According to the 2014 Towers/Watson NBGH Employer Survey on Purchasing Value in Health Care, 43% of companies offer a health savings account (HSA) for employees, and an additional 14% plan to do so in 2015 or 2016. Unfortunately, only 18% of the best-performing companies plan to incorporate education regarding HSAs into their retirement planning materials. This means millions of people who will have access to HSAs may not be fully aware of what HSAs are and how they can best be utilized. In order to help fill in this information gap, HealthMarkets tackles some of the most common questions employees may have about HSA accounts.
What is an HSA?
An HSA is a tax-advantaged savings account that is paired with a high-deductible health plan (HDHP). A health plan with an HSA may also be referred to as an account based health plan (ABHP). Both you and your employer are able to make tax-free deposits into your HSA, and as long as you spend the money on qualified health-related purchases, you’ll never have to pay taxes on it. You’ll get checks and/or an HSA card, which can be used just like a debit card to make purchases.
What can I spend my HSA money on?
You can spend the money in your HSA account on insurance deductibles as well as copays and coinsurance (until you reach your out-of-pocket maximum, when your health insurance will cover these costs). There are also several health-related expenses [LINK to HM article on what can I spend my funds on] that can be paid for with the funds in your HSA. The IRS provides a full list of qualified medical expenses each year.
How much should I contribute to my HSA?
This can depend on your financial situation and your employer’s policies. The Towers/Watson Survey reports that 79% of companies seed money into an employee’s account, regardless of whether or not the employee participates in a wellness program or puts his or her own money in. 23% of companies contribute based on participation in wellness programs like health coaching. 8% will match any employee contributions up to a specified limit. If your company will match your contributions, you should try to contribute up to the limit each year; otherwise, you’re leaving money on the table. In 2012, the Kaiser Family Foundation reported that workers enrolled in HSA-qualified HDHPs received, on average, an annual employer contribution to their HSAs of $609 for single coverage and $1,070 for family coverage.
If your company doesn’t match, the amount of your contribution should depend on your financial situation. The IRS sets a limit for the amount you can contribute to your HSA. In 2014, the maximum was $3,300 for an individual, or $6,550 for a family. If you spend money from your HSA account on non-qualified purchases, you may face penalties.
What happens if I spend money from my HSA account on a non-health-related purchase?
According to Forbes, you can get the most out of your savings account by avoiding the steep penalties you’ll incur when you spend your HSA money on non-medical expenses before you turn 65. Instead of being ‘triple tax-free’ (it enters the account untaxed, taxes are deferred as it grows, and it can be withdrawn tax-free), you’ll have to pay 20% on the amount you withdraw. Once you turn 65, though, you can use that money for any kind of expense, which is why many people use it as a retirement fund in addition to their 401Ks. Don’t spend money from your HSA account on non-qualified purchases. Instead, you may want to think of it like an extension of your retirement account. Once it’s in there, it should stay in there unless you are paying for a qualified medical expense or until you have turned 65.
What if I get fired or change employers?
Your HSA account is yours, not your employer’s. The money you accrue in this account stays with you regardless of your job situation.
A health savings account can be a great boon to many individuals. Even if your employer doesn’t offer an HSA, you may still be eligible to open one if you are covered under a qualifying high deductible health plan. When you’re considering a new insurance policy, call HealthMarkets. We’ll search thousands of plans across the country to find one that best fits your needs and budget. We’ll also explain how an HSA works, and answer any questions you may have that weren’t covered by this article. And we do it all at no cost to you.