HSAs: Managing Expenses and Saving for the Future
A health savings account (HSA) can be paired with a qualified high-deductible health plan to offer unique advantages that other types of benefit accounts do not offer. The unmatched flexibility of HSAs allows employees to use their funds to spend on eligible health expenses, save for future unexpected expenses, or invest in their long-term retirement goals. HSAs support participants at whatever stage of life they’re in.
HSAs can offer short-term, immediate financial security by providing participants tax-free funds to pay for unexpected or planned eligible health expenses.
A 2021 Bankrate study found that only 39% of Americans could afford an unexpected cost of $1,000 from their savings, for something like an emergency room visit. The number of people able to cover a large, unexpected expense without borrowing is even lower for younger individuals. HSAs can play a key role in helping employees weather these unexpected expenses.
HSAs can also be used to pay for reoccurring expenses. Funds from an employee’s paycheck enter the HSA tax-free and come out tax-free as eligible purchases are made. This provides immediate tax savings and reduces the need to spend dollars from other after-tax sources.
Not only are HSAs a great vehicle for saving on eligible medical expenses, but they can also be used to save for future health expenses. Utilizing an HSA as a means for planning for the future adds another layer of tax savings as it allows funds to grow tax-free, saving you $0.30 on the dollar*.
*These tax examples are broad approximations of tax liability. Your specific savings depend on your tax bracket. You should consult a tax advisor for help with your own situation. Current IRS tax laws control all HSA matters and are subject to change.
Younger workers or individuals that are new to a high deductible health plan may not have the time or funds to allow their HSA to mature yet, so opening the account and saving what they initially can, is a big first step towards making the most of their accounts.
Participants can take triple tax savings even further through the unique investment opportunities offered by many HSAs. More than any other benefits account, HSAs offer immense lifelong opportunities that encourage long-term financial growth. Choosing to invest HSA funds, once a minimum balance is met, allows tax-free growth that can be an extremely effective way to help with financial planning and preparation for retirement.
According to Devenir Research Group, 35% of all HSA funds are already invested, and this amount is projected to grow in the near future as employee educational efforts improve. On average, account holders who have HSA funds invested have a balance 7.3x larger than accounts that do not. This gap shows how effective HSAs can be in supporting long-term financial health.
With proper education and positioning, employers can encourage their employees to maximize their HSA as both a short-term savings vehicle for eligible health expenses and a long-term retirement planning benefit.
To learn more about HSAs or to request an HSA quote, visit our Health Savings Account page.