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Very soon many of us will begin open enrollment season for healthcare. I, like many of my peers, was reluctant to embrace the Health Savings Account (HSA) and understandably. I’ve pretty much had the United HealthCare HRA option majority of the 9 years I’ve been employed. I suppose the information on HSAs out there just hasn’t always been well publicized. Then again, I could have just been ignorant of the amazing benefits of having an HSA. However, in 2017 we decided that we finally would make the plunge and I’m personally glad we did! That’s weird, right? Who would ever get excited about healthcare!? Well, this guy!

What was most attractive about the HSA was the ability to save and invest money that would otherwise be sitting in a separate savings account may be earning 1 to 2%. You see in our HSA we have the option to invest the money saved in mutual funds and guess what’s an investment option in our HSA. Yup, VTSAX, Vanguard’s Total Stock Market fund!

We have yet to invest in a fund yet since we haven’t met the threshold for investing. You have to have a minimum of $2100 in order to invest. This was due to the many hospital visits we’ve had to make between the baby and my wife.

So a quick background regarding the HSA:

From your U.S. Treasury Department: “Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. Generally, an adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA.”

Essentially, you are eligible for an HSA when you sign up for a health plan that has a high-deductible. You can usually find out from the provider, like United HealthCare or your human resources department at work if a health plan you’re considering is HSA qualified.

Why HSA?

Simply put, an HSA is an IRA on beast-mode. Let me give you some quick examples on why having an HSA is awesome.

The money you put in an HSA has a triple-tax advantage. Your money goes in tax-free, grows tax-free and can be withdrawn for qualified medical expenses tax-free.
2018 contribution limits for a family with an HSA is $6,900 and for self is $3,450. Those 55 and older get an extra $1,000 to add.

In 2019 the limits increase to $7000 for a family and $3500 for self. Not a lot, but anything is better than nothing.

You don’t have to use an HSA to pay for a medical expense right away. Save the medical expense receipts, let the HSA grow and if needed you can reimburse yourself for those medical expenses anytime in the future. (Maintain and keep good record of your medical expenses).

As I mentioned before you can invest your HSA money in index funds that may be available and let the money grow tax-free. Remember to keep cost of fees low!

After the age of 65 your HSA funds can be withdrawn for anything similar to a Traditional IRA or 401(k). You would just have to pay your income tax on the withdrawals. However, if you try to use the funds in an HSA for non-qualified expenses before age 65, you will pay income tax AND a 20% penalty. Ouch!

If you’re employed by a company, many times the company will provide funds yearly to put in your HSA. For example, a company can offer HSA dollars if you get a physical or watch a health video. That’s free money for you and your family to fund your HSA without having to use your own personal funds. This has become a very great benefit for us. We basically met the majority of our deductible through company contributed money into our HSA, because of the rewards.

HSAs are a great way to fund future medical expenses like long term care insurance premiums and future health insurance premiums. You have an amazing opportunity to act today and not worry later in life.

Why Not HSA?

Really, there are no reasons to consider having a health insurance plan that allows you to have an HSA especially as we move into the next year. Perhaps, having a high deductible may discourage people from looking into an HSA. Since you are responsible for 100% of expenses until you meet your deductible. That can be seen as an issue. Still, if a company offers funding into your HSA then you might be able to meet close to the deductible with that like we did. If you’re young typically you should be in good health. You don’t have huge medical expenses, meaning you get to save more in your HSA over time. This is a huge advantage for young people looking to save for the future.

My recommendation to dealing with the high deductible is having at least a 3-month emergency fund that has the deductible and out-of-pocket max built in. For example, let’s your deductible is $3,000 for the family. Then out-of-pocket max is $5,000. Ideally, you will want to build up an emergency fund of $8,000 to cover the deductible and all the medical bills you would be paying 20% of after the deductible. If this isn’t clear, go ahead and email or leave a comment and I’ll be sure to do my best to help answer. Or you can always reach out to your Human Resources department.

You see this example and you’re probably like wait, Matt I can’t save this amount of money. Well, no worries HSA may not be the plan for you right now. And that’s perfectly fine. Follow the tips in my financial independence checklist, which is available when you subscribe to the email list and work towards being in a position where the HSA makes sense.

For the right person or family HSAs are a great way to save for healthcare expenses today, tomorrow and in the future. Not to mention, the retirement aspect of HSAs are a major plus too! Definitely check with your human resource department at work, a tax professional and even a health professional to understand more of the benefits of an HSA. Maybe HSAs aren’t for you, but then again when you study the benefits of HSAs you might change your mind.

Links

HSA Podcast Episode: Using a Health Savings Account for Retirement Planning

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Free Financial Independence Checklist!