HSA eligible plans are extremely popular these days. However, not everyone has had experience using an HSA with their benefits. This can be confusing since the plans do function differently from other plans with their ties to a bank account - the HSA itself. However, they are excellent options and have quite a few advantages. We’ve consulted with HSA Bank to help provide you with information about HSAs and some top tips for getting the most out of your plan.
What is an HSA?
An HSA is a “Health Savings Account.” This is a bank account that is available to individuals with a specific type of eligible medical benefit plan called a High Deductible Health Plan, or HDHP. These HDHPs typically cost less out of pocket but have much higher annual deductibles that must be met before the coinsurance or copays kick in.
The HSA itself is a bank account, owned by you - the employee. The money put into it by you or your employer is owned by you and remains yours year over year. The money within an HSA can only be used to pay for qualified health expenses until you turn 65. However, this extends to things like dental costs, medical copays and much more so it’s extremely useful. This money can also accrue over time so if you don’t have any medical costs this year, it can act as a kind of savings account for when you do have medical expenses in the future.
You can read more about the basics of HSAs and about the difference between an HSA and an FSA or HRA here.
What are some of the main benefits of an HSA?
- Taxes - HSAs are tax-advantaged accounts. What that means is that the money that goes into it is tax free. If your company puts money in for you, it’s all pre tax and if you put money into it from your own pocket, that money is tax deductible (you put money in, claim that when you file your taxes and then you get the taxes you paid on that amount back). HSAs are bank accounts so they do have the ability to earn interest. Any interest earned is also tax-free. To make it easiest to understand: you don’t get taxed on this money ever (as long as it’s spent on qualified health expenses).
- Ownership - The account is yours. As I mentioned before, it’s a personal account so the money that goes into it stays with you, unlike other benefit savings accounts. That means that the money in the account will not be lost at the end of the year and it will not be sent back to your employer. Most (but not all) employers will contribute money to your HSA account for you. That is a huge benefit because you are essentially getting paid more but in money that will never be taxed. That money remains in your account until you use it on qualified expenses regardless of your status with the company. If you leave the company, that account and the money in it stays with you.
- Investment & Long Term Strategy - HSAs can be used to invest in mutual funds, stocks, and other linked investment options. This is especially useful if you are relatively healthy and won’t be using your HSA funds. If you open an HSA when you are young and healthy, this money can earn interest for you over time. Not only that, but after age 65, you can use the funds in your HSA for any purpose without penalty. However, keep in mind that they may still be subject to income tax at that point, similar to a 401(k) or IRA. After age 65 you can also use your HSA dollars to pay for Medicare parts B, D and HMO premiums as well as long-term care insurance premiums, tax free and penalty free!
Frequently Asked Questions
- How do I contribute to my HSA? If your employer contributes to your HSA, you’ve already started! However, if your employer isn’t contributing or isn’t contributing the max amount for the year, make sure that you schedule regular contributions with your HR department through payroll deductions. If you aren’t enrolled through your employer, you can also contribute money through online transfers from your bank account. Just keep a record of those contributions for when you do your taxes.
- How much can I put into this account? In 2018, the maximum amount that you can contribute to your HSA is $3,450 for self-only coverage and $6,900 for family coverage. This number is subject to change by the IRS each year. You want to try and contribute the maximum if you are able.
- If I can’t contribute that much, how much should I put in? If you can’t contribute the maximum amount to your HSA, be sure to put in at least enough to cover the deductible from your medical plan or, if you can,to cover your out of pocket maximum. That’s your safety net and if you can contribute more, that’s just an added benefit for you in the future.
- What is a “catch-up” contribution? If you are over 55, you can contribute more to your account than the usual annual max. It is called a “catch-up” contribution and it allows you to contribute $1,000 extra per year to your HSA.
- I left my company. Now what? Your HSA is still yours. However, you need to be conscious of one important thing. You can only put money in to the account if you have an HSA eligible health plan (HDHP). For example, if you leave your current company and start somewhere new with a different medical plan. The new company may not offer a plan that is HSA eligible so you won’t be able to contribute any more money into your account during that time. However, you can use the money already in there for qualified expenses at any time.
- Are there any other tips I should know about? Many (but not all) employers will provide a wellness perk that is tied to your HSA. The company may reward you in HSA funding (extra $ for your account) for things like annual physicals, mammograms, etc.
- How do you use the funds in your HSA? Your HSA comes with a debit card that you can charge eligible expenses to. You can also use online bill pay or have the option of ordering checks to use. If you forget your card or do not have one and up paying out of pocket, you can also submit paid eligible expenses for reimbursement and your HSA will pay you back.
Thank you to HSA Bank for their assistance with this post! They provide HSAs and other financial accounts for 2.7 million members and 35,000 employer groups. HSA Bank empowers consumers to make the most of their healthcare dollars. If you are interested in HSA Bank or an HSA plan for your company, don’t hesitate to reach out to our Filice team - 408-350-5728.