While health insurance protects us from shelling out a ton of money for our medical bills, they may not help with long-term costs. The lowest tier of health insurance in the U.S. can only cover 60% of healthcare expenses. As of 2019, healthcare plans imposed a maximum out-of-pocket limit of $7,900 for individuals and $15,800 for families. For most Americans, that’s a lot of money to let go before their coverage handles the rest.
Plus, insurance providers may deny your claims for various reasons. And they are allowed to do this, as long as it is following their policy. For instance, if the service you availed isn’t covered by the plan, usually a cosmetic surgery or treatments not approved by the FDA, your provider will not cover for it.
But in some cases, your insurance provider may also be acting in bad faith. This means an insurer’s attempt to renege on their obligations to their clients. They will flatly refuse coverage without even investing or processing your legitimate claim.
A bad faith insurance attorney can help you deal with a provider acting in bad faith. But before you land yourself in such a situation, you can increase your healthcare savings now to avoid the tricky side of insurance.
Opening a Health Savings Account
A Health Savings Account (HSA) is similar to a personal savings account but specifically designed solely for qualified healthcare expenses. If you are enrolled in a High-Deductible Health Plan (HDHP), you are eligible for an HSA.
You will be making contributions, which has a limit of $3,550 for individuals and $7,100 for families. The contribution limits increase yearly to account for inflation and rising costs.
If you are 55 years old or older, you may also contribute an additional $1,000 to your HSA. It is known as the “catch-up contribution.”
To use your HSA, your HDHP has to meet specific requirements. For instance, individuals must choose a plan with a minimum annual deductible of $1,350 and a maximum out-of-pocket of $6,750. On the other hand, families must select a plan with a $2,700 minimum annual deductible and a $13,500 out-of-pocket limit.
There are several benefits to an HSA. A wide range of medical, dental, and mental health expenses qualify in it, so it’s ideal for individuals or families in need of specialized healthcare services. Others may also contribute to it, such as your employer, relative, or anyone else who wants to help you increase your HSA. But they also have to abide by the contribution limit, which isn’t an issue because it raises your savings all the same.
What’s more, the HSA isn’t subject to federal income taxes. That’s because the contributions are made with pre-tax dollars through payroll deductions, and as such, you can deduct them from your gross income. Likewise, your HSA withdrawals aren’t taxable as well if you use them for qualified healthcare expenses.
Your HSA will earn interest too, which is not taxable as well. And if you have leftover funds in your HSA at the end of the year, they will roll over for the following year, meaning they’ll be readily available for whatever future healthcare service you’ll pay for in the future. Even if you get a new employer, retire, or change your health insurance plan, your HSA stays with you. After all, it is essentially a personal savings account that you own.
Your HSA in Your Retirement Years
More and more people are using an HSA to fund their retirement goals because it has amazing perks for people aged 65 and above. First of all, they can take their distributions from their accounts without facing tax liabilities. As such, you can contribute up to the limit every year without tax, which grows your tax-free income.
Furthermore, if you open an HSA now and have it until you turn 65, the IRS will no longer restrict you from using the money for expenses other than healthcare when you retire. You’ll be allowed to use it however you want, be it vacations, home modifications, or collectibles.
Getting the Most of Out of Your HSA
To maximize the worth of your HSA, contribute to it as much as the law permits every year. If you have extra cash to pay for your healthcare needs, consider using it instead of deducting it from your HSA. Of course, this isn’t an option for everybody, but if you’re capable, then take advantage of it.
There is a huge incentive for not touching your HSA: it will grow your tax-free income and allow you to deduct without tax liabilities in your retirement, as mentioned above. Hence, prioritize taking care of your health while you’re still young so that your hard-earned money will only go to the things that make you happy now and in the future.