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Posted September 10, 2019

Why an HSA Might Make Sense for Your Family

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Special Guest Contributor: Jean Chatzky, with Beth Braverman

You’d give anything to make sure your family has the medical care that it needs, and these days that typically means forking over a huge portion of your paycheck. In fact, the average family of four with employer-based insurance shelled out nearly $30,000 on out-of-pocket healthcare costs last year.

That’s an eye-popping figure, and one that’s been rising for years. While you don’t want to skimp on necessary care, there are ways to cut back your medical bills and to prepare for those years when costs go even higher—now or even decades into the future.

One such method is a health savings account (HSA), a tax-advantaged investment account available to anyone who’s enrolled in a qualified plan. More than 60 percent of large companies offer an HSA-eligible plan to employers, but just 35 percent of employees who have access to one are enrolled in it, according to benefits consultant Mercer. Eighty percent of those employers offering an HSA offer matching of seed funds to employee HSA accounts, too, giving a boost for fund growth and medical out-of-pocket cost preparedness.

Further, Mercer data show that companies with mostly female workforces have lower HSA plan enrollment than companies with a mostly male workforce. The reasons for the discrepancy are unclear, but HSAs are a powerful tool that women should consider.

“It is important for women to understand the benefits of an HSA-eligible plan, because women are the chief medical officer of the family, and they’re often managing the household budget, too,” says Tracy Watts, a senior partner at Mercer.

Here’s why an HSA might make sense for your family:

The tax benefits are unbeatable.
Money that you put into an HSA doesn’t get taxed, you pay no taxes on the earnings, and you don’t pay any taxes on withdrawals used for qualified medical expenses. There aren’t any other accounts out there that offer such broad tax advantages to users, and you can fund it via payroll deductions, just like a 401(k).

This year, you can contribute up to $7,000 for a family into an HSA; next year, the contribution limit will increase slightly to $7,100. Those age 55 and older can put in another $1,000 per year in “catch-up contributions.” Employer contributions also count toward the contribution limit.

The deal is even better for families.
Employees often opt for the more expensive health plan because they think it provides better coverage, but that’s not always true, Watts says. Before selecting a plan, you’ll want to determine the maximum out-of-pocket cost, along with potential employer contributions and tax savings. Many open enrollment web sites provide tools to help with the calculation.

Employer contributions for family coverage are higher (in both dollars and as a percentage of premiums) on HSA-eligible plans than they are for individual plans, according to Mercer. That makes the potential savings of switching to a plan with an HSA even higher for families, especially if you’re able to build up your HSA account to cover the cost of those deductibles.

You’ll have added flexibility when spending.
You can spend your HSA funds to pay on qualified procedures that may not be otherwise covered by traditional insurance plans. For example, you can use money from your HSA account to pay for procedures by out-of-network doctors, or for some elective procedures like acupuncture or Lasik surgery.

Often times you can spend your HSA funds with a debit card provided by your provider, and most HSAs today come packaged with tools like a mobile app that you can use to save, scan and send in your receipts for reimbursement.

“Most HSAs are associated with a cloud-based platform on which you can access a dashboard view of your HSA experience and how your plan is working,” says Jeff Young, president, Health, WEX, Inc., a global leader in payments solutions. “If you take advantage of the tools there—those designed to help you budget, plan, analyze and manage your healthcare-related accounts and expenses—you’ll be more inclined to make better decisions as you move forward with your HSA plan.”

There’s also no pressure to spend down your HSA account in a given year. Money in an HSA rolls over year-to-year, and you even take it with you if you leave your employer.

Some of the biggest benefits from HSAs come from not spending the money and allowing it to compound and continue growing over time.

 

It can double as an extra retirement account.
After age 65, your HSA account essentially turns into another IRA account, since you can withdraw money tax-free for anything you want (though you’ll owe income taxes on it), even if it’s not medical related. That makes them a great option for families who have already maxed out traditional retirement accounts such as a 401(k).

That said, it may make sense for you to keep your HSA money as a dedicated fund for long-term care or medical expenses, even in retirement. The average couple will need $285,000 to cover their out-of-pocket medical costs in retirement, according to a recent study by Fidelity. Those costs may be even higher for women, since we tend to live longer than men.

“Even if you don’t have children or a spouse and you have great health, the HSA is a very easy savings plan that women should take advantage of,” says Jean Mote, a certified financial planner with Arnold & Mote Wealth Management. “It’s just a golden opportunity to sock money away now for stuff you need later.”

 

For more insights about how to help Americans pay for healthcare, download our consumer report here and join Jean Chatzky in participating in the first annual HSA Awareness Day on Oct. 15, 2019 or for more information visit www.hsaday.com.

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