I don't have health insurance through work and I've been thinking about increasing my deductible so I can open a health savings account. What type of calculations should I do to figure out whether this would be a good move for me?
If you're already buying insurance on your own, it's generally a good move. You'll need to compare your premium savings by raising your deductible to the extra out-of-pocket costs you could incur, and you'll also need to factor in your tax savings.
The following example from eHealthInsurance.com shows how much a typical family could save by switching to an HSA. A San Diego couple in their mid-30s with two kids would pay about $9,936 per year in premiums for a health insurance policy with a $500 deductible. If they raised their deductible to $4,800, they could lower their annual premiums to $2,712 -- a $7,224 savings. They could then set aside $4,800 in their HSA to cover the full deductible and still have $2,424 in extra cash left over. If they were in the 25% federal and 9% state tax bracket, they'd lower their tax bill by $1,632 per year by contributing to the HSA. (In your case, your HSA contributions would be tax deductible; in employer-provided plans pre-tax contributions are made.)
Then say they only used $2,000 from their HSA for medical expenses each year, leaving an extra $2,800 in the account to grow. If that continued for the next 30 years and the money was invested at just 4%, they'd have $162,484 at retirement.
You can get an even bigger bang from the HSA if you can afford to pay your out-of-pocket medical expenses from other money (cash or a flexible-spending account at work, which you'd need to spend by the end of the year anyway) and leave the HSA account to grow tax-deferred for decades. You'll have to pay taxes, but no penalty, if you use the money for non-medical expenses after age 65, but you avoid the tax bill entirely if you use the money for medical expenses at any age -- giving it even greater tax advantages than a 401(k) or IRA.
"It's one of the few things that's tax-advantaged on the front end and the back end," says Maureen Cotter, who runs an independent health-care consulting firm in Dearborn, Mich.
Go to HSA Insider.com for a list of insurance companies offering HSA-eligible high-deductible policies in your state (this site also lists financial firms offering the savings accounts). You can get price quotes from several insurers in most states at eHealthInsurance.com, then run your numbers through the site's calculator to see how the tax benefits and long-term savings could add up in your particular situation. See Health Savings Account Answers for more information about HSAs.
GETTING STARTED
