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Key Takeaways
- Nearly two-thirds of employers say they have experienced an increase in workers enrolling in HSA-eligible health-care plans, according to a recent survey.
- HSAs are typically offered with health plans that have lower premiums and higher deductibles.
- You may be able to invest the funds in your HSA, delay reimbursement, and use the money for expenses in retirement to maximize earnings.
Employers say health savings accounts (HSAs) have grown in popularity. These tax-efficient investment accounts are exclusively offered with high-deductible health plans (HDHPs), which have lower premiums and heftier deductibles.
Last year, about 60% of workers chose the HSA-qualifying health insurance option, a Plan Sponsor Council of America survey found. Nearly two-thirds of the employers say they’ve seen an increase in workers enrolling in HDHPs over time.
“More companies are moving towards high-deductible health plans, which end up being cheaper for everybody [employers and workers],” said Carolyn McClanahan, a certified financial planner (CFP) at Life Planning Partners.
Who Should Enroll in a Health-Care Plan with an HSA?
HSAs enjoy a triple tax advantage.
“You get a tax deduction when you contribute, it grows tax-free, and it also comes out tax-free if used for medical expenses,” said W. Michael Lofley, a financial advisor at HBKS Wealth Advisors.
For some people, an HDHP can be a good choice because the tax savings from the HSA can offset the higher out-of-pocket expenses.
“The two [types of] people who usually always benefit from HDHPs are those who never go to the doctor … [and] the people who have a lot of serious illnesses and hit the deductible each year,” McClanahan said. “Usually, if you run the numbers, doing the HDHP while fully funding the HSA ends up being cheaper than doing the co-pay plan.”
There Are a Lot of Ways To Use an HSA
While HSAs are beneficial for paying medical expenses, they also can be used as an investment account—in the Plan Sponsor survey, nearly 66% of employers said they provided investment options for HSA contributions.
In fact, an HSA can function as an individual retirement account (IRA) once you hit age 65, notes Megan Gorman, founder and managing partner of Chequers Financial Management. After you reach age 65, you can use your HSA funds for non-medical expenses (though you’ll still have to pay income tax on the money withdrawn) without paying a penalty.
Another strategy that experts recommend taking advantage of is delaying reimbursement. This involves putting money into an HSA and investing it. Instead of tapping your HSA funds, you pay any health-care expenses out-of-pocket, while saving your receipts. The money in your HSA can then grow over time, and you can withdraw it for qualified medical expenses by using those saved receipts for reimbursement.
However, there are some downsides to this strategy—it typically requires meticulous recordkeeping and discipline to avoid spending the money, says Maria Castillo Dominguez, founder of Valoria Wealth Management.
Despite HSAs’ growing popularity, few employers focus on educating their employees about these strategies. A minority said they targeted a topic like investing HSA assets (about 32%) or delaying reimbursement (roughly 13%) when teaching their employees about HSA plans.
