There is a common saying that time heals almost everything. Yet, even as we embark on the fifth year since the pandemic began, most of
Taking Time to Explore Health Care Options: There’s Value in Not “Going Big”
Published Date : March 3, 2015
Big, expensive, “full-service” health care policies may seem like the first choice for affluent individuals who may feel that they can afford such a policy. After all, why not pay for the most coverage available?
With careful exploration, comparative analysis, and a fresh view of all overall out-of-pocket medical expenses, the choice worth considering might well be a high deductible plan offering significantly lower annual premium costs and interesting tax advantages in the form of tax-free savings in an accompanying health savings account (HSA).
As with homeowner insurance coverage where you insure against a large loss and not the cost of losing a picture frame, affluent families need not worry about small expenses such as doctor’s visits. Instead, they need protection against catastrophic health risks. The no-deductible high premium policies offer attractive coverage for expenses such as a visit to the primary care doctor or a trip to the rehabilitation physical therapist. Though the savings on such expenses may add up, there may be a better solution.
Instead of a traditional premium policy, let’s consider high deductible plans that offer dramatically lower annual premium expenses and an opportunity to do some effective tax-favored saving with the differential. In some cases, you will find that the all-in cost of the high deductible policy (premium plus out-of-pocket costs) is very close to just the annual premium on the no-deductible policy. With the no-deductible policy you’d still have the big out of pocket limit to potentially pay each year, thus significantly exceeding the all-in annual cost of the high deductible plan.
Additionally, high deductible plans allow an individual to contribute to an HSA account, providing the policy holder more control over how he/she saves for and manages health care expenses. An HSA account is like an investment account with the specific purpose of funding medical expenses. Funds within an HSA can be used to cover the annual deductible and or specific charges.
According to IRS guidelines for 2015, contributions to an HSA are limited to $3,350 for an individual and $6,650 for a family. Like retirement accounts, older account holders have the opportunity to contribute more than the standard limit. HSA account holders ages 55 and older get to save an extra $1,000, which means $4,350 for an individual and $7,650 for a family.
A significant benefit of the HSA is that after-tax dollars are 100% tax deductible from gross income and pre-tax dollars are tax-exempt, making this a viable part of your tax and medical plan strategy. Within an HSA account, contributions can be invested, earning tax-free interest.
Withdrawals are not taxable if used to pay approved expenses. However, funds withdrawn for non-medical purposes prior to the account holder reaching age 65 are penalized 20% and also taxed at regular income tax rates. After 65, withdrawals for non-medical needs are not penalized and can be used like an IRA withdrawal for any personal needs. They are taxed as regular income since contributions were made on a pre-tax basis. An HSA is the only retirement-like account that are 100% tax-free if used for medical expenses – they aren’t taxed on the way in or out.
If you know you’re likely to meet your out-of-pocket limit, with a high deductible plan you can do it upfront with 100% coverage beyond the out-of-pocket expense. Remember Michael Mantell’s quote “Don’t sweat the small stuff”? Protecting against a major health event with as little all-in out-of-pocket expense is a valuable strategy. It may not be a solution for everyone but it may make sense for you and your family.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Recent Posts
