“What is a Health Savings Account (HSA) and how will it benefit me?” Since 2003 when HSAs were introduced, this has been the main question on everyone’s mind. This blog will review the who, what, and most importantly the why of an HSA.
Let’s start with what is an HSA? Like a Health Reimbursement Account (HRA) and Flex Spending Account (FSA), an HSA is an account used to save on taxes and pay for qualified medical, prescription, dental and vision expenses. Unlike the HRA or FSA, an HSA is not use it or lose it. The money members contribute to an HSA is theirs. Because of this unique feature, the HSA is also like the popular retirement tool, a 401K allowing the member to invest the contributed funds.
Who is eligible for this account? Members who are enrolled in a High Deductible Health Plan (HDHP) either through their employer or through the individual marketplace and not enrolled in any other health plans are eligible for an HSA.
So, why enroll in an HSA? Three words. Triple tax advantage. This means that contributions to an HSA are 100% deductible, withdrawals to pay qualified medical expenses are not taxed, and interest earnings accumulated are tax-deferred. And again, a major misconception that most people have is unlike an HRA or FSA, HSA funds are rolled over annually and never lost if not spent. A member who opens an HSA at age 25 will save about $200,000 by retirement.
So why is it worth looking into an HSA? Approximately 22 million Americans have sought out the benefits of using these types of accounts. The number of HSA account holders has grown to approximately 23.4 million, up about 11% according to the 2018 Midyear Devenir H.S.A Market Survey. While this number is increasing, not many Americans are informed of this benefit and its long-term advantages.
Now, let me introduce you to Janey Williams. She’s your average consumer shopping for health insurance. She’s heard of an HSA, thinks it would be a good savings tool and knows that she needs to be enrolled in an HDHP. She goes to the Health Insurance Marketplace and enrolls in an eligible plan. Six to eight weeks later she gets a letter in the mail from a bank about her HSA. When Janey gets the mail, she doesn’t recognize the bank name and she was never asked if she wanted to enroll in the HSA when enrolling in her health plan. Because of privacy concerns, she throws the mail away.
Fast forward 20 years, Janey is ready to retire and at her age, she needs additional healthcare options. Janey looks at her bank account and realizes she hasn’t taken healthcare prices into consideration with her retirement plan. Janey now must spend post tax money on medical expenses that are taxed and struggles to keep up with medical expenses. While this may sound extreme, this story is very common among Americans. Studies show that health care will cost a couple $260,000 during their retirement.
Now let’s think back to the day Janey signed up for health insurance. How could this experience have gone differently? Picture this.
Janey shops for her plans with educational pop ups bordering the site explaining which plans are HSA eligible. She wants more information about HSA options and uses a chatbot to immediately communicate with a customer service representative. She learns all about the advantages of HSAs, like the triple tax advantages and annual rollover of money not spent. Not only has the connection between HDHP enrollment and HSA enrollment been made seamless, but the data she used to enroll in the health plan has been pre-populated making enrolling into her HSA as easy as 1, 2, 3. Once her HSA account is created, she can manage both her health plan account and her HSA account from one portal, ensuring her HSA to be top of mind and affording her the opportunity to make the most use of it. Using the HSA calculator available on the site, Janey determines what is best for her savings. As a single taxpayer with an annual income of $80,000, Janey plans to contribute $3,350 of the maximum $3,500 per year to her HSA account, which saves her $837.50 annually on tax savings!
So, what’s different about these two stories?
Misinformation and inadequate education surrounding HSA can cause a beneficial product like this to slip away from our members’ hands. Consumer education, a positive user experience, and using technology for a seamless transition between health plan and HSA management can increase the likelihood of members using this beneficial health and wealth management tool. Softheon is creating this story on our Merchant Platform making it easy to save for your health and wealth in retirement.
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