HSA Account Fundamentals and How I Acquired Free Medical Too

You in all probability aren’t desirous about HSA accounts proper now, and are extra involved with the rising value of healthcare. However hold studying, as a result of whereas it doesn’t make issues higher, you may be capable to optimize this shitty scenario.

In accordance the the Bureau of Labor and Statistics, 50% of employees had entry to a excessive deductible well being plan (and with that, doubtless an HSA or well being financial savings account) in 2024. In 2015 solely 38% had entry to a HDHP!

We’d want an economist to talk on if that is really a very good factor by way of total traits (my intestine feeling is that usually talking, it’s nefarious, not as a consequence of some mass awakening and optimization of non-public monetary acumen and instruments).

Whereas I don’t know what the stats have been again in 2018 once I initially wrote this text for my outdated weblog, That Frugal Pharmacist, I believe it’s an vital matter to revisit as we close to the top of 2025.

Please notice, this outdated article is introduced with out edits (aside from altering how I “get” to how I “GOT” free healthcare for the title part, plus some added commentary earlier than we dive in.

We’ve been speaking quite a bit about authorized methods to protect your paycheck from the present regime. And whilst you mostly hear us discuss upping your 401k contributions, the triple tax-advantaged HSA isn’t getting sufficient airplay.

You all have had official issues about shoveling extra money right into a 401k (assuming there’s any leftover to take action) when there are trustworthy discussions available about whether or not we’ll even have entry to that cash by the point all of us hit retirement or if the entire system can have fallen aside. I share these reservations, and I’d prefer to current the HSA as a substitute that provides you choices to entry your cash sooner, in sure circumstances.

As with all issues, a diversified method by no means hurts. On the time of this intro/replace (late 2025), my HSA account has $99,514 in it, most of which is funding progress. By the point you learn this, there’s a very good probability it should have hit 6 figures. I even have spreadsheets going again fairly a number of years documenting my out-of-pocket medical spending, so I can reimburse myself out of my HSA if I ever have to, earlier than I faucet one thing like a retirement fund and incur penalties.

However most significantly, I believe given the skyrocketing value of medical insurance, which is predicted to rise considerably for nearly everybody shifting into 2026, many extra folks might be contemplating choosing the very best deductible plan provided and doing their finest to avoid wasting cash on their premiums. We now have but to see how unhealthy that is all going to be, as many individuals are nonetheless getting their plan choice info for 2026, and we don’t know if the ACA subsidies might be reissued with our ongoing authorities shutdown hanging partially on this issue.

So whereas some could also be contemplating HDHPs as a consequence of undesirable exterior pressures, I don’t essentially assume it’s a foul selection, particularly if you happen to could be strategic about it. Personally, I’ve solely ever bought for “catastrophic” protection myself till I had an ACA subsidy plan to buy. Then, I used to be incentivized to choose one other kind of plan.

Whereas “free medical” or coated premiums is probably not one thing you possibly can successfully engineer, and chances are you’ll not even get an employer match, I urge you to learn on and get a greater understanding of this little-discussed monetary instrument and how one can doubtlessly take advantage of out of a shitty scenario.

TLDR: If it is sensible in your funds, think about enrolling in a HDHP plan and saving the distinction between premiums and your deductible in your HSA or as much as the utmost annual HSA contribution.

Be sure you run some numbers utilizing examples like this:

Instance: Month-to-month premium is $400 for HDHP vs. $750 for the mid-range plan. HDHP deductible if $4,000 — save the $350 distinction month-to-month in your HSA and internet your self $4,200 in financial savings that’s yours without end/till you want it (the person most HSA contribution in 2026 in $4,400 and $8,750 for a household). For those who get sick, you’ve already acquired your deductible quantity saved. For those who don’t get sick, you didn’t waste cash on a plan you didn’t use. Most out of pocket spending (MOOP) for a person, *in-network, for 2026 is $10,600. Whereas not insignificant, you’re practically 40% of the way in which to your MOOP already.

And now- again to our 2018 deep dive!

What’s an HSA?  Simply what it says it’s, a “Well being Financial savings Account.”

Many staff are eligible for both an HSA or a FSA (versatile spending account) as a cash financial savings mechanism for well being purchases when they’re buying insurance coverage.

HSA vs. FSA accounts

The commonest confusion I appear to run into when mentioning my HSA account, even at my physician or dentist’s workplace is: it’s not the identical factor as a versatile spending account (FSA).

I can see why folks can be confused.  At first look, they’re very comparable.  In each you place away cash pre-tax, reducing taxes in your take house pay.  You employ the cash from each to pay for eligible purchases reminiscent of copays and workplace go to prices and prescriptions.  In each, an employer could contribute along with what the worker provides.

However that’s just about the place the similarities finish.  And right here is the most important, most vital distinction:

In an HSA you, the worker, owns all of your cash.  In an FSAthe employer owns any funds you don’t use on the finish of the yr.

This sounds CRAZY!  As a result of I’ve hardly ever used my insurance coverage for quite a lot of physician visits, I’ve not been prepared to place myself in a scenario the place I go away cash on the desk on the finish of the yr.  I’ve by no means opted to make use of an FSA once I had an HSA as an alternative choice (or at another time, I’ve by no means used an FSA).

There are another caveats after all.  And anybody who has each introduced to them as an choice ought to fastidiously learn your plan literature in deciding which is for you.  In an FSA you could have entry to the entire cash from the start of the plan yr.  In an HSA, you solely have entry to what you could have saved thus far (and any employer match when you’ve got it).

Another variations embody you possibly can contribute considerably extra to an HSA than an FSA.  Moreover, to participate in an HSA you should be taking part in a high-deductible insurance coverage plan (aka HDHP).  For 2018, meaning you should be have a minimal annual deductible of $1350 for a person or $2700 for a household.

One other vital distinction is, so long as you meet the above deductible {qualifications}, you possibly can join an HSA plan by yourself, via many banking/funding organizations.  You don’t essentially need to undergo an employer.  With an FSA, as a result of the employer technically “owns” the funds, you possibly can solely use it if you happen to join via your employer.

It’s like a 401k, in your well being

I already talked about that your HSA contributions are pre-tax and scale back your taxable revenue.  An HSA additionally grows tax free so long as you proceed to make use of it for accepted well being associated bills.  When you hit 65, you should use the cash for something, as if it had been a conventional IRA (right here’s some good information on how your HSA charges change after 65).  Use it early, and also you’ll be hit with tax penalties.

At a reasonably wholesome most contribution fee of $3450 for people and $6900 for households for 2018, if you happen to can max this account out, that’s some critical financial savings you might be placing away for future well being spending.  I’ve been maxing out my HSA for 4 years.  Even after paying for a child labor and supply and a few main surgical procedure for my husband (on high of dental visits, eyeglasses, and many others) I’ve over $25,000 in my HSA accounts.

You received’t consider this!

Like a 401k, many employers additionally provide some type of match.  My employer provides each a partial match to a sure greenback worth AND they provide bonus HSA contributions for assembly well being targets (reminiscent of BMI or not being a smoker).

“The final word HSA hack”

Between my firm HSA match and my household assembly well being screening targets: my premiums for each medical and dental are successfully FREE!

Severely!  Verify the maths in case your employer provides any incentives.  I think about my employer match cash “free cash” because it goes in to an account I personal.  This implies they’re additionally paying the insurance coverage premiums for my household.

So who’s an HSA good for?

As a household who doesn’t spend quite a bit on medical bills, it is a nice choice for us.  Why would I need to pay extra in month-to-month premiums for insurance coverage that I wouldn’t even use?

I want I had the napkins I did all my calculations on, however my logic got here to one thing like this (and I checked this for 2 totally different jobs with HSA accounts):

Greenback for greenback, if you happen to seemed on the value (my choices) for a conventional plan with “excessive” premiums with no HSA versus a high-deductible plan + my month-to-month HSA contribution, I used to be paying near the identical quantity per 30 days for both plan.

Lemme break it down:

I attempted to elucidate it like automobile insurance coverage to a different worker.  As a result of I do know that I can afford to satisfy my deductible of $3000 earlier than insurance coverage kicks in, I get to pay a a lot decrease premium all year long (this logic applies whether or not or not you determine to open up an HSA account).  However as a result of I’m tax incentivized to open the HSA account, I really feel doubly assured that I can pay my deductible if I’ve to, and I develop my cash tax free!

Looks like a no brainer to me!  Particularly with the most out of pocket spending on excessive deductible plans outlined by the IRS as $6650 for a person and $13300 for a household for 2018 (which means probably the most you could be charged in a plan yr in your medical care earlier than insurance coverage picks up all the remaining).  For those who hold contributing to the well being financial savings account through the years it is best to have a protected quantity to cowl any catastrophes, childbirth, and many others.

Think about any firm match if you happen to get it.  You is perhaps throwing cash within the trash not benefiting from your HSA plan.

And whenever you actually begin accumulating you possibly can make investments these funds…

USUALLY.  There could also be some plans the place this doesn’t work, so be sure to to learn your plan paperwork.  I might assume you might roll it over to someplace the place you possibly can make investments additionally.  I’m not going to get into this right here, however, it’s an vital a part of your account.  If you’ve reached sure steadiness minimums, you possibly can start investing.  That is when the HSA turns into a very highly effective instrument in your retirement planning.  When you hit 65 you possibly can usually pay in your medicare or non-public medical insurance premiums together with your HSA with no penalty OR taxes on high of standard well being spending.

Hyperlinks:

IRS 2018 HSA and HDHP numbers