Nov. 6, 2020
If you’re eligible for a health savings account, now may be a good time to open one.
H.S.A.s can help you pay for medical treatment and medicine that insurance doesn’t cover. Typically, money is deposited into an H.S.A. before taxes, grows tax free and is tax free when you withdraw it as long as you spend it on eligible expenses. (A few states tax contributions to H.S.A.s, or earnings from interest or investment gains.)
Money in the account can also be invested, acting as a sort of 401(k) for health needs in the future.
The federal pandemic relief program has made tax-favored H.S.A.s even more useful. Money in the accounts can now be used to pay for a variety of everyday items, including nonprescription medicine, like pain relief and allergy pills, and menstrual products, like tampons and pads.
To qualify for an H.S.A., you must have a health plan that meets certain criteria, including a high deductible — the amount you pay before insurance coverage begins. For 2021, the qualifying deductible is at least $1,400 for an individual or $2,800 for a family.
The higher deductibles in H.S.A. health plans are generally a trade-off for lower monthly premiums than other types of health insurance. The average individual deductible for health plans with a savings option is about $2,300, compared with about $1,600 for health plans over all, according to the Kaiser Family Foundation.
Many people don’t use the accounts to their full potential, benefits experts say.
Just 6 percent of people with H.S.A.s invest the money that is in them, said Paul Fronstin, director of health research at the Employee Benefits Research Institute, a nonprofit group. It may be that they need the money in the account to pay immediate health costs, he said. Or they may not realize they have the option to invest, he said.
“People go into H.S.A.s not quite understanding what they are,” Mr. Fronstin said.
At midyear, there were 29 million H.S.A. accounts, holding an estimated $73.5 billion for an average balance of about $2,500, according to the H.S.A. services firm Devenir.
H.S.A.s are different from health care flexible spending accounts, another type of account that can help save you money on medical costs and reduce your taxes. F.S.A.s are available only through employers, while anyone with a qualifying health plan can have an H.S.A. Unlike H.S.A.s, F.S.A.s can’t go with you if you change jobs. But the rules for products that can be bought with the accounts are similar.
You can have both an H.S.A. and an F.S.A., if the flexible spending account is a “limited purpose” F.S.A., such as one used for vision or dental benefits, said David Speier, managing director of benefits accounts at the professional services firm Willis Towers Watson.
Some employers contribute seed money to H.S.A.s — about $572 on average for single coverage, according to the Kaiser Family Foundation — and cover monthly bank maintenance fees for workers. For 2021, H.S.A. contribution limits are $3,600 for an individual and $7,200 for family coverage. (People 55 and older can save an extra $1,000.)
Nor do you need to have health insurance through an employer to have an H.S.A. Many plans available through HealthCare.gov, the federal health insurance marketplace.
If you need help in choosing an H.S.A., the research firm Morningstar recently evaluated accounts from about a dozen prominent providers. Accounts from Fidelity, Lively, Health Equity and HSA Authority topped the recommendations for savers, while Fidelity, HSA Authority, Health Equity and Bank of America were recommended for investors.
Look for a plan with no maintenance fee, a low minimum balance threshold for investments and a manageable selection of investment funds, said Leo Acheson, director of multi-asset ratings at Morningstar. Interest rates on savings are so low these days that it really isn’t a factor in choosing an account, he said. But you’ll want to avoid accounts that charge extra fees, like those for mailing paper statements.
If your health plan qualifies for an H.S.A., don’t assume that one will be opened for you. Just a third of employers automatically enroll workers in an H.S.A. if they choose an eligible health plan, according to the Plan Sponsor Council of America, an industry group.
Here are some questions and answers about health savings accounts:
CAN I USE MY H.S.A. TO BUY MASKS AND OTHER PERSONAL PROTECTIVE EQUIPMENT?
Masks and other types of personal protective equipment aren’t eligible, and neither is hand sanitizer, said Rida Wong, president of Health-E Commerce, which oversees HSAstore.com and FSAstore.com, online sellers of eligible health items.
Health-E Commerce is participating in a campaign to put those items on the “approved” list, including support for federal legislation, introduced as House Resolution 8450. The outlook for the measure, however, is uncertain.
WHAT ABOUT AT-HOME CORONAVIRUS TEST KITS?
At-home Covid-19 test kits are eligible for purchase with both H.S.A. and F.S.A. funds, Ms. Wong said. About a month ago, the websites began offering a saliva sample kit from MyLab Box. (The test is available under an “emergency use authorization” from the Food and Drug Administration.) The $200 price includes a vial for collection of saliva, the cost of shipping the sample overnight to a lab for testing and a telemedicine consultation for positive results.
CAN I USE MY H.S.A. TO PAY FOR TELEMEDICINE VISITS?
Yes — but you may not have to. The federal pandemic relief program suspended the rules for telehealth services, in which patients seek treatment remotely via an online link. H.S.A. health plans may cover telehealth and other remote care services at no charge, even if you haven’t met your plan’s deductible, until the end of next year.
The American Benefits Council, a trade group representing employer-sponsored health plans, is pushing policymakers to make the temporary relaxation of the rules permanent.
“Telemedicine’s time has finally come, and there is no going back,” said a recent statement by Tracy Watts, U.S. health policy leader for the benefits firm Mercer and a member of the benefits council’s board of directors.
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