Combat Rising Health Care Rates with an HSA

By Melissa Finnegan0 Comments

doctorPremiums for employer-provided insurance plans have risen 19 percent over the past five years, according to the Kaiser Employer Survey. The average employee is paying $5,714 for a company-sponsored health plan in 2018, compared to five years ago when that figure was $4,316.

In addition to premiums steadily increasing, the Medicare board of trustees reported to Congress that the fund would run out of money by 2026, which is three years earlier than they predicted in 2017. The report further stated that Medicare would be able to pay full benefits until 2026, but then it would steadily decline to just 78 percent coverage of expenses in 2039.

What does this mean for you?

Like others, you might be looking for a solution to cover medical care and insurance costs as the rates continue to rise. And if you aren’t yet, you might be in the future.

It is estimated that a 65-year-old couple retiring in 2018 would need $360,000 to cover health and medical expenses through retirement (source: HealthView Services’ 2018 Retirement Healthcare Costs Data Report), while most anticipate they would need less than $100,000 (source: Fidelity Investment Annual Retiree Health Care Cost Estimate published in April 2018).

Luckily, a Health Savings Account (HSA) exists to help people cover current medical expenses and save for anticipated medical care needs that may affect an individual in the future.

HSAs allow individuals to invest funds that grow tax-free. You can use those funds to cover a wide range of medical expenses. The list of medical expenses covered by HSAs is fairly extensive, including prescriptions, acupuncture, routine doctor visits and laboratory fees to name a few.

HSAs cannot, however, be used to pay for the cost of insurance premiums, unless the individual is unemployed and collecting federal unemployment benefits. See IRS Pub. 502 for more information about medical expenses covered by HSAs.


Three Potential Tax Benefits of HSAs
Arguably one of the most valuable features of an HSA are the tax advantages. This savings account potentially  has “triple tax-free benefits,” meaning:
  1. The money you contribute can be tax-free as it goes into the account

  2. It can grow tax-free while it’s in the account

  3. It can be used to pay for qualified medical expenses, tax-free

Because of these potential tax-advantages of HSAs, some people may choose to hold money in an HSA and let the funds grow over time. According to Ray Martin (CBS News Money Watch), “If you faithfully contribute to an HSA over the course of 20 years, you could contribute as much as $75,000 to $140,000 (single or family), and over that time, the investment returns could bring these accounts to double that amount, assuming an average annual 5 percent gain.”

HSA Eligibility
To be eligible for an HSA, you:
  • Must be covered by a High Deductible Health Plan (HDHP)

  • Must not be covered by another health insurance plan (not applicable to specific injury insurance and accident, disability, dental care, vision care or long-term care)

  • Must not be enrolled in Medicare

  • Cannot be claimed as a dependent on someone else’s tax return

Because you must be enrolled in a HDHP to be eligible for an HSA, you can potentially reduce your monthly premiums, while additionally having the opportunity to save for medical expenses in an HSA.
It’s important to note that the contribution limit for HSAs is $3,400 for single accounts holders, but it is possible to save more in an HSA by investing in alternatives, like other self-directed retirement accounts.

What is a self-directed HSA?

The funds in an HSA can be invested the same as you would invest your self-directed IRA funds. Returns on the investment are added to the account and accumulate tax-free. These returns aren’t considered contributions and don’t count toward the contribution limits. As with IRAs, contributions to an HSA may be made until April 15 (or tax filing deadline) to obtain a deduction for the prior tax year.

You are able to invest in stocks, bonds or mutual funds. However, other HSA owners invest in real estate or other alternatives to grow their HSA.


If you’re interested in learning more about HSAs, download our free HSA guide or schedule a consultation with a Senior Account Executive to find out more information and how to get started.