Health care costs continue to rise in the U.S., particularly out-of-pocket costs for the average employee. When it comes to the benefit options these employees are typically offered by companies and organizations, a related trend is emerging: Health Savings Accounts (HSAs) are growing in popularity.
Put most simply, an HSA is a medical savings account, designed to fund only approved or “qualified” medical expenses, and only available to people enrolled in what’s called a high-deductible health plan (HDHP) – generally defined as a plan with a lower premium, but higher deductible.
So why are HSAs so popular? What’s so great about them?
Here are 10 reasons to love HSAs:
1. HSAs compound the value of a HDHP
HDHPs are already 30% less expensive than traditional health care plans, on average. That savings can be invested in an HSA, which leads to a number of financial and other benefits, as you’re about to see.
2. HSA contributions are tax deductible
As long as you use your HSA funds for qualified expenses, you’ll never pay taxes on them.
3. HSA funds can be used for qualified vision and dental expenses
For example, many people
choose to use their HSA to pay for things like braces or corrective vision
surgery, which are not normally covered by dental and vision plans.
4. Your dependents are covered by your HSA
Not only can you use your HSA funds to pay for the qualified medical expenses of your dependents, you can still do so, tax-free, even if they’re not on your health plan.
5. Unused HSA funds roll over each year, and from job to job
Unlike a Flexible Spending Account (FSA), an HSA is not a “use it or lose it” situation. The account and any money you contribute to it is yours, even if you don’t use the funds that year, and even if you stop working for a currently contributing employer.
6. HSAs have flexible contribution limits
As of 2019, you can contribute up to $3,500 as a single or $7,000 as a family to your HSA annually, including employer contributions. However, you can still contribute towards a previous year’s limit up to the time of tax filing. Moreover, if you are 55 or older, you can contribute an additional $1,000 each year as a “catch-up” contribution towards future health care needs.
7. You can use your HSA to reimburse yourself for qualified medical expenses later
Some people may choose to do this simply out of convenience or to help with budgeting. Others may want to pay for medical expenses first with a credit card that has rewards, for example, pay that bill and then reimburse themselves from the HSA.
8. HSAs can be a great investment vehicle for retirement
Many HSAs allow you to invest, like a 401(k). However, unlike a 401(k) – which requires you to begin taking minimum distributions at 70.5 years old – an HSA does not require minimum distributions. This leaves you with tax-free money, set aside specifically for health care expenses, at a time when you’ll likely need it.
9. Starting at age 65, your HSA can pay for Part B and D Medicare premiums
As with the previous item, this feature perfectly aligns the purpose of an HSA with time of life.
10. An HSA can be used to pay COBRA premiums
Once again, it’s a great benefit to have tax-free money on-hand in an HSA to pay for what may be an unexpected expense.
Making the Complex Simple
As medical costs rise, HSAs are becoming an attractive benefit. With so many reasons to love them, now may be the time to speak with an advisor about HSA options for your business or organization.