Abacus: Health Savings Account - A Tax-Free Investment

For millennials, our 20s is the liveliest time of our lives as it is when we are as healthy as we will be in life. Fittingly, it is during this time that we must make an important decision regarding the future of our health. A major milestone working millennials face comes at age 26 – when we are no longer insured under our parents healthcare benefits plan and must choose for ourselves. With healthcare costs on the rise and new government regulations coming soon, one option that has the potential of making headway soon is a health savings account.

Commonly known as HSA, a health savings account has advantages such as allowing an employee to make tax-deductible contributions, make tax-free withdrawals towards medical expenses and letting unused funds to roll over. One of the goals of HSAs is to give employees more control over their healthcare expenses. This is especially favorable among Americans as the U.S. spends more per capita on healthcare than any other developed country; the healthcare sector makes up close to 18 percent (about a fifth) of our economy.

In the U.S. healthcare market, the prices for pharmaceutical and prescription drugs can rise quickly at a moment’s notice without warning. At the turn of the new year, several drugmakers imposed higher prices at several times the inflation rate. These prices are important in estimating the increase in premium that insurers will charge and what employees will have to pay out-of-pocket.

This can be represented in the shift in recent years among employers to offer high deductible health plans (HDHPs) more, with 28 percent of covered workers enrolled last year having to pay more out-of-pocket for their medical expenses. However, for millennials who generally stay healthy, an employer-sponsored HDHP might be just up your alley. While it leaves you responsible for the brunt of your healthcare costs, it also means low monthly premium payments.

HSAs are very handy when it comes to paying for those medical costs. For a single person (no spouse or dependents) to qualify for a HSA, you must have self-only coverage under HDHP. Accounting for 2018 inflation, your deductible should be no less than $1,350 and your out-of-pocket expenses need to be $6,650 at the most.

If you’re eligible, you can make tax-deductible contributions of no more than $3,450. Keep in mind that the account is money you own, so you can distribute the funds for non-medical expenses but that amount will be added to your income tax and charged an additional 20 percent tax. However, the advantages outweigh the disadvantage as proven by data that shows the popularity of HSAs has risen in recent years.

Source: Financial Times

According to data collected by the Devenir consulting firm, HSA assets rose to an estimated $44.7 billion in 2017. They deduced this was caused by the shift mentioned earlier toward increased employee responsibility for healthcare costs. Depending on your employer, your HSA might also receive contributions from them.

The data also found that among the top 100 HSA providers, employers contribute an average of $719 annually – about 33 percent of the account. This is another reason why HSAs are so rewarding because if you choose to max the amount saved to your HAS, then your contribution would be even less. Recent announcements in the healthcare political debate also demonstrate evidence on why the amount of people enrolling into HSA benefit plans will continue to grow.

The latest news indicates President Trump's administration has proposed a regulation that would allow small employers to buy coverage at smaller premium rates through association health plans. This move could entail smaller coverage which means employees would have to pay more out-of-pocket. If the regulation were to pass, the move towards HSAs will increase with the entrance of employees from small businesses.

Source: Bloomberg

The last sign that makes HSAs look so promising is the recent endeavors companies have made to lower the cost of healthcare spending. Late last month, Amazon announced it would partner with Berkshire Hathaway and JPMorgan Chase to make a not-for-profit healthcare group. Their plan is to enter the healthcare industry and reduce costs for their combined number of employees. If proven successful, their plan could expand by opening it up to the rest of the American populace. While the market power behind all three companies backs up the believability of their mission, they’re only the most recent companies to make such an announcement.

In December of last year, CVS Health announced it would use its acquisition of Aetna, one of the country's top health insurers, to create what they’ve dubbed “healthcare hubs” to reduce the cost of healthcare. These hubs would incentivize consumers to seek their medical services rather than expensive ones by providing the services at lower prices.

But even before the Amazon-Berkshire-JPMorgan and CVS Health announcements, several other companies have attempted to unravel the healthcare market to make goods and services in healthcare more affordable. Founded in 2016, the Health Transformation Alliance has 46 companies signed on, including JPMorgan and Berkshire. Included in the alliance is Macy’s and American Express, whose respective chief human resources officers Bill Allen and Kevin Cox remarked that the alliance seeks to make healthcare more affordable.

Even hospital systems are making similar efforts to improve the healthcare market by producing less expensive prescription drugs. Intermountain Healthcare, Ascension, SSM Health and Trinity Health announced last month that they plan to form a company dedicated to providing alternative generic medicine to consumers. Their plan includes either getting or buying FDA approvals to make and sell these less expensive pharmaceutical drugs.

With these major companies and hospital systems making efforts to decrease the costs of healthcare, HSAs are positively shown to be smart investments. So how do you find out if your employer offers HSAs for single coverage? By going to your benefits manager and asking them the following questions:

1. Do you have HSA benefits plan?
2. If yes, does the employer make any contributions towards the HSA plan? What’s the amount they contribute to individuals?
3. Is there a copayment (charges for urgent care, doctor visits, ER visits, etc.) under the HSA?
4. What is the deductible amount for individuals for the HSA plan?
5. Once I’m enrolled in the HSA plan, what is the rollover amount?
6. If I were to suddenly switch companies, could I take my HSA with me?

In the end, a Health Savings Account is as it says – a savings account. It is an account that could be put toward future expenses and is even eligible for investment toward the long haul. Among the many future expenses that will undoubtedly come your way, a HSA reassures that your health will be less worrisome.