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Should I Use an HSA? Three Reasons to Consider a Health Savings Account

Nov 26, 2021 | Financial Concepts

Healthcare, more specifically, the cost of healthcare never seems to stray too far from the minds of most Americans. Whether the topic is co-pays, deductibles, premiums, or networks, most people feel completely out of touch with the specifics of their plan. The two most important questions – “How much do I need to pay out of pocket?” and “When is that bill due?” – never seem to be as clear as they should be. While the healthcare industry may not offer us the clarity we desire, getting a better understanding of your specific healthcare plan is a must in today’s environment. You may be eligible for a tax-friendly way to pay for future healthcare costs and not even know it. That’s where health savings accounts come into the picture. 

Health savings accounts – more commonly referred to as HSAs – were created as part of Medicare prescription drug legislation that was passed in 2003. They allow for money to be saved and ultimately used for health care expenses in a tax advantageous way. However, not everyone is eligible to open and contribute to an HSA account. One of the main requirements is that an HSA account can only be paired with a high deductible healthcare plan. If your existing healthcare plan isn’t deemed to be a high deductible offering, then you are not eligible to contribute to an HSA account. Thus knowing the specifics of your plan is important. Assuming you are eligible for an HSA plan, here are three reasons why you should consider this option.

HSAs Have Multiple Tax Advantages

Health Savings Accounts enjoy multiple tax benefits. Any contributions made to an HSA account, assuming the contributions are within the annual limits, are tax-deductible in that calendar year. This provides an immediate tax benefit regardless of when the money is used for health expenses. These accounts may have a growth component, as well, since funds in an HSA account can be invested. Any growth received in the account is tax-free as long as it is used for qualified medical expenses. Finally, we are allowed to take the contributions back out of the account tax-free, assuming that the funds are used for qualified medical expenses. That is three distinct tax advantages in one single account. 

Portability of HSA Account Balances

HSA accounts have a couple of distinct advantages in comparison to other health-related accounts regarding portability. An HSA account is owned by the individual and allows for the ability to move balances from one HSA to another. This is a huge plus compared to FSA or Flexible Spending Accounts. FSA accounts are owned by the employer. Therefore any balance in an FSA account may be lost if you leave your current employer. 

Long-Term: Accounts Can Grow Over Time 

HSA accounts allow for balances to grow over time and do not need to be emptied out by the end of the calendar year. Other plans mandate that the money be used in the same calendar year or it may be forfeited. Some people decide to build up the balance over time and use the account as a long-term tool in their financial plan. Another big benefit is the ability to invest the money into market-related investments. Mutual funds, ETF’s, individual stocks, and bonds can all be used to invest HSA assets. Therefore, it is imperative to determine your individual timeframe and risk tolerance for these assets prior to making an investment determination. 

The process of reviewing the details of your specific healthcare plan can be tedious, so I recommend a quick call to your benefits or to your healthcare plan provider to better understand if you are eligible for a Health Savings Account. I would also encourage you to have a conversation with your tax advisor and financial advisor prior to opening an account. HSA accounts can be a great addition to your overall financial plan. Make it a priority to see if this is an option for you before we start the new year!

Nate Condon

Walkner Condon Financial Advisors is a registered investment advisor with the SEC and the opinions expressed by Walkner Condon Financial Advisors and its advisors in this piece are their own. Registration with the SEC does not imply a certain level of skill or training. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice.

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