Today I was sitting in on a benefits presentation for a client of mine. The ADP representative was presenting the different health plans available for the employees to choose from during open enrollment. The last plan she presented included an HSA, which the employer would contribute over $100 a month. As I looked around the room, I began to wonder how many of the employees realized the benefits of an HSA, particularly one where the employer-provided a monthly contribution.
At their most basic Health Savings Plans (HSAs) are a savings account dedicated to health expenses. The money that goes into an HSA must be used to pay for eligible healthcare expenses. They were established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act.
The Top Three Benefits of an HSA
1. Lower Monthly Premiums
HSA plans generally accompany HDHPs (high deductible health plans) to allow individuals and families to save up for their healthcare costs, given the high deductibility of their health plan. Employers can contribute to your HSA, or you can have funds withheld from your paycheck and deposited into your HSA.
Because HDHPs carry a higher deductible, the premiums are lower than a traditional health plan. With regular health plans, you’ll have a lower deductible, at the cost of higher (usually much higher) premiums. You’ll also not eligible for an HSA with a traditional health plan.
2. Triple Tax Savings
One – monies deposited into an HSA are tax-deductible. Two – your savings grow tax-free. Three – healthcare expenses paid from an HSA are paid with tax-free dollars.
It’s the trifecta of tax savings.
There are limitations to how much you can contribute to your HSA each year. In 2019, the upper limit for individuals is $3,500 and $7,000 for families. These values are pre-tax and generally rise each year.
3. They’re Portable
You control your HSA. If you leave your job, change insurance carriers, or retire, the account goes with you. Your employer may pay a maintenance fee on your behalf, which you will need to pay if you leave your employer. However, if your new employer offers an HSA, you can rollover your funds to the new account.
Another benefit that you don’t see with the well-known FSAs (flexible spending account) is there is no maximum period to spend your funds. If you contribute $1,000 to your HSA this year but don’t spend any of it, you can use that $1,000 next year, or even the year after.
HSAs are a fantastic budgeting tool. For example, if you know you’re going to need surgery and can postpone it until next year, you can save throughout the current year through contributions to your HSA. Plan for your operation as early in the year as possible, then pay for your deductible with a tax-free distribution from your HSA. Now you’re deductible is paid for the entire year.
Are you enrolled in an HSA? Let us know in the comments below.