A health savings account for a healthier financial future
Health insurance is so complicated that many people and businesses would rather stick with what is familiar, even if they don’t like it or fully understand it, than try something new. However, it may be worth taking a second look at Health Savings Accounts (HSAs), a flexible tool that could revolutionize the health insurance system – and save money.
Seem impossible? Just remember 401ks were once seen as novel and hard to understand, but now are one of the main ways people save for retirement. HSAs have the same potential, and in fact share more in common with 401ks than you may realize. Here’s a quick primer:
What a Health Savings Account is and isn’t
It’s a long-term savings account set aside especially for health care costs. Just as a 401k collects and invests money for retirement, HSAs do the same for health care costs. The money earns interest but is always accessible to pay for health care. HSAs are not insurance plans, but are paired with low premium, high-deductible insurance plans. And they are not Flex spending accounts, which cover some health care costs but don’t earn interest or carry over from year to year.
How does an HSA make financial sense?
Three ways: Lower insurance premiums, earned interest, and tax advantages. People with HSAs still have insurance, but only high-deductible plans with low premiums. Light users of health care will spend less overall, and what they don’t use, they invest for the future*. Heavy users will save State, Federal, FICA, and Medicare tax on their expenditures, while paying lower premiums. HSA funding isn’t taxed when it is set aside, it earns tax-free interest, and none of what is spent on health care is taxed when it comes out of the account – the so-called “triple tax advantage.” This builds a health care nest egg for the future.
How to use an HSA
Save automatically, spend when needed, invest for the future*. People with a high deductible health plan use the HSA to set aside part of their paycheck every month before taxes to fund the account. Often, employers offer a match as well, as they often do with 401ks. An HSA holder has a debit card tied to the account that they use to pay for health expenses as they occur. Once the deductible is reached, the insurance kicks in. HSA funds that aren’t spent roll over year to year, earning tax-free interest.
Good for employers, good for employees
Healthier and more financially secure employees are good for business. An employer empowers employees to save more with an HSA, while providing them with more affordable health care coverage. Employers spend less on insurance premiums for the portion of the plans they cover, so more of the money they contribute goes to help the employee directly. Best of all, HSAs are portable, following workers from job to job, growing along the way. When an employee retires, in addition to their 401k, they will have a separate bucket of money just for health care, one of the largest costs in retirement.
Are you an employer curious about how an HSA could enhance your benefit offering and help employees? Or an individual with an HSA wondering how it fits into your overall financial wellness picture? Give the experts at Alerus a call. We can explain more of the ins and outs of HSAs and help you get the most out of what this unique benefit can offer.