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Top 5 Reasons to Love Health Savings Accounts (HSAs)
by Gregg Kennerly | Published Wednesday, June 6, 2018
Although Virginia employees haven’t adopted HSA plans as quickly as some other areas of the country, these plans are gaining market share as healthcare costs continue to rise.
There are many reasons why HSA participation is growing in Virginia, but here are my top five:
Lower Monthly Premium Costs
High deductible health plans cost considerably less than traditional plans that have co-pays and low deductibles. Employees are becoming educated that the premiums paid for coverage are also part of the total cost of health care. Sending less money to the insurance company simply makes a lot of sense. After all, if the company isn’t giving it back if they don’t use it to pay claims in most instances.
Contributions Are Made Pre-Tax
This is a simple concept where the amount deducted for HSA contribution is deducted from salary before taxes. Employees don’t pay tax on the money when it goes in, don’t pay tax when it’s spent on qualified health care, and any investment income grows tax-free. HSAs are the best tax deal available- TRIPLE tax exempt! Every dollar is worth $1.25 if the tax rate is 25%.
Contributions Can Be Spent on Uncovered Expenses
Contributions can be spent on health expenses not covered by a health plan. Section 213(d) of the IRS code outlines a wide array of medical expenses that can be paid tax-free with HSA funds. A few examples of expenses typically not covered under medical plans but allowed under HSAs are: dental expenses, eyeglasses and contacts, service animals, and medically necessary home improvements.
HSA’s Follow You
Unlike other employee benefit plans, HSAs are owned by the employee and follow the employee throughout their career. There is no “use it or lose it” provision as in flexible spending accounts.
HSA’s Can Help You Retire
Over time, a relatively healthy person or someone who is a decent financial manager can save a good deal of money and investment earnings in an HSA. Consumers who are between the ages of 55 and 65 also have the opportunity to make additional “catch-up” contributions to the fund. After age 65 the account can continue to be used for medical expenses with no penalties, but withdrawals for other purposes are also possible and often face fewer penalties than withdrawals from an IRA.
Unfortunately, the IRS does not allow unlimited contributions to these tax advantaged accounts. The contribution limits for 2018 are: $3,450 for single employees and $6,900 for employees covering a family. We recommend that all employers offer at least one Health Savings Account plan at open enrollment along with higher-cost traditional plan designs. Once employees realize that money in the account is growing and is portable, they rarely go back to a traditional plan.