HSAs are great. They give you a tax-advantaged way to fund your healthcare while allowing you to allocate your reduced premiums in a way that make sense for your family. There are a lot of benefits, but a common question we get is “How will this change my day-to-day healthcare experience?” The short answer is “not much,” but the longer answer is more nuanced. In the heyday of PPO plans, we didn’t think much about our healthcare. With the emergence of High Deductible Health Plans (HDHPs) and HSAs, you become a more active participant in your healthcare. But if you follow a couple of simple rules, working with HSAs is easy, and on average you will save more money than you ever have.
Rule No. 1: Realize You Need to Save, then Do It.
With an HDHP, your monthly premiums are lower. In exchange for the lower premium, your deductible is higher and your out-of-pocket max per year is also higher. It’s your job to prepare for that. The HSA is the place where you make up the difference between your out-of-pocket max under your previous plan and your out-of-pocket max under your new plan. Every month, put money into that HSA (preferably through payroll deductions) and forget about it. This is the money you use for copays, coinsurance, etc., but it’s also the money you use when your healthcare costs are higher due to an unforeseen illness.
Rule No. 2: Keep Good Records
You can only use HSA money for qualified medical expenses. You need to know what qualifies, and you need to keep record of how you’ve used HSA money in the event of an audit. Most systems (ours included) will do the work for you, but some don’t. Make sure you know what your employer’s system offers.
Rule No. 3: Contribute the Max Allowed
In 2017, you can contribute up to $3,400 (single) or $6,750 (family) to an HSA. If at all possible, contribute the max. You’ll get the most tax savings, and unused funds are like a mini-401K, so you don’t lose the money at the end of the year. Which leads us to Rule No. 4.
Rule No. 4: An HSA is Like any Other Investment and Should be Treated as Such
When you opened your 401K or IRA, you decided what your risk profile was and how you would invest for your retirement. An HSA is no different. Your employer makes available mutual funds in which you can invest your HSA dollars. Do your research, find the best one that matches your risk profile (and, hopefully, has no fees and low expenses) and invest.
You’re in Charge. And that’s a Good Thing
The common refrain we hear from those new to HSAs is “I can’t believe how much I didn’t know before.” Critics of HSAs say that they put the burden of our healthcare system on individuals. We don’t see it that way. HSAs are making an untenable healthcare system tenable. Having a more informed citizenry as a byproduct is invariably a good thing.