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This is Why You Chose a High Deductible Plan. Here's How It Affects You - Now and at Retirement

High Deductible Health Plans are popular today among healthy, budget-conscientious adults. While not a good fit for everyone, (hint: no health insurance plan is universally the most beneficial), these HDHPs do offer certain benefits:

  1. Lower premiums.

  2. Ability to stash money away tax-free for medical expenses.

  3. Well, that’s it, I suppose. BUT those are big benefits.

High Deductible Health Plans (HDHPs) are often used in partnership with another acronym - HSAs, or Health Savings Accounts.

Now that we’ve established that, get ready to have your mind blown. High Deductible Health Plans have…high deductibles.

Simply put, a deductible is the money you pay for your medical expenses before the insurance company chips in anything. Your deductible on a HDHP may be $5000-10,000+. Can you imagine going to the dermatologist to get a mole checked out, showing your insurance card, and then getting a bill for $700?

“$700?! Did they even bill my insurance?!”

Yes, dear friend, they did. But your HDHP told the doctor to bill you directly because you have not yet met your deductible.

Enter the HSA. If you had money set aside in that HSA, it would have been available to pay for that $700 dermatologist bill.

When you elect your benefits at work during Open Enrollment, make sure that you have a HSA with your HDHP and that you are electing to put money into it every paycheck. If you’re lucky, your employer may contribute too. After all, they’d rather toss a few bucks towards your HSA than cover 50-100% of a more traditional (and expensive) insurance plan.

Your HSA dollars can be used to meet deductibles, as well as future copays and coinsurance after your deductible is met. These dollars will go into your HSA tax free! What’s more, they’ll come out of your HSA tax-free as well, as long as you use that money for qualified medical expenses. You may even have the option to invest some of your HSA dollars if the account is set up for that.

After years of enjoying the tax-free benefits of a HDHP and HSA, you may find yourself nearing retirement. Stay with me for a minute, because I’m about to tell you something important:

You cannot continue contributing to your HSA when you start Medicare. Your contributions must stop. However, you can continue using your HSA balance even after you begin Medicare to cover your medical expenses.

If you meet the criteria to delay the start of Medicare Part B, you may want to continue contributing to your HSA to maximize the balance in the account. It is okay to do so, however, due to laws and tax code you’ll want to stop contributions to it 6 months before retiring and starting Part B. To ensure you won’t face excess taxes or penalties, the safest course of action is not contributing to your HSA after turning 65.

Otherwise, get that medical procedure you need and enjoy the tax-free spending!

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