In the early phases of my professional journey (although I’m only seven years in), the daunting task of selecting my employer’s medical insurance plan felt like stepping into uncharted waters. The flood of terms like premiums, deductibles, coinsurance, and copayments created a maze of jargon and numbers – not the education you get through grade school. Choosing the right health insurance coverage became a pivotal decision, particularly as a newcomer to these complex choices.
After a conversation with HR, I was presented with my options. I distinctly remember reading over options like:
1. HMOs (Health Maintenance Organization)
2. PPOs (Preferred Provider Organization)
3. POSs (Point of Service)
4. EPOs (Exclusive Provider Organization)
5. HDHP (High-Deductible Health Plan)
In Stephen Covey’s influential book, “The 7 Habits of Highly Effective People”, he focuses on timeless principles that transcend trends. One of those habits, Begin with the End in Mind, stood out to me when I was analyzing my options. As someone with retirement a couple of decades away (or more), I realized the importance of making a strategic choice that aligns with my long-term financial goals.
In the hours of contemplation, research and counsel, the High-Deductible Health Plan emerged as my unsung hero. I finally understood the ability to leverage the HDHP Health Savings Accounts (HSAs). HSAs offer versatility and power. The appeal of a HSA lays in the “Triple Tax Benefit” – a trifecta of advantages involving tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. This unique combination positioned this option at the top for building tax-efficient savings, especially in the critical years leading to retirement.
Of course, I’ve been fortunate to be surrounded by others who have completed the thought exercise before me to gain wisdom on this matter, so I want to pass on the same wisdom I inherited to you as the reader. Making your health insurance election on a yearly basis may seem like an unimportant, remedial task. A decision that may or may not impact you on a day-to-day basis in the near term, but I would encourage you to think about it from a longer term perspective. As someone with 20-30 years until retirement, the decision to choose a HDHP and leverage the benefits of an HSA are clear. The Triple Tax Benefit not only allows an individual to save on taxes today but also ensures that contributions grow tax-deferred over the years (if invested). The prospect of tax-free withdrawals for medical expenses during retirement is an enticing incentive to build a substantial HSA nest egg. Most don’t realize that once you’ve elected to be on Medicare, the HSA can continue to be utilized to pay medical expenses or act as taxable brokerage account.
Furthermore, contributions can roll over annually (unlike a Flexible Savings Account), ensuring that any unused funds aren’t lost. This aspect, combined with the fact that post-65 withdrawals become penalty-free for ANY expense (after your Medicare election), transforms the HSA into a dynamic tool that adapts to the changing rhythms of a family’s life.
In a landscape where every financial decision matters, the HSA is a strategic ally. Choosing an HDHP and maximizing the benefits of the HSA isn’t just a decision for today; it’s an investment into your family’s future financial well-being. The HSA’s unique features provide a blueprint for long-term financial success, offering both flexibility and tax efficiency – hence, making it the MVP of financial accounts.
The HDHP and HSA option provide additional opportunities not mentioned above. If you have questions about your health insurance options through your employer and would like to discuss the election that fits your household best, don’t hesitate to reach out to our team at LeConte Wealth Management. We’re here to guide you on investment, planning, or tax needs to ensure your financial success.
