Heath savings accounts (HSAs) and flexible spending accounts (FSAs) both provide tax-free ways to pay for all your medically eligible expenses. But they are often unfairly lumped together in people’s minds when it comes to the perceived drawbacks associated with the accounts.
It’s true that with an FSA, if you can’t use up invested money by the end of the year, you lose it. So, people scramble around, buying eyeglasses they don’t really need and finding any way possible to exhaust their account … or they’re left in the lurch when the account runs dry early. That experience leaves a bad impression on many people, which creates resistance around the idea of putting in place the HSA associated with high-deductible plans.
But HSAs are getting a bad rap.
HSAs are truly flexible, portable and in your name (not the employer’s). You have the control over when you put money in and when you take money out. You have control over the amount of those funds. You don’t have to take an educated guess at how much you’ll spend because the money isn’t vanishing into thin air at midnight on Dec. 31.
Not only is an HSA a retirement account, but whatever you don’t spend, you keep. The amount left over just rolls over into next year and continues to accrue. If you leave your employer, you take that account with you. It’s established and opened in your personal name, so the employer has nothing to do with it and the money doesn’t roll back to the employer. So, with an HSA you’re getting a medical IRA. You can actually make money on it if you’re a savvy investor and take that money wherever you go. It is a legitimate addition to your financial portfolio.
Used wisely, an HSA is an investment tool that will save you money and continue to grow. If you have big expenses later in life (braces for your kids, a big and unexpected medical expense, etc.), you have money saved up to deal with that.
This All Sounds Good … How Do I Get Started?
Starting an HSA is a pretty simple process-especially if you have your health insurance broker walk you through it. HSAs can be opened through essentially any bank or HSA administrator. You have to have a high-deductible, HSA-compatible health plan to open and contribute to one. What’s important to know is that if you later switch health plans, you won’t lose your HSA; you just can’t continue to contribute to it.
You can put in whatever amount of money you want at the outset. In fact, you can either prefund it or wait till you have a medically eligible expense. That means you can put in money ahead of time or pay out of pocket, fund the account after the fact and reimburse yourself out of the HSA account.
What’s Considered a ‘Medically Eligible’ Expense?
The book detailing what IS covered is an inch thick. You’ll only run into trouble with “elective” medical expenses such as cosmetic surgery, so no Botox injections or augmentation. Complementary medicine such as chiropractic care and acupuncture is eligible if you can validate that it’s needed. You also cannot pay medical premiums or insurance premiums with the funds. Otherwise, it covers most things that come up. Ask your broker if you’re not sure about a specific medical expense.
It’s Not Too Good To Be True
People often figure there must be “a catch” with HSAs since FSAs, while still quite valuable, are full of rules an exceptions. The reality is that HSAs are highly flexible, portable, carry over into the next calendar year and can grow over time. Talk to your broker or contact us with any questions you have or to get started.