Is a Health Savings Account the Right Choice When Choosing Benefits?
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Here's your money briefing for Tuesday, November 17th. I'm J.R. Whalen for The Wall Street Journal. This month, we've been looking at different health benefits options to consider during open enrollment. Today, we'll be talking about health savings accounts. An HSA can be a valuable tool for covering medical expenses, but it requires careful planning.
Health insurance plans are complicated, right? You have to account for the premiums you pay, you have to account for the deductibles, and then there's the copayments. And so there's a lot of moving parts.
Coming up, our retirement reporter Ann Turgason will go over the benefits of an HSA, including some you might not think of, like how it can help you save for retirement.
What is a Health Savings Account (HSA) and why discuss it during open enrollment?
That's after the break.
More companies are offering employees health savings accounts as part of their benefits package, and many match employee contributions throughout the year. But are health savings accounts for everyone? Our retirement reporter Anne Tergesen is here with details. Anne, thanks for being with us. You're welcome. So, you know, there are a lot of moving parts when people are considering signing up for health benefits. What should they consider when thinking about a health plan?
Increasingly, employers are offering what's called a high deductible health plan, sometimes paired with a savings account called a health savings account. So increasingly, people have a choice between the regular conventional coverage, which has relatively high premiums, but low deductibles. And then on the other hand, they have a choice of a high deductible plan, which is exactly what it sounds like. It has a higher deductible. and lower premiums. So that's the essential choice that a lot of employees face at this time of year.
So when it comes to their health, how should that work into their decision-making?
I think the conventional wisdom is that if you have a lot of healthcare needs, if you're not in great health, and you see the doctor often, the conventional wisdom is, oh, I'd be better off with the regular conventional health plan where I pay higher premiums, but I have a lower deductible. But that's actually not true. Or it's not always true, I should say. People really kind of need to do a couple of... you can do a couple of different kind of mathematical back of the envelope type calculations that can help you help guide your decision. Because in reality, employers, not always, but often employers offer an incentive for people to join the high deductible plan, which is that they will make a contribution, often of as much as $1,000 to the health savings plan to get you to join that.
So sometimes that contribution alone can really swing the math in favor of the high deductible plan. You also have tax savings that you would have with a health savings account, which can again favor the high deductible plan. So it's important to run the numbers and figure out, given your situation, given your finances, given the choices in front of you, what are the actual numbers in your case?
What are you hearing from financial experts you've spoken to about the importance of people taking the time to put all those numbers together and, you know, not get too scared away by that?
when people have choices, particularly when they're kind of complicated choices, their tendency is just to kind of freeze and say, you know what, I'm just going to stick with what I have. I know that works and I don't want to make a mistake here, so I'm just going to stick with what I have. And I think that that is what happens when it comes time to choose a healthcare plan because health insurance plans are complicated, right? You have to account for the premiums you pay, you have to account for the deductibles, and then there's the co-payments. And so there's a lot of moving parts But, you know, I think especially now, given COVID, I think people from what I'm hearing from financial advisors is that people are more focused on this.
They really want to try to maximize the benefit of whatever coverage they have.
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