Health Savings Accounts (HSAs) have been getting a lot of press recently, and while much of that press was hyperbolically negative and often incorrect, a recent CNBC article proposed the facts about these plans: The triple-tax advantages, their role in making high deductible health plans (HDHPs) more affordable for low- and middle-class Americans, and the role that HSAs play in both the short term and long term through investment.
WEX Health’s Chris Byrd was quoted on these accounts and their importance in retirement. We share some insights and key takeaways from the article, as well as Mr. Byrd’s advice below.
Why HSAs Make Sense
The article Washington’s New Darling: Health Savings Accounts, written by personal finance writer Tom Anderson, introduced readers to the importance of HSAs for making healthcare costs more affordable both now and in the future:
- First, contributions are tax-deductible.
- Second, those contributions can be invested and grow tax-free.
- Third, withdrawals aren't taxed as long as you use them for qualified medical expenses, such as doctor's visits, prescription drugs and dental care.
With so many Americans using HDHPs already (72% of companies offer an HDHP, 40% are expected to offer HDHPs as the only option within three years per PwC Touchstone Survey, 93% of Americans on the exchanges have a Catastrophic, Bronze, or Silver Plan (All considered HDHPs), per Kaiser Family Foundation), the addition of an HSA just makes sense to make these plans more easily affordable.
HSAs for Long Term Healthcare Affordability
Anderson goes on to explain why health savings accounts are important not only for Americans’ current costs, but for their long-term costs as well, as a 65-year-old couple retiring in 2016 would need roughly $260,000 to cover health-care costs—or $985 per month over 22 years.
WEX Health’s Chris Byrd was quoted in the article, noting these accounts’ roles in making healthcare affordable in retirement.
"An HSA is an ideal vehicle to fund retiree medical expenses," said Chris Byrd, executive vice president at WEX Health, a payments technology company that administers benefits for more than 225,000 employers.
The article goes on to explain what it means to invest your HSA, the role of HSAs in healthcare portability, and how to comparison-shop HSA Providers for the best returns.
Tax Reform Could Put HSA Opportunities Back on the Table
While the accounts have existed since 2003, they were a cornerstone of the now-failed American Health Care Act, and will likely be part of any Affordable Care Act replacement or tax reform discussions:
"Keep in mind that there is a lot of health care in tax reform, including HSAs, and so if attention turns in that direction, there will be opportunities to reprise the proposals favoring HSAs," Byrd said.
Read Washington’s New Darling: Health Savings Accounts on CNBC to learn more.