For many years, I wasn’t paying too much attention to our healthcare expenses. In the good ole’ days before Obamacare starting causing premiums to skyrocket, I used to just have an HMO which covered virtually everything 100% with reasonable premiums. Over the past few years though, I started to see premiums skyrocket (43% increase one year!) and options dwindle to the point where I really had to start getting selective about not just which program to use, but also how we save in tax-advantaged accounts and consumer healthcare services.
Fast-forward a couple years to a new employer (here’s the scoop on how I negotiated a substantial pay increase) and I had not only a few plans to pick from, but the opportunity to invest in an HSA. Honestly, I hadn’t given HSAs much thought in the past, because they are only available under “high deductible” health plans and I used to favor a low deductible. But this year, it made sense. I’ll first talk about why an HSA is not just your best option in a health plan environment, but it beats ALL investments. Next, I have to share an Rx option that I just came across today and can’t be more excited about.
1. HSA BEATS ALL OTHER OPTIONS
Let me say it again. If you have the opportunity to use an HSA tied to your healthcare plan, max it out. Reason being, it provides the best tax advantages possible and is the most flexible. Here are some key bullets to drive it home:
- Pre-tax funded: Just like a 401(k), any funds diverted to an HSA come out of your taxable income, so you aren’t taxed on what you put it.
- Grows Tax Free: Just like either an IRA or 401(k), the investments grow tax free.
- No Taxes Upon Withdrawal: You don’t get taxed on the back-end either! So, this is like a Roth IRA where you can spend those funds at 65 without paying tax on them, but unlike the Roth where you had to invest initially with post-tax dollars, the HSA funds also gave you the tax deduction up front! It’s like combining the best of the Roth and Traditional IRAs with no tax downside.
- Ability to Roll Over into Future Years: This is one of the biggest hesitations, that funds will be lost like the old FSA “use it or lose it” provision. The thing is, you can keep rolling over for years and the reality is, don’t be worried about building up a huge balance, even at $50,000. In retirement, you can use these funds for everything from expenses (which you will have many as you age!) to even Medicare premiums – which will be there, don’t worry.
- Ability to Invest Funds in the Market: If it was in a cash account, it wouldn’t be nearly as attractive, but since you can invest in typically low-cost index funds (depending on your plan), you can enjoy the same market growth you would in any other investment plan.
- You’d Have to be an Idiot Not to Use an HSA: There is not better investment vehicle for routine workers. Sure, maybe a deferred comp plan for executives making $300,000+ per year. But aside from that cohort, the HSA is the next best thing.
There you have it, even if you think you’re doing a great job investing some money on the side on a taxable account or even maxing out your 401(k), after you hit the company match on your 401(k), you are actually best-off diverting your next traunch of funds to an HSA since a 401(k) is taxable upon withdrawal.
As of 2016, you can contribute up to $3,350 per individual or $6,750 for a family (plus $1,000 annual catch-up contributions are allowed once you’re 55). You can see how a young worker could easily build a 6 figure HSA account.
2. ABSOLUTE BEST WAY TO SAVE TONS ON RX PRESCRIPTIONS
There have been articles written before about shopping around for drug prices from various pharmacies, but until today, there was nothing like the site/app I discovered. True, you can often get a better price for a script at a Costco or Walmart compared to CVS and other drug stores. But, this site/app Blink (no affiliation, no comp to write about it – I just it in NYT today and tried it out – Amazing!) has a simple 1 step signup and have a massive catalogue of every possible drug/formulation/count you can think of. Just plop in a generic antibiotic, cholesterol drug or whatever and you get a rock bottom price. You buy through the site or app itself (and they are offering a $5 coupon first purchase) and simply go pick up your script at a local pharmacy after showing them the voucher. I will tell you, even for generics, I’ve seen a $50 at a CVS and $13 at Walmart for the same thing.
This is especially key for me since I have a very limited drug plan given the very low premium high deductible plan I chose. See, my premium is quite low and we have nobody in the family on chronic meds, so I figure it’s just the occasional ear infection or unanticipated event (usually a generic) which would require a script. But when a script is needed, this will save us money big-time.