HSAs, FSAs and busting myths of health savings accounts

HSAs are misunderstood but important financial tools for health needs

Young man with glasses holds a credit card and pays bills on his phone and laptop.

More people are choosing health savings accounts (HSAs), and there’s a good reason why. They are important financial assets, serving a variety of purposes for all kinds of health and medical needs.

Enrollment in HSAs increased by nearly 400% over a decade, from 4.5 million in 2007 to 21.8 million in 2017, America’s Health Insurance Plans reported.

Yet, despite the growing popularity of HSAs, many myths still exist.

Myth No. 1: An HSA is expensive and only a good option for wealthy people.

The perks of an HSA are available no matter your income level. Not only does an HSA-qualified health plan typically have a lower monthly premium, it is also an investment in your financial future, offering you three main tax advantages.

First, you can set aside money from your paycheck by electing pre-tax contributions. These elections are automatically withdrawn from your paycheck and not taxed. Once the funds are deposited into your HSA account, they are yours to keep, even if you retire or change employers.

Second, you can spend your money on eligible expenses tax free. Unlike other retirement accounts, such as a 401(k), HSA funds sit in your account and can be spent on any eligible expense when you need it without financial penalty.

Third, you earn interest tax free. The funds you contribute are put into an interest-earning account. This means you keep more money in your pocket each month by paying less for health insurance, while growing your HSA funds with multiple tax benefits.

Myth No. 2: I’m too young or old for an HSA.

An HSA account can benefit almost anyone, no matter your stage of life. HSA funds roll over year-to-year, so they’re yours to keep for life. Try thinking about your HSA as an additional retirement benefit alongside your 401(k) or other retirement plan. Whether you are young or old, an HSA offers financial benefits now and for the future.

Starting an HSA account when you’re young allows you to contribute more and grow more interest over your lifetime. Healthy young people who have minimal medical expenses during the year will see their savings add up quickly. But regardless of your age, the best time to invest in an HSA is now.

Once you turn 55, you can contribute extra money into your HSA annually – above and beyond the set limits. By taking advantage of this difference every year, the savings add up. For example, federal guidelines allow HSA holders age 55 or older to add an extra $1,000 per year. Over a 10-year period, that amounts to an extra $10,000 saved tax free!

It is important to note that if you sign up for Medicare when you turn age 65, you can no longer add funds into an HSA. However, you can still keep and use the money already in your HSA account to pay for eligible out-of-pocket expenses that Medicare doesn’t cover.

Myth No. 3: A flexible spending account works just as well as an HSA.

While a flexible spending account (FSA) is a great option, an HSA has additional benefits not offered by an FSA. While FSAs and HSAs work in similar ways, there is one main perk that sets an HSA apart: You keep your money after the end of the year.

Your FSA expires at the end of each year, meaning if you don’t use the money, you lose it. Your HSA never expires and the money is yours to keep. You’ll never have to deal with the stress or rush of trying to spend your remaining funds by the end of the year. Your HSA funds roll over, growing and moving with you.

Myth No. 4: An HSA is a hassle.

An HSA can be simple to maintain with tools from your health plan. When you sign up for an HSA, a special bank account is opened in your name. Just like your regular bank account, you can use a debit card to access your money and pay for eligible out-of-pocket expenses. To pay, you just swipe your HSA debit card. It’s that easy.

You don’t have to submit receipts to your health insurance company, but it is important to keep receipts and records of your purchases. Your health plan won’t ask you to verify, but the Internal Revenue Service, or IRS, can ask for verification during tax time.

With Sanford Health Plan, you can use our online tools to take a picture of your receipts and upload them to keep them conveniently organized and accessible. Our web portal is just like your online banking account. You can see deposits and debits over time, plus get periodic statements about how your money is growing and earning interest.

Myth No. 5: Having an HSA is not worth the downsides of a high deductible health plan.

A high deductible health plan (HDHP) can save you money while giving you access to quality health care. An HSA requires an HDHP, which often has a lower monthly premium but higher deductible and out-of-pocket maximum. This means you will pay less each month for your health insurance, but more when actually going to the doctor.

An HDHP still offers you the same discounts that your health plan has negotiated. Typically, your HDHP does not have co-pays; instead, you pay the full cost until reaching your deductible over the course of the year. That is where the HSA comes in. The funds in your account can cover any additional out-of-pocket expenses from health care services.

HDHPs do have a unique design that is important to understand, but you and your family still have access to free preventive care to stay healthy and catch issues early — just like traditional health plans. Preventive care includes things like:

  • Annual check ups
  • Breastfeeding supplies
  • Cancer screenings
  • Colonoscopies
  • Flu shots and immunizations
  • Mammograms
  • Pap smears
  • Prostate exams
  • Well baby and child exams

Learn more about how an HSA works and the benefits of having one by joining Sanford Health Plan for HSA Day on Tuesday, Oct. 15 at 2 p.m. Central time. There will be a live video feed featuring Jean Chatzky, an award-winning finance journalist and financial editor of NBC’s TODAY show.

Register for the live broadcast at sanfordhealthplan.com/learn-hsa.

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Posted In Health Plan, Healthy Living

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