I disagree with HSA being a retirement plan, but yes, they give the person more control, something for the long term. There are some tax advantages to building it as retirement savings that streamers like to focus on, but that really should be a second priority to covering a lifetime of healthcare
Last time looked closely, the tradeoff in my company was that for an identical cost for me, I could choose
Traditional ppo with low copays and deductibles
High deductible health plan (HDHP) plus HSA to fully cover the annual deductible
That made it very compelling: the coverage should almost always be equal for equal cost. But unusually we don’t need that much medical care so I’d have something left over to help pay for next year. If we were able to start with just a couple healthy years, it would really make a difference in health costs. If you started young, it’s true that you build up a lot of savings for retirement, but it would only take a few healthy years at any age to cover, say a major operation (always in conjunction with HDHP). Or I don’t know if you could use it for COBRA if between jobs, but if you had enough you could cover even uninsured healthcare. The trick of course is how do you keep making an optional contribution when money is tight?
Think of it this way. What is the difference between putting money in a savings accout vs an HSA.
First it is pretax money so you get some savings there.
Second no tax on growth.
I am sure you can guess which is a bigger financial gain overall.
But now think about this. You have a $1000 medical bill. Do you pay it from the hsa or you savings account.
Well both are getting interest, but the HSA is probably getting a higher rate if invested in the stock market. And the HSA has tax free interest unlike the bank account. So the correct financial answer is to pay it from your savings account, and leave the money in the HSA for retirement. Thus it’s really a retirement plan.
The key thing is that only people who have the extra money can afford to use it. So poorer people don’t get any benefit from it at all.
I disagree with HSA being a retirement plan, but yes, they give the person more control, something for the long term. There are some tax advantages to building it as retirement savings that streamers like to focus on, but that really should be a second priority to covering a lifetime of healthcare
Last time looked closely, the tradeoff in my company was that for an identical cost for me, I could choose
That made it very compelling: the coverage should almost always be equal for equal cost. But unusually we don’t need that much medical care so I’d have something left over to help pay for next year. If we were able to start with just a couple healthy years, it would really make a difference in health costs. If you started young, it’s true that you build up a lot of savings for retirement, but it would only take a few healthy years at any age to cover, say a major operation (always in conjunction with HDHP). Or I don’t know if you could use it for COBRA if between jobs, but if you had enough you could cover even uninsured healthcare. The trick of course is how do you keep making an optional contribution when money is tight?
Think of it this way. What is the difference between putting money in a savings accout vs an HSA.
First it is pretax money so you get some savings there. Second no tax on growth.
I am sure you can guess which is a bigger financial gain overall.
But now think about this. You have a $1000 medical bill. Do you pay it from the hsa or you savings account. Well both are getting interest, but the HSA is probably getting a higher rate if invested in the stock market. And the HSA has tax free interest unlike the bank account. So the correct financial answer is to pay it from your savings account, and leave the money in the HSA for retirement. Thus it’s really a retirement plan. The key thing is that only people who have the extra money can afford to use it. So poorer people don’t get any benefit from it at all.