Who Should Consider a Health Care Savings Account?
Who Should Consider a Health Care Savings Account?

Who Should Consider a Health Care Savings Account?

Health care savings accounts, also known as HSAs or HDHPs, are tax-advantaged medical savings accounts designed to work alongside a high deductible health plan (HDHP) to help save for qualifying medical expenses. You can use HSA funds for paying deductibles, copayments and coinsurance not covered by your HDHP plan; or invest them tax-free so it can grow even after retirement!

Generalized Rule of Thumb for HSA Openings If your HDHP includes an annual deductible of at least $3,850 for individuals or $7,500 for families, you are eligible to open an HSA in order to save pretax dollars for health care costs. Furthermore, an FSA and an HSA may coexist simultaneously so as to finance some immediate qualified expenses using one while continuing saving towards future ones in another.

HSAs were originally designed to assist individuals enrolled in high deductible health plans (HDHP) pay their medical expenses, but have become an increasingly popular way of building up savings for retirement. But how does an HSA compare with other types of savings accounts, and who should consider investing in one?

Maxine and Phil, Sally and Mateo: Health Savings Accounts

In contrast with flexible spending accounts (FSA), which must be spent within one plan year of contribution and cannot carry over to subsequent years, an HSA acts like your personal account; you can carry any unused balance over when changing jobs or switching plans as long as that plan qualifies as HSA-eligible.

An HSA can be an excellent way to prepare for future medical expenses related to aging, while at the same time protecting retirement assets. While HSAs can be advantageous, they might not be suitable for everyone.

A recent study reveals that the average household possesses over $400,000 in liquid assets–such as bank accounts, investments, and cash–which can act as an emergency lifeline, especially for older adults with higher medical bills than younger individuals. People in their 60s and 70s are particularly reliant on these liquid assets for hospital stays, long-term care costs, and other needs; yet these assets are being depleted at an alarming rate; authors of the study believe it’s time for our country to reevaluate how it deals with these issues.