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The Beauty of HSAs Portfolio Matters | Christine Benz

higher out-of-pocket costs. Instead, the key benefit is that participating in a high-deductible plan enables you to invest in a health savings account. Such accounts offer the only triple tax advantage in the whole tax code: You contribute pretax monies to the account, enjoy tax-deferred compounding, and take tax-free withdrawals for qualified health-care expenses. This “three-fer” and the fact that there simply aren’t that many tax-advantaged savings vehicles available are reasons why Morningstar.com readers were so enthusiastic about their HSA s when I queried them on this topic last year. (In the interest of full disclosure, I’ll say that I’ve been a happy HDHP participant/ HSA owner for the past year and recently reupped for this option as part of Morningstar’s health-care plan.) Roger Wohlner, a financial planner with Asset Strategy Consultants in Arlington Heights, Ill., believes that the HDHP / HSA combination can be beneficial on several levels. “The difference in premiums alone generally makes a high-deductible plan with an HSA a good deal. The HSA option also provides a ‘piggy bank’ if needed to meet the deductible and can serve as a great tax-deferred savings vehicle.” Sue Stevens, CEO of Stevens Wealth Management in Deerfield, Ill., also likes HSA s as tax-deferred savings vehicles and encourages clients to take advantage of them. She notes, however, that “more clients could be taking advantage of them, but they don’t really understand how they work.”

Employees are increasingly being offered more high- deductible health-care plans, which are often accom- panied by health savings accounts. According to a late- 2012 report from consulting firm Mercer, 22% of employers now offer a high-deductible plan, and 16% of workers are enrolled in such a plan. The larger the employer, the more likely an HDHP / HSA com- bination will be on the menu. In some cases, high- deductible plans are employees’ sole health-care options; at other employers, workers can choose between a traditional health-care plan with a higher premium and/or one with a higher deductible. For workers who don’t have cash on hand to defray health-care expenses, being forced into a high- deductible plan can be a major bummer. Not only could unanticipated health-care expenditures—and correspondingly high out-of-pocket costs—derail their budgets or force them to take on debt, but being on the hook for high out-of-pocket costs also could prompt them to delay attending to their health-care needs altogether. But for higher-income workers, a high-deductible health-care plan can be a terrific option. For people with few health-care expenses, the plans can be a win from the get-go because they typically feature lower premiums to compensate for the insured party’s high out-of-pocket costs. (Of course, the opposite can also be true: If one encounters a medical condition— especially if it’s a rare health condition that is costly to diagnose and/or treat—the cost savings of lower premiums can quickly be swallowed up by high out- of-pocket costs.) However, the real benefit of a high-deductible plan for higher-income workers isn’t so much the year-to-year premium savings, which may or may not be offset by

Here are some common objections to HSA s as well as a discussion of whether those objections are valid.

Objection 1 | Aren’t HSA s “use it or lose it”? No. People often confuse HSA s with flexible-spending accounts, which until recently were “use it or lose it”—meaning that the money couldn’t be rolled over from one year to the next—unless plans allowed employees a grace period. Unused monies in HSA s, by contrast, always automatically roll over from year to year.