By: Kelly Majdan, AIF, QPFC, CRPS – Managing Director, Pensionmark
As of December 2019, Health Savings Accounts (aka HSA) turned sweet 16! Given the fact they have only been around for 15 years, maybe it shouldn’t be so surprising to find out that these accounts remain somewhat of a mystery to many employees and employers, much like how at times, my 16 year old son remains a mystery to me! Yet, for such a valuable tool for employees in the overall planning for those golden years, only about 54% of those surveyed were aware that these accounts even existed1. In fact, a recent survey by Bank of America found that only 11% of employees and 7% of employers could correctly identify four basic attributes of HSA’s2.
With this in mind, now might be a good time to look at some of the mysteries around these accounts to see how they might fit into that family budget you are working so diligently on (remember that ever present resolution!). And don’t wait to assess these accounts during your next open enrollment!! It is best to review these types of programs when you can evaluate your options without the pressure of having to make a decision about your finances in a limited amount of time – like open enrollment. The following are a few key mysteries around these accounts that will hopefully encourage you to take a second look and gauge whether or not you should utilize this as part of your current, and future, healthcare expense savings plan.
Mystery #1: What do you mean I don’t lose the money if I don’t use it?
Yep! We have been so programed over the years to use our Flexible Spending Accounts (FSAs) for our medical expenses that it is a bit hard to imagine that an account set up through your employer for this purpose can stay in that account beyond the year in which you contribute to it. That is one of the beauties of HSAs! It is not a use it or lose type of account. The money you contribute to an HSA will be there, if you don’t use it for current medical expenses, for years beyond the year you contribute to it. That means if you have the where with all to pay for your current medical expenses out of pocket you can let this account continue to accumulate for years. Some HSAs even have the option to invest a portion of the account. Which is worth looking into, especially if you are planning on saving long term – which, by the way, is a good plan!
Mystery #2: You mean I can take this account with me?
Yes again! Unlike their older brother the FSAs, which are employer plans. HSAs are portable because they are individual plans! An HSA is your account, so when you leave your employer you can leave the account there or roll it to another HSA account. You can even combine accounts if you had one at a previous employer and open a new one at your new employer. Make sure you keep track of these accounts! Much like forgotten 401(k)s, this is your money, take it with you or at least make sure you know where it is – hint, hint!
Mystery #3: How about changing what I am saving to my HSA during the year – I bet I can’t do that!
Well, actually, you can. An HSA is a voluntary savings account for medical expenses, now and in the future. If you run into a situation where you cannot currently save to the account, speak with your employer, you can stop your contributions at any time. Most employers will let you start again at any time as well, but make sure you ask your employer about that too.
As an added benefit – keep in mind that these accounts are tax deductible accounts as well. As long as your contribution is deducted from your pay through payroll, you could enjoy triple tax savings. Which means that not only does the contribution you make to your HSA reduce the income you pay Federal and State taxes on (if you are in a state that has a tax rate), you also reduce what you pay to FICA.
Now that these mysteries have been solved, is it time to take another look at your healthcare benefit options? If you are not utilizing an HSA, it might be worth finding out more to see if this fits with your overall savings and healthcare plan.
Before you go, there are a couple things you will want to look into as you explore your options. Such as reviewing the High-Deductible Health Plan (HDHP) to make sure it fits within your budget and meets you and your family’s healthcare needs. Most providers will have a calculator you can use to look at the estimated premiums costs and the deductible you would need to meet. Evaluating whether or not this is something you can manage in case you have an unexpected health emergency should be part of your planning. Plus, some HSAs have debit cards that come with them so you can use the HSA as a forced savings account for those expected, or unexpected, medical expenses. Also, find out if your employer is contributing to the HSA – some employers might make a lump sum deposit or offer a match. It is certainly worth exploring with your employer, after all, if your employer left pizza in the breakroom, you would be sure to grab a piece, right? Well, maybe not if you are following a keto plan…but I think you get my point!