.

"I'm looking to put money aside for healthcare needs."

You own your HSA - it's not "use it or lose it" each year. Unlike a flexible savings account (FSA), HSA funds roll over from year to year and grow tax-deferred. You don't have to withdraw from it each year, so you can save for the future. In fact, after age 65, you can use it for non-medical expenses and not be penalized (although you will be taxed on withdrawals).

You can also contribute funds to your account at any time during the plan year, not just when you renew your plan. So if you have a major upcoming expense, such as a planned surgery, you can put additional funds in the account to help cover those costs. However, the total money put into your HSA in a year is only tax-free to a certain amount, so check your contribution limits set by your health plan to ensure you maximize your deductions.

"I'm eligible for this plan."

You must qualify for a high-deductible plan with an HSA. You are eligible if you are not claimed as a tax dependent on another person's taxes, are under age 65 and not enrolled in Medicare and aren't covered by your or your spouse's FSA health reimbursement arrangement (HRA) or a non-HSA health plan.

Lastly, check with your tax preparer or accountant on a health savings account because they'll give you parameters on the amount you can contribute and how best to manage the account.