Now that you know all about Health Savings Plans and how they benefit you, you may be wondering, “What’s the difference between an HSA and a traditional health plan? Should I choose an HSA or a PPO?”
If you qualify for a high-deductible healthcare plan, you are eligible to open an HSA. Depending on your situation, personal health, and healthcare goals, you may choose to use an HSA with a high-deductible health plan (HDHP), or to lean on a traditional healthcare plan. All of these are valid options said Dahna Sanders, Senior Workplace Banking Representative with First Merchants Bank.
“One option isn’t objectively better than the other,” she explained. “It really comes down to which one is the best option for you and your healthcare.”
While you’re weighing your options, Dahna advises that you look at your household’s medical needs through a financial lens. Do you typically spend a lot on healthcare services, doctor’s visits, or prescriptions? Do you have a major surgery coming up, or need to plan for maternity care or braces?
If you find that you and your family don’t often utilize medical services and care, allotting most of your healthcare spending to an HSA may be a better option.
“Maybe you just go in for your routine physical examinations, but don’t need a doctor or medical services otherwise – in this case, choosing to predominately fund an HSA over a PPO may be the better option,” Dahna said. “Because at that point, if you had a PPO with a higher premium, you’d be paying a lot for health insurance and not getting much out of it – and that cost can be a strain on some households.”
If the cost of that high insurance premium were instead allotted to an HSA, families with few medical needs can likely cover the full cost of medical care, without the headache of a PPO.
“In an HSA, that money can grow – it’s not being depleted or disappearing each month, so it will build,” she explained.
And, since the balance of an HSA rolls over each year, that account balance will grow year after year – but keep in mind that maximum contribution amount. For 2023, the max amount you can contribute to an individual HSA is $3,850. If you have an HSA plan that covers expenses for other family members, the max contribution will be $7,750. However, be aware that these limits do change each year – so you’ll need to stay up to date on the latest contribution maximum.
However, if you do have a lot of medical expenses – regular doctor’s visits, dental procedures, eye exams, or several prescription medications – you probably don’t want to write off a traditional PPO.
But, if you have a larger, known medical expense coming up, an HSA can be a great solution, Dahna said.
“If you know of a surgery or a medical expense coming up, and you have the ability to save, an HSA may be an appropriate choice that would add an additional benefit,” she explained.
“I like to share an example from my own life,” she added. “I knew my daughter was going to need braces. It was obvious. So, I started planning a few years ahead of time; I budgeted out the likely cost of the procedure and got an HSA. Over the next few years, I made regular contributions to my HSA and started to build up that balance – though I had to be careful not to exceed the yearly contribution limit. When my daughter got braces, we entered a monthly payment plan, and payments were automatically debited from my HSA. So that cost never affected my monthly budget.”
An HSA is also a good option if you have monthly prescriptions, but don’t have those larger, regular medical expenses that might require a healthcare plan with a higher premium.
However, Dahna underlined, in her mind, having an HSA is never a bad choice.
“I hands down believe in HSAs,” Dahna said. “Ultimately, it’s up to you to decide what is best for you and your family, and what you can swing with your budget – but if you have the freedom to put money aside into an HSA, I don’t think that’s ever a bad idea.”
So, want to find out if an HSA is right for you? Our HSA Calculator can help you get started.
Did you know First Merchants offers Health Savings Accounts? Check out our HSA offerings.
Please note that this information is not intended or provided to be used as a substitute for the advice of a tax professional. You are encouraged to consult with a licensed tax advisor regarding personal financial decisions.
