Should I use a health savings account?

Dear Chuck,

Should I participate in my company’s offer of a Health Savings Account? I don’t get sick often and feel it is too expensive.

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Help with HSA

Dear Help with HSA,

A Health Savings Account (HSA) is a great way to manage the cost of healthcare. If you are qualified and able, I suggest that you take advantage of the opportunity; however, there are some possible downsides.  

The program was established for those who elect to have high deductibles on their health insurance coverage. The idea is that high deductible coverage lowers the cost of being insured but requires more out-of-pocket cash when the insurance coverage is needed. Thus, an HSA account allows for automated savings to be used when cash is needed to cover the higher deductibles.

Imagine that you elect to have a $5,000 deductible on your health insurance policy to bring your monthly premium payments down. This means you will need to be ready to pay up to $5,000 out of pocket when you have a medical procedure. An HSA is intended to help you have this amount set aside.

How it works

The program is an automated savings vehicle for funds that are deposited into a restricted-use account for future medical needs. You set the amount from payroll deductions. The amount is tax-exempt, which is a significant benefit over a personal savings account. Even though you may not presently use it often, the funds can be invested to grow and increase for future needs as you age.

HSAs cover certain medical expenses while helping you save money and strengthen retirement planning. The rising cost of healthcare in America warrants wise building and management of this asset.

Currently, HSAs are only available to those with a high-deductible health plan. They are so beneficial that Senator Rand Paul wants to expand the qualifications so that everyone can have access. He is sponsoring the Health Savings Accounts for All Act. I hope it passes so more people can participate.

HSA facts

• Tax-free contributions.
• Tax-free withdrawals for health expenses.
• Tax-free long-term growth potential.
• Contributions roll over from year to year.
• Twenty percent penalty on withdrawals for other spending before the age of 65.
• Penalty-free withdrawals when used for anything after the age of 65.
• No required minimum distributions.
• Spouses named as beneficiaries inherit and treat the HSA like their own.
• Non-spouse beneficiaries must immediately cash out and pay the required income tax.

Eligibility is denied if you are:

• Enrolled in Medicare.
• Claimed as a dependent on someone’s tax return.
• Enrolled in an unaccepted health plan or have a flexible spending account (FSA).

To contribute in 2025, you must be enrolled in a high-deductible health plan of at least $1,650 for self-coverage and $3,300 for family. Total out-of-pocket costs are limited to $8,300 for self-only or $16,000 for a family. 

In 2025, you can contribute $4,300 to an HSA if single or $8,550 if you have family coverage. At age 55, you can make catch-up contributions of an additional $1,000 if not enrolled in Medicare. The 2024 tax deadline for contributing to your HSA for 2024 is April 15.Contributions for 2024 are$4,150 (single) and $8,300 (family).

Prior to using your HSA, make sure you understand the eligible and ineligible expenses. Keep good records, and track your contributions to claim eligible deductions to make tax filing easier.

Some words of caution

Contributing to an HSA does not eliminate the need for an Emergency Savings account or setting aside money for retirement. You don’t want to make contributions to a restricted, tax-exempt account only to find you have to withdraw the money for another emergency. You will face the possibility of penalties and lose any advantages you may have initially gained.

Prioritize establishing a minimum of three months of living expenses in your Emergency Savings account before you begin contributing to your long-term retirement accounts or an HSA.   

Money contributed to an HSA can remain in cash and money market accounts or be invested in mutual funds. If you invest it, know that it is at risk of decreasing in value. Your health issues and age are determining factors in planning. If you anticipate the need for funds in the near future, you may want to avoid possible loss due to market volatility and stick with cash or money market funds. Research your options because fees, interest rates, and investment options vary. I recommend seeking wise counsel from several sources. For more information, check the pros and cons at Bankrate, Wallethub, and Investopedia.

Those with high medical needs may benefit from plans with lower deductibles and copays, which would presently disqualify you from participating in an HSA. Each person must seek the route that best suits their unique needs and, ultimately, the Lord for guidance in decision-making.

“With God are wisdom and might; he has counsel and understanding” (Job 12:13 ESV).

This is an update to an HSA article from 2017.  

For help with budgeting so that you can begin saving more, consider a Crown budget coach. He or she can work with you to develop a customized spending plan and debt-elimination strategy.