HSAs: Invest in Your Future
How is it possible to keep control of unused health dollars for future use? There is an investment tool people are taking advantage of in increasing numbers: the health savings account (HSA).
The HSA is proving itself to be a wise investment tool, not only for health care needs, but also for long-term retirement planning.
HSAs serve as a pre-tax and pre-FICA fund that can be used to save for the day medical expenses are actually incurred. The account is consumer-controlled. If the funds are not used, the money will continue to grow over time. One of the most attractive features of the HSA is that these funds grow through the accrual of tax-free interest.
The HSA is proving itself to be a wise investment tool, not only for health care needs, but also for long-term retirement planning. The HSA fund is tax-deductible, compounds tax-free interest and is tax-free to withdraw for medical bills (in comparison to IRA distributions that are always taxable). Also, people ages 55 to 64 can make additional contributions called “catch-up payments” to their accounts to accelerate the rate of savings.
For example, if you spend $700 a year on health care costs, anything you contribute above that is money invested for your future. Maximum allowable contributions enhance this opportunity further, particularly for those investing at a younger age.
And since an HSA can be invested in the market just like a 401(k), with tax-free interest, the opportunity for long-term growth is exponential.
Consumer-driven financial tools like HSAs encourage the development of families and communities that are incentivized to better manage health expenditures. This in turn facilitates a focus on healthier lifestyle choices, which ultimately takes some of the burden off the health care system. It only works because individuals and families have something to gain financially that also leads to living a longer, healthier life.
At any income level, a savings account that simultaneously drives participants to save money, live a healthier lifestyle and make better health care decisions is a truly valuable resource. HSAs are wise investment tools that effectively fund health care needs now and in the future. It’s a win-win for consumers and the community.
10 Reasons to Love a Health Savings Account
With the soaring cost of health care, many consumers are turning to the health savings account (HSA) as a way to combat rising expenses. This financial option is quickly growing in popularity and has the potential to save you a significant amount of money.
The HSA offers consumers a manageable way to take control of their health expenses.
The HSA offers consumers a manageable way to take control of their health expenses. It encourages the consumer to make healthier lifestyle choices, better health-care-related financial decisions, and to invest and save money over time for future medical needs. Consumer-driven health care has the power to change a person’s financial future while also contributing to positive change in America’s health care system as a whole.
Here are 10 reasons to love an HSA:HSAs fund health care needs
An HSA funds health care expenses in conjunction with a high-deductible health plan (HDHP), a requirement to set up an HSA. The HSA is a savings account that secures pretax dollars in a fund for future medical needs, and helps meet the deductible of the HDHP, should something happen that takes medical expenses beyond what is affordable.
HSAs use pretax funds
HSAs may be set up through employers or through financial institutions like banks, insurance companies or third-party administrators. Contributions to HSAs through employers are set up as pretax investments. HSA accounts created through financial institutions are designed so that consumers can take an “above-the-line” deduction on personal taxes. One benefit for many is that taxable income is decreased, so fewer taxes need to be paid out.
HSAs come with significant premium savings over traditional insurance plans
High-deductible health plans come with much lower premiums than a traditional plan. This is especially apparent to individuals who pay premiums all year long but don’t go to the doctor or use medical services very often. For these people, paying the premium can feel like throwing money out the window. Based on premium savings alone, some HSA consumers see 20 to 40 percent savings each year.
HSAs offer expanded coverage options for consumers
Unlike typical insurance plans that have a highly negotiated list of covered medical products or services, HSAs allow many additional health-related expenses. Doctors’ visits, hospital expenses and prescriptions are covered, but coverage also extends to some over-the-counter drugs with a prescription, dental and vision services, and certain “non-traditional” treatments such as acupuncture and deep tissue massage.
HSAs allow negotiating power to secure discounts on medical services
Because an HSA is a “cash” account, it empowers consumers with an option to negotiate pricing on many medical services, which can lead to substantial savings on medical expenses. For example, standard imaging services can vary widely in price depending on location and payment method. An MRI, for example, can cost anywhere from $400 to $1,800 for the exact same service, so the price is often negotiable.
HSAs offer control and choices regarding health care needs
With these plans, consumers have unlimited choices regarding services, service providers and medical expenditures. With an HSA, one can go to the doctor of his or her choice.
HSAs are portable
If a consumer switches jobs, the HSA account follows. And, unlike traditional insurance plans, consumers do not lose unused funds in these accounts at the end of the year. The consumer “owns” the account and all the benefits that come from its good management.
HSAs create financial incentives for managing health care expenses
Occasionally there are unfortunate cases where a catastrophic event occurs and emergency medical services are required that do not allow time to “shop around,” but the majority of medical transactions are mundane and predictable. Since the HSA is a consumer-controlled cash account, HSA participants are encouraged to consider if a particular expense is worth the cost or if a cheaper alternative (like a generic medication instead of name brand) might work equally well.
HSAs are a powerful tool for retirement investing
Over time, a relatively healthy person or someone who is a decent financial manager can save a good deal of money and investment earnings in an HSA. Consumers who are between the ages of 55 and 65 also have the opportunity to make additional “catch-up” contributions to the fund. After age 65 the account can continue to be used for medical expenses with no penalties, but withdrawals for other purposes are also possible and often face fewer penalties than withdrawals from an IRA.
HSAs create a health-conscious community and put market forces to work that drive down health costs for everyone
Because of the incentive to save and earn money, consumers are encouraged to become educated on health care and medical services to become active participants in the control of their health and wellness. Providers of medical products and services are forced into a healthier competition for consumers. Additionally, there is a personal incentive to make smarter decisions about the use of the health care system, which decreases the likelihood of its abuse. Overall, it becomes a more efficient system and the costs of medical services decrease to meet the new market realities.
HSA Examples of Eligible Expenses
Your health savings account (HSA) may reimburse:
- Qualified medical expenses incurred by the account beneficiary and his or her spouse and dependents;
- COBRA premiums;
- Health insurance premiums while receiving unemployment benefits;
- Qualified long-term care premiums*; and
- Any health insurance premiums paid, other than for a Medicare supplemental policy, by individuals age 65 or older.
Distributions made from an HSA to reimburse the account beneficiary for eligible expenses are excluded from gross income.
Qualified Medical Expenses
The Internal Revenue Service (IRS) defines qualified medical care expenses as amounts paid for the diagnosis, cure or treatment of a disease, and for treatments affecting any part or function of the body. The expenses must be primarily to alleviate a physical or mental defect or illness.
The products and services listed below are examples of medical expenses eligible for payment under your HSA, when such services are not covered by your high-deductible health plan. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. This list is not all-inclusive; additional expenses may qualify, and the items listed below are subject to change in accordance with IRS regulations.
Under a rule that went into effect Jan. 1, 2011, claims for over-the-counter medicine or drug expenses (other than insulin) cannot be reimbursed without a prescription. This rule does not apply to items for medical care that are not medicines or drugs.
- Alcoholism treatment
- Annual physical examination
- Artificial limb
- Artificial teeth
- Birth control pills
- Body scan
- Braille books and magazines
- Breast pumps and supplies
- Breast reconstruction surgery
- Capital expenses (improvements or special equipment installed to a home, if meant to accommodate a disabled condition)
- Car modifications or special equipment installed for a person with a disability
- Christian Science practitioner
- Contact lenses
- Dental treatment (not including teeth whitening)
- Diagnostic devices
- Disabled dependent care expenses
- Drug addiction treatment
- Eye exam
- Eye glasses
- Eye surgery
- Fertility enhancement (in vitro fertilization or surgery)
- Guide dog or other service animal
- Health institute fees (if treatment is prescribed by a physician)
- Certain health insurance premiums (not premiums for an employer-sponsored plan, but certain other medical premiums)
- Intellectually or developmentally disabled care, treatment or special home
- Laboratory fees
- Lactation expenses
- Lead-based paint removal (if a child in the home has lead poisoning)
- Learning disability care or treatment
- Legal fees associated with medical treatment
- Lifetime care, advance payments or “founder’s fee”
- Lodging at a hospital or similar institution
- Long-term care
- Medical conference expenses, if the conference concerns a chronic illness of yourself, your spouse or your dependent
- Medical information plan
- Medications, if prescribed
- Nursing home fees
- Nursing services
- Physical examination
- Pregnancy test kit
- Psychiatric care
- Special education
- Stop-smoking programs
- Special telephone for hearing-impaired individual
- Television for hearing-impaired individuals
- Therapy received as medical treatment
- Transportation for medical care
- Tuition for special education
- Vision correction surgery
- Weight-loss program if it is a treatment for a specific disease
Rev. 4/10, 11/10, 1/11, 4/11, 1/12, 4/14
Plans that do not allow reimbursement of all eligible medical expenses as defined by the IRS and Department of Treasury must customize this brochure prior to use.
* For purposes of reimbursement of qualified long-term care premiums from an HSA, reimbursement in excess of the amount which may be deducted on an individual’s personal tax return is not an eligible expense. IRS 213(d)(10) establishes the tax deduction allowed for qualified long-term care premiums on individual tax returns. If the HSA reimburses long-terms care premiums for an amount greater than set forth in IRC 213(d)(10), the amount greater than allowed is included in the account holder’s taxable income and is subject to a 20 percent penalty.