Financial Planning

Just a few months after President Donald Trump’s inauguration, the U.S. healthcare landscape is potentially poised for big changes. Despite the early defeat of the American Health Care Act (AHCA), health care reform reportedly remains a top priority for the administration as it faces its 100-day mark this Saturday. Republicans know any transformation will need to come relatively soon as insurers begin to develop health plan packages for 2018. What changes are on the horizon, and how do you ensure your healthcare needs are properly funded?

Although the AHCA’s initial failure led to uncertainty on the specifics of health care reform, there appears to be a broad push to increase the use of Health Savings Accounts (HSAs). Various proposals have included plans to remove the requirement to have a high-deductible health plan in order to contribute to an HSA, raise contribution limits to $6,550 for individuals and $13,100 for families (from their current limits of $3,400 and $6,750, respectively), and to create a new type of account called a Roth HSA.

According to the Society for Human Resource Management, HSA enrollment has already risen nearly 54% since 2013, and new legislation could catapult them into the mainstream. Even with increased adoption, however, many individuals still misunderstand HSAs.

When used correctly, HSAs are powerful savings vehicles. They offer a triple tax benefit to consumers: money goes in tax-free, any investments grow tax-free, and withdrawals are tax-free if used for a generous list of qualifying medical expenses. While using HSA savings for health care expenses offers the greatest tax advantage, dollars can be withdrawn for any purpose beginning at age 65 and still receive tax-deferred benefits in line with those of a 401(k) or IRA.

Unlike a flexible spending account (FSA), HSA assets do not need to be used by a certain date, are investable, and portable between jobs. This means the cash saved in an HSA can compound over the years and become another significant source of savings. When you consider that the average 65-year-old couple is projected to spend $260,000 on healthcare in retirement, the potential value of these vehicles starts to sink in.

There are a few stipulations dictating who can and cannot open an HSA. If you are over 65 and receive Medicare, you are not eligible to start or contribute to an HSA. Consumers also currently need to have a high-deductible plan to open an HSA, although future legislation could change that.

Regardless of what’s happening in Washington, we encourage investors to identify their financial goals and save accordingly. HSAs can serve as an important tool used to meet future health care and/or retirement needs.