Health Insurance for New Dummy Grads

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🍎 I just graduated from college and got my first job as a SWE. I had very little idea of how health insurance worked. But I read a lot of documents, spent nights in the library burning the midnight oil, and made a quick tl;dr medium post.

🚑 Every time you get paid, you chip in a little bit to the cost of having a country, you know, taxes. But you can reduce how much you have to chip in. Read on for learning how you can save on taxes and pay your medical bills.

🏛 In the hallowed halls of Congress, the HSA bill was born to help people save taxes and help with medical costs. HSA allows you to put money aside from your paycheck to cover health care expenses and avoid paying federal (and state) income taxes on that money. Think of the HSA as a steel jar with your money which Uncle Sam’s pet Eagle can’t get into. You should always max out your HSA, cause even if you don’t end up using all the money this year, the money you put in your HSA is yours to keep. Leave your job, move to a different country, join the circus, whatever, its yours, forever. HSA funds can be used towards dental and vision expenses too. But since its pre tax money, you should probably keep all your HSA money for medical costs.

🏥 Why should you use HSA?

Money going into your HSA directly from your pay, doesn’t get taxed. Its a black box that the government can’t touch. You can then use the dollars in your HSA box to pay for your qualifying health care expenses. Your HSA belongs to a very special person, you. Not tied to your job. Any money going into it, is yours to keep. The idea is, you’re for sure going to have some medical costs in life(if not now). HSA lets you save up for health care costs in the future, while saving you money on taxes now. At the end of the year, you are going to pay the same amount for health care, no matter how you pay for it. But paying from HSA, means you will not be paying taxes on those dollars.

🚑 What are the limitations of HSA?

The first limitation of HSA, the money in your HSA can only be taken out for qualified health care expenses. Otherwise you will pay taxes on it and pay a 20% penalty to boot (unless you pull out the cash when you’re 65, disabled, or …dead). Good news is that you can use HSA on care that most health professionals would consider necessary. Some things that aren’t covered in HSA:

  • Vitamins
  • OTC meds (unless you get a prescription)
  • Cosmetic surgery
  • (you should know this) spa retreat and sky diving

(Check out the actual long list before you decide to pull money out for medical expenses though.)

Another limitation is that an individual can only deposit $3550 into their HSA in a given year. (This is written in 2020). If you’re 55 or older, you get to deposit another $1000(yaay!) ALL the money you put in there is going to count to that $3500 limit. So if your company graciously gives some money as part of your insurance plan to add to HSA, it is going to reduce how much you have to contribute in that year.

🏥 Why use HSA and save for future?

Biggest benefit like I said before, you will save money on taxes (not just right now, but later on as well). If you can afford to, pay your bills yourself and let the tax-free savings build up. You can actually use the money in your HSA and invest in mutual funds and other assets; AND those investment earnings are not taxed. 😁 😁 😁

If you save your receipts now, you can reimburse yourself for old expenses anytime. Example: you want to buy a boat in 2028, you can reimburse yourself for all the dental work you had gotten done in 2023. Smooth Sail.

🏥 You can use another account LFSA (Limited Flexible Spending Account) for your medical bills. In the same hallowed halls of Congress, another bill was made to help you save taxes on dental and vision care, and medical costs after you’ve paid your deductible. How? Money going into your LFSA doesn’t get taxed. Its kinda like the HSA, but of course, it is a little different. In HSA you can only use the money once you have deposited, or had it deduced from your paycheck;

🚑 Let’s say you commit to save $1000 in your LFSA over the year. From Jan 1 of that year, you can use the full $1000 for your vision and dental. FSA even offers a debit card, making it easier to pay. Once you have paid your deducible, you can use this money on medical expenses too. It doesn’t cover certain things, like if you decide to have bleached white teeth, the money isn’t coming from your LFSA. The Limited Flexible Spending Account has (the first word suggests) Limitations. You can only contribute up to $2750/year to LFSA. If you have money rolled in from previous years, it is contributed to your LFSA. It has three use it or loose it rules:

  • Once you set aside the money for LFSA, you generally can’t change your mind later.
  • It is tied to your job, i.e. if you go to work somewhere else, you lose any money you haven’t spent.
  • You need to spend all but $500 by December 31, or else you will lose it. Anything more than this amount, doesn’t get rolled over into the following years account.

🍏 Bottom line: It is a great way for saving on taxes, as long as you’re sure you need to spend the money anyway. Because of this, many people only use this after they have maxed out their savings of the HSA.

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