10 HSA Myths Debunked
1. Myth: Your employer controls your HSA.
Truth: Your HSA is completely owned by you. In most cases, your employer provides the high deductible (low premium) plan that your HSA is paired with and chooses your HSA provider, but the HSA is all yours. Your HSA funds are yours to save, spend, or invest as you please. In fact, your HSA transfers with you if you switch employers.
2. Myth: FSAs and HSAs work the same way.
Truth: The “S” in FSA stands for “spending,” while the “S” in HSA stands for “saving.” In other words, FSA funds must all be spent on medical expenses by the end of the year or else the FSA account holder will lose them. HSA funds are a great resource for medical expenses, but they don’t have to be spent. Instead, you can save everything in your HSA, and those funds roll over from year to year. They can also be invested to create a future financial asset used to cover medical expenses through retirement.
3. Myth: HSA contributions can only be made through payroll deduction.
Truth: While making HSA contributions through payroll deduction increases tax savings, you can also contribute to your HSA from your own pocket, you just won’t receive the same FICA savings that payroll contributions allow. Contributing out of pocket is a great option for anyone who failed to fully maximize their HSA the prior year. Each year you have until the tax filing deadline to make prior-year contributions.
4. Myth: HSAs are limited to doctor and hospital expenses.
Truth: HSAs can be spent tax-free on any eligible medical expenses, not just doctor’s office/hospital fees. HSAs can pay for copayments, coinsurance, deductibles, and other qualified medical expenses including prescriptions, and even many medical supplies such as vitamins and Band-Aids.
Typically, your health insurance premiums don’t fit into the category of HSA-eligible expenses. However, the IRS allows exceptions for premiums that fall under the following categories:
• COBRA premiums and other healthcare continuation coverage
• Medicare premiums
• Long-term care insurance (deduction limits based on age)
• Health insurance premiums paid while receiving unemployment benefits
5. Myth: HSAs are not worth being on a high-deductible health plan.
Truth: The word “high” in high-deductible health plan can seem off-putting, but the reality is that high deductibles save you money in the long run because you are paying lower premiums. When you pay your deductible, you are paying for healthcare that you actually receive, but when you pay for premiums, you are paying for “what-if” costs. High-deductible health plans help you to pay for what you need and keep the rest.
6. Myth: HSAs are only for healthy people.
Truth: Because HSAs must be paired with high-deductible health plans, many people believe that they only benefit the healthy—a myth that is frequently associated with HDHPs. Because HDHPs require patients to pay more out of pocket to reach their deductible than traditional low-deductible / high premium plans, some people believe that HSA + HDHP plans only really benefit those that rarely need healthcare procedures. This is false. It is important to remember that HDHPs consist of lower premiums (which save everyone money in the long run, regardless of health), and many employers make contributions to employees’ HSAs, which are a great resource for health savings and can eventually be used for high medical costs.
7. Myth: If you don’t use your HSA money, you lose it.
Truth: HSA funds roll over from year to year, transfer with you from one employer to the next, and can even be invested!
8. Myth: If you have an HSA, you must use it for every medical expense.
Truth: HSA funds can be withdrawn tax-free for any qualified medical expense, but that doesn’t mean they have to be. If you’d rather use your HSA as a retirement vehicle (which HSAs are excellent for) and simply let savings roll over from year to year, then you can do that. You can pay for medical expenses out of pocket if you would prefer to do so.
9. Myth: You lose coverage with an HSA plan.
Truth: An HSA does not affect your insurance coverage. Once your yearly deductible is met, coverage kicks in regardless of whether you have an HSA. In fact, HSAs can make reaching your yearly deductible less of a burden because you are allowed to use HSA funds to pay your deductible. These funds are an excellent resource for paying your deductible because they roll over year to year and possess a triple-tax advantage: they offer tax-free contributions, growth, and withdrawals for qualified medical expenses. However, in order to contribute to an HSA, you must be on a qualified HDHP.
10. Myth: “I’m too old for an HSA. It’s too late.”
Truth: HSAs are a great savings tool for everyone, regardless of age. It’s better to have small savings than no savings. In fact, those that are 55 or older can make an extra $1000 “catch-up” contribution each year until they are 65. Just note that retirees on Medicare can no longer contribute to an HSA.
Sources:
“5 Myths about Health Savings Accounts”
Further by HealthEquity
“5 Myths about HSAs”
HealthEquity
“Top 5 Misconceptions about HSAs and FSAs – And What to Say to Correct Them”
Advantage Administrators
“Top 10 Myths and Misconceptions about Health Savings Accounts”
Kelley Long and Karin M. Rettger