This Is The Year You Should Sign Up for an HSA

Do you want free money? If you answered “no,” you’re just weird. For the rest of you, keep reading.

In cased you missed it, Open Enrollment is upon us. To mark the occasion, we at Orderly are writing a series of posts to help you get the most out of your care. Today’s topic: HSAs!

One of the most overlooked, underutilized, and misunderstood options related to healthcare benefits is the HSA. Over the past decade, HSAs as an asset class have grown at an annualized rate of 34% year over year, yet despite this staggering growth and their rise in popularity, most Americans still don’t use HSAs to make the most out of their healthcare dollars. Let’s change that!

Here’s what you should know about HSAs, why they matter, and why they could be saving you (or generating) thousands of dollars a year.

What is an HSA?

An HSA is a untaxed savings account for use on health care costs. The tax-deductible contribution you make each year is saved until you need to spend it as a copay, coinsurance, or deductible for a qualified health need. If you are fortunate enough (and healthy enough) to spend less than you contribute in any one year, the remainder not only stays invested but grows tax-free — until you spend it in another year.

Health savings accounts are only available to people who are enrolled in high-deductible plans. If you currently have a high deductible plan, using pre-tax dollars put aside in an HSA for out-of-pocket costs and copays before you reach your deductible could save you hundreds, if not thousands, of dollars a year. If you’re not currently on a HDHP, head over to our blog post about them to see if they’re right for you!

What is a Qualified Health Expense, and What’s not Qualified?

The list of services the IRS qualifies as HSA-eligible expenses is actually quite broad, ranging from Acupuncture, alcoholism rehab, and annual check-ups all the way down to weight loss programs, wigs, and wheelchairs. Prescription drugs, eyeglasses, and hearing aids are eligible as well.

There are, however, some health-related items that aren’t eligible to be paid for with HSA dollars, including, non-prescription drugs and nutritional supplements. And although many consider them beneficial, HSA money cannot be used for non-essential treatments such as electrolysis, teeth whitening, and elected cosmetic surgery.

What if I Lose My Job?

If you’re unfortunate enough to be laid off, you can use the money in your HSA to pay for COBRA premiums. If you’re drawing unemployment, you can use the money to pay your health insurance bill.

Can I Withdraw Money for Non-Medical Purposes?

It’s your money, so yes you can use it however you wish. Do keep in mind, just like withdrawing from other tax-advantaged accounts like a 401K or an IRA, you’ll have to pay taxes for every dollar you withdraw not specifically designated for healthcare purposes.. Should you use it for anything other than medical expenses, the amount you withdraw will be taxed, plus if you are younger than 65, you’ll also face a 20% penalty.

It’s your money, so yes you can use it however you wish.

Speaking of Age 65, What Happens to my HSA When I retire?

Once you reach 65, as long as you continue to work nothing changes until you elect to enroll in Medicare Part B. At this point you can no longer contribute to your HSA, but you can use the money already in it to pay for Part B premiums. You can also use it, tax-free, for out-of-pocket expenses like copays, coinsurance, and deductibles. If you receive retirement health insurance through your former employer, you can use HSA money for your share of the premiums.

How do I open an HSA?

Ready to start saving with an HSA? Here’s how.. If you are employed by a company that offers a HSA, it works just like a 401K: Your pre-tax contribution is automatically taken out of each paycheck. The amount contributed is up to you. Some employers also kick in an additional amount.

Should your place of employment not offer a HSA, you can open one at a bank, credit union, or insurance company. You still get the tax-break. You just have to enter the amount you contribute on your income tax return as an “above the line” reduction, and your taxable income will be reduced by that amount.

Most HSAs come with debit cards or checks. If you don’t have sufficient funds in your account at the time you need medical treatment, you will have to pay out-of-pocket . You can then choose to be reimbursed at a later date, once have enough accumulated in the HSA to cover your costs. If you have a surplus in the account, you can use it to invest in stocks, bonds, or mutual funds, just as you would with an IRA.

What Happens at the End of the Year?

Whatever amount remains at year’s end is still yours. If you change jobs, it goes with you even if the new employer’s plan is not HSA compliant.

How Much Can I Contribute?

IRS sets a limit to what you can contribute in any given calendar year. For 2017 the limit was is $3,400 for a single person and $6,750 for a family of four, both of which will rise for the upcoming year to $3,450 and $6,900, respectively. Individuals who are 55 and older can contribute an additional $1,000 as a catch-up allowance. Since HSAs are meant to supply relief for those with high deductibles, the IRS also specifies a minimum plan deductible. In 2018, those minimums are $1,350 for individuals and $2,700 for families.

Summing it up.

An HSA might be a great option for you if you…

• have a health insurance plan with a high deductible and copays
• are not a dependent on someone else’s plan
• are enrolled in a HSA-compliant plan
• are not enrolled in Medicare

If you still would like to know more, here is the official information page for HSAs from HealthCare.gov. And, as always, we’d love for you to subscribe to future posts from Orderly or sign up today at OrderlyHealth.com/signup to try it out, ask questions about your personal healthcare, or chat with our friendly staff about any healthcare questions you might have.

We love you. Stay healthy.