Time hori­zon is cru­cial fac­tor in choos­ing right HSA for you

Austin American-Statesman Sunday - - BUSINESS SUNDAY - Gail Marks Jarvis Per­sonal Fi­nance

Morn­ingstar has an im­por­tant mes­sage for em­ploy­ees who will soon start sign­ing up for next year’s health ben­e­fits: Take a close look at any health sav­ings ac­counts you are con­sid­er­ing en­rolling in.

Morn­ingstar an­a­lyst Leo Ach­e­son, in a new re­port, ex­am­ines 10 ma­jor HSAs that are pop­u­lar in the work­place, and his con­clu­sion is any­thing but glow­ing.

“There is much room for im­prove­ment across the in­dus­try,” he con­cluded. Of all the plans he ex­am­ined, Ach­e­son iden­ti­fied only one as a “com­pelling” way for peo­ple to set aside money to cover health ex­penses: The HSA Author­ity.

HSAs are sav­ings ac­counts that al­low you to set money aside — often by hav­ing a pre­tax sum de­ducted from each pay­check — to pay for doctors, blood tests, hos­pi­tals and other out-of-pocket med­i­cal ex­penses. The money can be used in the short term or stashed away for decades, ul­ti­mately help­ing out

with re­tire­ment health care ex­penses if not used sooner.

But if you’re us­ing an HSA to stash away money for the fu­ture, the in­vest­ment choices you are of­fered mat­ter, and so do the fees you pay. When Morn­ingstar eval­u­ated ma­jor HSA plans, it found only four that it could rank pos­i­tively based on the fund choices of­fered, the man­agers who in­vest the funds and low fees.

Bank of Amer­ica, HealthEquit, Op­tum and The HSA Author­ity all made the cut.

On a more limited as­sess­ment of qual­ity funds, Morn­ingstar ranked Bank of Amer­ica, Ben­e­fitWal­let, HealthEquity, Health Sav­ings Ad­min­is­tra­tors, Op­tum and The HSA Author­ity ahead of com­peti­tors.

The cal­cu­la­tion is dif­fer­ent if you’re not wor­ried about build­ing up a long-term stash and in­stead plan to use the HSA strictly for cov­er­ing near-term med­i­cal bills. In­vest­ments choices aren’t as es­sen­tial if you’re plan­ning to spend the money in the HSA in the short term.

Rather, the im­por­tant con­sid­er­a­tion when sav­ing money that will be used in the short term is whether the HSA of­fers a check­ing ac­count that doesn’t charge monthly main­te­nance fees.

In that re­gard, Morn­ingstar ranked only Al­liant Credit Union, Selec­tAc­count and The HSA Author­ity pos­i­tively.

So for both sav­ing for the short term and in­vest­ing for the fu­ture, The HSA Author­ity is the only stand­out, ac­cord­ing to Morn­ingstar.

Of course, be­fore scru­ti­niz­ing the HSA plan your em­ployer of­fers, make sure such an ac­count makes sense for you in the first place.

HSAs are best for young, healthy em­ploy­ees who rarely go to a doc­tor; not peo­ple with a lot of health ex­penses. That’s be­cause the HSA usu­ally comes pack­aged with a high-de­ductible health in­sur­ance plan.

If you’re on a high-de­ductible health in­sur­ance plan, you’ll ini­tially pay many of your health care costs out of pocket. The in­surer won’t start pay­ing your doc­tor and hospi­tal bills un­til after you’ve spent a lot — at least $1,300 if you are sin­gle or $2,600 for a fam­ily.

And even after reach­ing those sums, you can en­counter big costs such as cov­er­ing co-pay­ments.

If pay­ing those types of sums out of pocket would be un­man­age­able, the high-de­ductible in­sur­ance pol­icy prob­a­bly isn’t for you. To cal­cu­late whether a high-de­ductible in­sur­ance plan or another op­tion of­fered by your em­ployer makes more sense fi­nan­cially, try a cal­cu­la­tor such as https:// www.cal­cxml.com/cal­cu­la­tors/ins11.

If the HSA/high-de­ductible in­sur­ance com­bi­na­tion sounds like it could work for you, there are some solid rea­sons to start us­ing it as a sav­ings ve­hi­cle.

Hav­ing an HSA can be an ex­cel­lent way to en­hance your re­tire­ment funds. Putting as much as pos­si­ble into a 401(k) is im­por­tant be­cause it can go to­ward pay­ing for all sorts of re­tire­ment needs, in­clud­ing food, hous­ing and health ex­penses. But since many peo­ple can’t save enough in 401(k)s or IRAs to ad­e­quately cover their re­tire­ment, an HSA can be an ex­tra help. It can help pay for your health care costs in re­tire­ment, which can to­tal a hefty sum.

Fidelity has es­ti­mated a 65-year-old cou­ple should expect to pay $260,000 for health care in re­tire­ment.

HSA sav­ings can be used tax-free to pay for Medi­care pre­mi­ums and longterm care in­sur­ance.

After age 65, an HSA can also be used for other ex­penses, but if you spend on some­thing other than health care the money will be taxed like in­come.

On the other hand, an ad­van­tage of HSAs is the tax treat­ment they are given; Un­cle Sam gives you a break on taxes when you save in an HSA.

Money you put into the ac­count isn’t taxed, money that stays in the ac­count isn’t taxed and money you take out to pay for med­i­cal costs isn’t taxed.

That’s a good deal. Be­cause you aren’t taxed, every penny you save will count a lot more than if it was sit­ting in a reg­u­lar sav­ings ac­count.

In­di­vid­u­als can save as much as $3,400 in an HSA an­nu­ally; a per­son with a fam­ily could stash away as much as $6,750, and if you are 55 or over you can add another $1,000.

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