The facade of choice in healthcare
While our healthcare system isn’t exactly a truly free market with choice, competition, and price transparency there are some options for the average consumer. Big Business has provided a facade of choice for us, but it requires us (the consumer) to get educated through a little bit of healthcare sleuthing – a modern day Sherlock Holmes so to speak.
After a quick Google search (or diving into Healthcare.gov) you can quickly find that your health insurance options are limited to a few ‘choices’ that revolve around a plan type and deductible. It’s like getting offered a big platter of slightly different cheeses – they are all going to give you bad gas. You just have to pick how much stomach pain you are willing to deal with. We’ll talk about your health insurance options in another post. Today we’re talking about where you as the consumer truly find choice.
It’s in the employer offered Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs).
HSA versus FSA
Both accounts are offered by employers designed to ease the financial burden of healthcare. BUT THERE’S MORE! With both an HSA and an FSA you can set aside a portion of your salary tax-free to pay for qualified medical expenses with some employers making contributions to both types of accounts. You can even invest your HSA funds.
I have been fortunate enough to utilize both, but currently have an FSA. I wish I took advantage of the big HSA benefits when I did have one so don’t make the same mistake I did. The primary differences between the two are…
- HSA funds roll over to the next year. With an FSA, you must use the funds by the end of the year. If not they are gone.
- HSA money can be rolled over from one plan to the next. That means from one employer’s plan to another or to an individual HSA. For an FSA, if you change jobs you lose your funds (unless you go with the COBRA option).
- An HSA requires you to meet two requirements: You must be enrolled in a high-deductible health plan (HDHP) and have no other health coverage. An HDHP is a health plan with a high annual deductible. FSAs have no eligibility requirements.
- HSAs typically have higher contribution limits for a year, but are different for individuals and families. FSA contribution limits are lower.
- FSA funds cannot be invested. Your HSA funds can be after it reaches a certain amount.
The triple threat of an HSA
What I mean is triple advantage. Triple tax advantaged to be exact. This account can act as a strong savings and investment account maximizing your income in retirement. The three primary advantages include:
- Tax-free contributions
- Withdrawals for qualified medical expenses are not subject to income tax
- Tax-free interest earnings and investment growth.
How does HSA investing work?
It really depends on the financial institution your HSA is setup with. They all have slightly different rules. Typically when you set up your investment account you will have to define a threshold of at least $1,000. When your balance grows to an amount above your threshold (say $100) you can begin investing. Then you set up your ‘profile’ and choose the funds you wish to invest in.
Funds will be transferred automatically to your investment account after you pass the defined threshold. If you do in fact need to use your funds in your investment account to pay for qualified medical expenses, you have to transfer them back to your HSA.
Investing HSA funds can be an effective way to boost your retirement income while also providing assistance now with the rising healthcare costs. FSAs are not as helpful when it comes to investing, but do provide plenty of tax benefits to a consumer in the present. Check with your employer and your personal benefit plan to see how you can take advantage of the choice you have right now.