With my company’s health care enrollment for next year opening up, I explored the idea of a Health Savings Account. I did remember seeing it as available last year when I first relocated back to the United States, but I was too busy to pay much attention to it. Upon looking further into it, I think there is not much downside to setting up and funding a HSA.
There are many articles and websites referencing the details of HSA. I’ll share my own thought process on the HSA. One requirement is that I go to the lowest medical plan at my company which saves me insurance premium of about $2500. On the flip side, my deductibles go up and my max out of pocket goes up to $5500. The max HSA funding for this year is $7100. Normally I could use FSA, which is also pre-tax money to fund what my insurance doesn’t cover, but if I miscalculate on the FSA, I can’t roll the money to the following year. The HSA should have money that continues to roll into following years where you can accumulate savings that you can withdraw tax free to pay for medical expenses. Unfortunately, the tax-free status doesn’t apply at state level for NJ residents. So, not great for me. Let’s say the worst case scenario is I max out on my out of pocket, I would be using my pre-tax dollars to pay for the $5500 out of pocket and still have the remainder of my HSA rolling into the next year. If I continue to max my out of pocket for the next 15 years and get modest returns on my investment, I still end up with a decent amount of money set aside to pay for medical expenses when I am retired. If I don’t max out on medical expenses or the market does better than expected, then I make out even better. In some ways, I think it plays out similar to a Roth IRA but you are restricted to applying to medical expenses. My conclusion that there is no real downside to putting money into HSA and you might come out ahead if you do need to have money for health care later.