Are You an HSA Spender or HSA Saver?

Employers are increasingly offering high deductible health plans. Whether on a full replacement basis or simply as an option at open enrollment, with each passing year you are likely to hear more about these new health insurance plans, and even participate in them.

For those who have made the transition, either by electing to participate in a high deductible health plan or assigned one by their employer, the decision process has now shifted into a second phase. You and your family must now decide what sort of health savings account you want to have: Are you an HSA Spender or HSA Saver?

The distinction is significant.

An HSA Saver:

1. Is likely to have significantly more retirement income than his HSA Spender counterpart.

2. Will want to pay out of pocket for today’s health expenses, and keep track of today’s receipts to present for tax-free withdrawals against a future, and significantly larger, health savings account balance.

3. Will want to know about market investment options available through their HSA plan provider, and the fees associated with those accounts.

4. Will periodically review account balance growth, much like their 401(k), and perhaps discuss with their financial planner how to allocate savings across the range of savings programs to minimize taxes at retirement.

5. Is likely to shop around for the best health “deal,” whether it be for checkups, x-rays, or prescription eye glasses, because they know it is ultimately their own money they are spending.

6. Knows that they are likely to spend a significant portion of their retirement income on health expenses, everything from long term care insurance to Medicare premiums deductibles, copays, and coinsurance and possibly even assisted living facilities, and therefore want to maximize their retirement balance to make these withdrawals tax free.

On the other hand, an HSA Spender:

1. Is unlikely to understand the difference between their HSA and their old FSA.

2. Assumes that because they paid for health expenses with their HSA debit card, just like their old FSA card, they aren’t responsible for keeping track of their receipts.

3. Is likely unfamiliar with the perpetual roll-over of the HSA balance, and that their HSA is the opposite of the “use it or lose it” situation they had with their FSA.

4. May be unaware that they can contribute to their HSA at any time, as well as change their contribution amount at any time; therefore having much more flexibility than the annual, once per year, health spending “guesstimate” required by their FSA.

5. Likely does not know that aside from the “free money” their employer provides in 401(k) matches, the HSA is the best retirement tax vehicle available by the IRS.

6. Is likely unaware that many preventive care services are free under high deductible plan guidelines, things like annual physicals and immunizations, and unlikely to take advantage of them.

Like so many areas of life, one must apply an 80/20 rule to your time. High deductible plans and health savings accounts are no different. Yes, the rules have changed. We are being asked to pay attention to medical bills and expensive procedures in an effort to provide a “consumer signal” into the health industry. However, for HSA account holders there are a few best practices that can make meaningful differences in retirement quality of life. You work hard for your money, allow it to work hard for you in this new health environment.