I’ve recently begun working for a health plan based here in upstate New York. I’m thoroughly enjoying the job, and have learned a lot, but without a doubt the biggest revelation came from enrolling in their Health Savings Account (HSA) along with the High-Deductible Health Plan (HDHP). Yes, it’s insurance talk but don’t nod off, this is good stuff, I promise!!
I’ll write another time about the HDHP (see below for a brief overview). For today, I’m just going to focus on what is nothing short of a starry-eyed, head-over-heels love affair I have been having with my HSA (or “Holy Super-Awesome Account” as I call it). This is the single most generous benefit ever to be made available by the US government (they’ll probably figure it out and shut it down someday). Simply put, an HSA allows you to contribute money tax-free to a savings account for health care expenses, either now or in the future. But as Mr. Popeil would say; wait, there’s more! In addition to tax-free contributions, you can save or invest the money which grows tax-free, which can then be spent on qualified health expenses also tax-free! Triple tax savings! But the tax stuff is just the tip of the iceberg…
To show off the other ridiculously cool features of the HSA, I’m going to compare it side by side with an FSA (Flexible Spending Account) which most people are more familiar with. The FSA is another tax-advantaged account for medical expenses. It’s a good benefit – primarily because it’s ‘flexible’ and can be paired with most health plans, whereas the HSA is only paired with HDHPs – but the FSA is thoroughly trounced by its far more handsome and powerful cousin.If that doesn’t blow your hair back, here are a few other highlights:
- 100% Vested: If your employer contributes additional funds to your HSA account (and many do), it’s 100% yours as soon as it’s deposited. You can leave the day after an HSA deposit and take it all with you! (This is opposed to, say a 401(k) match, where you are vested over time. If you leave, you get only a portion of the match based on length of service.)
- Retirement for All! You aren’t required to spend HSA money on health care costs. You could pay for medical needs out of your after-tax dollars, and just consider the HSA another tax-advantaged retirement account, with no income restrictions! (The Roth IRA for example, isn’t available to very high income-earners). At age 65 or older, you can continue to use the money tax-free for medical expenses, including Medicare Advantage premiums, or withdraw it for any other purpose and pay just your normal taxes as with a 401(k) or Traditional IRA. You can even roll over funds from a Trad IRA to your HSA, up to the annual limit (one-time only).
- No Minimum Distributions: Another bonus if you use your HSA as a retirement account; the government never requires you to make withdrawals! With a Traditional IRA or 401(k) (tho not the Roth IRA) you are required to withdraw a portion of your funds each year once you reach 70½. The HSA you can withdraw or spend whenever, always tax-free for medical needs, or eventually leave it as part of your estate if you choose.
Bottom line is the HSA puts you firmly in the driver’s seat of your healthcare expenses, now and in the future. Save tax-free, invest, use for medical needs or save for retirement. There just isn’t a downside! Who says you can’t fall in love with a financial product?
HDHP Snapshot (for those who can’t contain your curiosity): A High-Deductible Health Plan is a health insurance policy where you pay up front for all health expenses up to a set amount (this is the ‘deductible’, and it’s a large one, hence the word ‘high’). The upside is; premiums for HDHPs are typically much lower (sometimes half or less) than traditional plans and provide an out-of-pocket maximum, which means 100% of your costs are covered beyond a set ceiling. With most HMO/PPO/POS/EPO/etc plans you’ll pay co-pays or co-insurance on and on…and on…and on.