When it comes to choosing health insurance, many employees are forgetting a critical piece of the puzzle.
Monthly premiums, coverage limits, and co-pay costs are more important to employees than whether the health plan meets the requirements for a companion health savings account (HSA), according to a recent survey by Morning Consult and CNBC Make It. The survey asked over 2,000 consumers which factors were most important to them when picking health insurance coverage.
There is no denying the importance of premiums, coverage, and co-pays in finding the right health insurance. However, being eligible for an HSA is one of the most important things consumers can do to ensure they effectively manage current healthcare costs, as well as successfully position themselves to cover medical expenses in retirement.
In a nutshell, HSAs allow account holders to save money on medical costs by paying for current expenses on a tax-free basis, or investing funds long-term to cover future healthcare costs. In order to have an HSA, account holders must be covered by an HSA-qualified health plan. Because these plans allow participants to access powerful HSA tax savings, they enable consumers to easily manage their pre-deductible medical costs. HSA-qualified health plans typically have lower monthly premiums than other plans, which the survey found was respondents’ most important factor when choosing coverage.
In addition to saving on monthly insurance premiums, HSAs offer account holders an unmatched opportunity to pay less for the medical expenses they incur. HSA contributions are pre-tax or tax-deductible, investment earnings and interest are tax-free, and withdrawals for qualified medical expenses are also tax-free. No other savings vehicle can claim this level of tax advantage.
Unlike Flexible Spending Accounts (FSA), HSAs have no use-it-or-lose-it limits, allowing account holders to roll over funds indefinitely and invest them long-term. HSA funds also stay with account holders when change jobs or retire, whereas FSA funds stay with the employer. If account holders do lose qualified medical coverage and are no longer eligible to contribute to their HSAs, they never lose the ability to withdraw current funds and take advantage of HSA tax savings.
For savvy account holders though, investment-focused HSAs offer an ideal opportunity to grow medical savings to pay for retirement healthcare costs. For the average couple retiring at age 65, that could be up to $387,000 in non-Medicare-covered medical expenses, according to data from HealthView Services, a producer of healthcare cost-projection software.
Employees often think that Medicare will cover all their medical expenses in retirement, but even healthy retirees could face hundreds of thousands of out-of-pocket costs they’re responsible to cover.
Employees also tend to think of 401(k) plans as the best way to save for retirement, but if retirees use 401(k) funds to cover their healthcare expenses, they are missing out on big tax savings. By using HSA funds to pay for those costs tax-free, consumers can save their 401(k) dollars to pay for non-medical expenses and make their hard-earned dollars go further in retirement.
With current and future healthcare expenses continuing to rise, employees are searching for a savings vehicle that puts them in the driver’s seat and gives them control over managing costs. HSAs offer the choice, savings, and flexibility consumers deserve by allowing them to use funds to pay for current medical expenses or invest them to cover healthcare costs down the road.
Knowing whether their health plan is HSA-qualified should be at the top of every consumer’s list when evaluating coverage options. By ensuring their health insurance coverage is HSA-qualified, savvy consumers can keep more of their medical dollars in their pockets and start investing in a happy and healthy future.
