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Managing Money Better with a Health Savings Account

Health Savings as Risk Management Policy

This year we have all been faced with the scary possibility that we might contract Covid and end up with complications or long-term residual health effects. Hopefully for most of us this will not happen, but depending on the type of health insurance policy you have, you may be out of pocket a few thousand dollars if you need medical care. Although most of us normally take trips to the doctor for regular check- ups and routine care for pre-existing conditions, this year has really made us focus on health more than any other year in the past. 

Using Lively To Manage Your Health Savings Account

There are various health savings account (HSA) providers, but my favorite is Lively. They have a very user-friendly mobile app and you can link your account to a brokerage account at TD Ameritrade/Schwab so that you can invest the funds. One of the most useful features of this app is that you can take photos of your medical bills and save them for future reimbursement. The app tracks the amount you are owed and you can choose to be reimbursed at any time, either for a particular expense or for the entire amount, but there is no requirement that get reimbursed immediately each time you incur a medical bill. For example, if you have $20,000 saved in the health saving account and have racked up $15,000 worth of medical bills to date, you are free to leave the funds invested indefinitely and receive reimbursement for the $15,000 sometime in the future. As long as you have the past medical bills to prove it, you can take funds out tax-free in retirement while at the same time allowing the funds to grow tax-free for many years. If you open a brokerage account, you will be able to access almost its entire universe of investments just like you can with any other investment account, and the account can be managed as part of your long-term portfolio. 

Usually most HSA account providers issue a debit card that you can use directly when purchasing medical services or supplies if you do need the funds for immediate medical expenses. Even if you do need to use the funds each year, the tax benefit from using this account is still worthwhile.

The qualified expenses are extensive – from doctors visit co-pays to health-related items like contact lens solution and over-the-counter pain medications. You can find a list of qualified health expenses at these sites: 

Am I Eligible for a Health Saving Account?

You are eligible to contribute to an HSA if you have a high deductible health plan (HDHP). The IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,900 for an individual or $13,800 for a family. (This limit doesn’t apply to out-of-network services.) 

Health Savings Account Contribution Limits

If you are not a Medicare participant, the maximum contribution limit to an HSA account for 2020 is $3,550 if you are single or $7,100 if you are married or have a family. For 2021, the contribution limits have been increased by $50 for single coverage and $100 for family coverage. Some employers will contribute funds to an HSA account on behalf of their employees. 

Money in an HSA is invested and grows tax-free, and an added benefit is that you get an upfront tax deduction for depositing funds into an HSA. For example, if you are single and save $3,100, these funds and their growth is never taxed providing that the funds are used for health-related expenses. 

HSA vs FSA

Another type of account used for medical expenses is an FSA or flexible spending account. An HSA and an FSA are both tax-advantaged accounts used for medical expenses, but an FSA is usually offered through an employer and operates on a “use it or lose it” basis in a particular year. You cannot usually have both an HSA and an FSA account at the same time. 

Let’s talk about your HSA!

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