HSA

For individuals keen on planning for a financially comfortable future, it’s a no-brainer to invest in a retirement plan like a 401(k).

There are, however, other investment options that can help your employees save the money they need to cover expenses today and during their Golden Years; when it comes to easing the burden of medical expenses, a Health Savings Account (HSA) may be the ideal choice.

“An HSA is basically a 401(k) for your health expenses,” says Julie Coote, head of human resources at Geode Capital Management.

An HSA is an option that can help mitigate any financial burdens related to health care spending, in the present and the future. An HSA can be used to cover co-pays, prescription drug costs (which always seem to be on the rise) and in-patient and out-patient procedures at hospitals.

For a person to qualify for an HSA, he or she must have a high-deductible health insurance policy. High-deductible health plans are insurance programs that have lower premiums, but higher deductibles than more traditional health plans.

According to the Internal Revenue Service, a high-deductible health plan is a plan that has a deductible of at least $1,350 for an individual or $2,700 for a family. Under such a plan, total annual out-of-pocket expenses, which include deductibles, co-payments and co-insurance, can’t be more than $6,650 for an individual or $13,300 for a family.

High-deductible health plans are typically selected by individuals who are in fairly good health and aren’t dealing with chronic medical issues that require frequent doctor visits or prescription medications. Patients who deal with those issues typically select a plan that has a low deductible, since they use their insurance more often.

There are several advantages to having an HSA, Coote says. First, money set aside for the account is tax deductible. The pre-tax dollars are taken from a paycheck in the same manner as those that go toward 401(k) withholdings. As long as the employee has a high-deductible plan, he or she can continue to invest in that account and have it grow, and use the funds when needed.

“Nobody likes paying taxes, which is one of the key features of this type of account,” she says. “This type of account also grows pre-tax and money can be taken out of it pre-tax.”

For 2019, the contribution limits were increased. Under the newest rules and regulations, an individual can contribute up to $3,500 to an HSA if you have single coverage, which is a $100 increase over 2018. For family coverage, the contribution limit was increased from $6,750 to $7,000. If not used during the course of a year the amount invested remains in the account, which means an HSA can grow significantly, Coote says.

There are also added benefits for those over the age of 55 who have an HSA. Because they are closer to retirement age, these account holders benefit from “catch-up contributions.” This perk allows them to contribute an extra $1,000 beyond the normal annual limits.

When money is used for medical expenses, it can be withdrawn from the HSA at any time without any taxable penalties.

Many HSA providers give members a debit card to use for their medical expenses. When the person goes to the doctor and has a co-pay, the funds can be deducted directly from the HSA, rather than a bank account.

There are some other benefits as well, Coote says. HSAs, unlike flexible spending accounts, are portable, meaning if employment at one company ends, the account can be transferred to a new job as long as the individual maintains a high-deductible plan. If not, the account can remain where it is and accrue interest, then be used without penalty, in the present or after retirement age.

“This is really the wave of the future when it comes to medical expenses,” she says. “You know you will be spending money in your retirement to keep your health going and HSAs are a great vehicle for that We’re seeing more and more people getting into these.”

This article was originally published in Community Health for Fidelity Health Marketplace.

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