A health savings account (HSA) is a powerful, flexible resource for helping employees pay for health care, and that’s something everyone appreciates. Yet, despite the sustained popularity of HSAs, your employees likely don’t fully understand how to maximize this benefit to protect their health and pocketbook.
Consider the fact that just 57% of employees and 65% of employers say they have a good understanding of their HSA. As benefits professionals, you can remedy this by using open enrollment to educate employees about potential HSA strategies and direct them to tools that will help them plan contributions, and how they will – or won’t – spend their tax-free healthcare dollars.
Spend, save, invest
There are more ways to benefit from an HSA than meets the eye.
Depending on the makeup of your workforce, your employees may feel they don’t need to enroll in the company-sponsored HSA because they are young and healthy, and not high users of health care. On the flip side, employees who are nearing retirement may feel it’s too late to contribute. Meanwhile, across your employee population, some may not enroll because they fear they won’t be able to fully fund the account.
The truth is anyone can benefit from the tax advantages of an HSA simply by using these dollars to purchase everyday wellness products they already buy throughout the year.
4 HSA strategies
Here are four HSA strategies to share with employees to help them understand the flexibility and savings potential of their HSA and to define their own personal strategy.
- Pay out of pocket and fund when able. If an employee is enrolled in an HSA but has not funded the account yet, or if their HSA balance is low at the moment, they can pay out of pocket for expenses and save the receipts. Then, as their balance grows or they contribute to the account, reimburse themselves and get the tax benefit. This works great for routine or recurring healthcare needs. For example, an employee who has not contributed to their HSA buys a qualified acne scrub, allergy medicine, and sunscreen – something they do regularly – with their credit or debit card. The employee can save these receipts, make a quarterly (or other timeframes) HSA contribution in the amount of the receipts saved, and reimburse themselves immediately to get the tax savings of the HSA, without pre-funding.
- Contribute now and use as you go. An employee may fund the account upfront and spend with their HSA debit card as they incur expenses, or reimburse themselves from the HSA with electronic funds transferred to a checking or savings account.
- Contribute now and reimburse later. An employee might choose to fund the account, but pay for expenses out of pocket and save receipts, allowing the HSA balance to grow and accrue interest. Then, reimburse themselves at a later date, when they need it most. For example, an employee who pays for expenses out of pocket can reimburse themselves for those expenses in retirement (putting extra cash in their pocket) or when money is tight.
- Save and invest. An employee may choose to use their HSA for long-term savings by contributing to the account, letting the money grow and paying for expenses out of pocket. Even when using the HSA as a savings tool, remind employees to save healthcare receipts. HSA dollars can be invested in stocks, bonds and mutual funds to maximize growth. Also, these dollars can be used tax free in retirement for medical expenses or an employee can retroactively reimburse themselves for expenses from previous years.
Smart HSA spending tips
Whether employees identify an HSA strategy and stick to it through thick and thin, or if they change strategies throughout their career and as their lifestyle changes, they can always benefit from the following smart HSA spending tips.
Know what’s eligible. This might sound simple, but HSA eligibility isn’t always straightforward, and employees may be surprised at all the ways they can use their accounts. For example, menstrual care products are now eligible, as are over-the-counter medications (no prescription required). Expenses like occupational therapy or orthopedic shoes may require a letter of medical necessity, while others such as antidepressants are only eligible with a prescription (although there is a drug-free device designed to improve mental health, too). Help employees understand what is eligible now, and help them find up-to-date eligibility lists that ensure they can account for those products in their specific strategy.
Identify the best deals. Remind employees who are focused on using HSA dollars for current needs to check providers in the area for the best prices. The price of an X-Ray can vary dramatically between providers, for example. When it comes to prescription drugs, direct employees to discount programs like GoodRx or other options you may offer. And encourage them to subscribe to newsletters that offer discounts and coupons to help save even more on routine purchases.
Save those receipts. HSA expense eligibility is governed by the IRS. That means employees may be required to provide copies of receipts to show proper use of their HSA dollars. To ensure employees are spending HSA dollars on eligible items only, direct them to tools that help them track expenses and save receipts and say goodbye to the “shoebox method.”
No two employees have the exact same health needs or future goals. As a result, no two people will use an HSA the same way. That’s why it’s critical to help employees better understand the strengths of their HSA and how those strengths can support their unique needs and lifestyle. By doing so, you can help them save money today and care for their well-being for years to come.