It can be a real head-scratcher: knowing how best to use the money you and your employer have contributed to an HSA. Not only is an HSA multi-faceted and versatile, but part of the beauty of one is all the ways it can work with your existing health care and retirement benefits to help you save. And in turn, an HSA can ultimately improve your health and financial wellness.
By looking at how you can use an HSA with your existing health care and retirement package, you can work in a strategy where you make the most of the perks of an HSA. Here are some ways an HSA can work in tandem with your existing benefits so you can get the most out of both:
Use funds in an HSA to cover gaps in health care
Start by examining all your health-care related needs and the associated costs. Money saved in an HSA can cover co-pays, deductibles, and medical expenses and services that your health and dental care plans might not. This requires getting your head around what's covered and what's not with both your specific health insurance policy, and also knowing what's HSA eligible. By having an understanding of both, you can see how you'd like to use your HSA for these gaps in care.
You'll want to know the basic costs of your health care insurance, such as your co-pay, deductible, and what types of medical services aren't covered. For instance, acupuncture services can be covered with funds from your HSA. Mental health services such as therapy can be eligible if it's considered part of your medical care. Then, you can figure out how much of your HSA can go toward these expenses.
Know what's HSA eligible
You might be well aware that prescription drugs, co-pays, and medical equipment are typically HSA eligible. But what you might not know is that due to the CARES Act, feminine hygiene, over-the-counter medications and products prescriptions can be covered with an HSA without a prescription? Plus, telemedicine and remote care is covered without needing to hit the deductible first.
Without knowing exactly what's qualified for an HSA-eligible expense, you won't be able to know you can use funds in your HSA, which could save you money. Spend some time looking over our HSA Eligibility List to see what's a covered expense.
It might sound nerdy, but bookmark or jot down items that are eligible that you tend to use during different types of the year. For instance, if your family members' allergies tend to flare up during the summer months, add over-the-counter medications that provide allergy relief to the list.
Use HSA funds with discount cards
You can certainly use health care and prescription discount cards in tandem with your HSA funds. You don't have to typically wait until your deductible is met, either. They work just like any other coupon or promo code.
If your benefits package comes with such discount cards, you can stack up savings by applying the discount and paying out of your HSA account. Remember: a tax advantage of HSAs that money you spend from your HSA account on eligible expenses aren't taxed (Investopedia)
Work an HSA into your budget
Work in the funds in your HSA into your spending plan. This can be divided up as a two-parter: expenses you anticipate, and medical expenses that you can't.
For instance, you can set aside some of the funds in your HSA to pay for HSA-eligible dental work that you routinely do, or anticipate doing in the near future. Instance, twice-a-year dental cleanings, and long overdue fillings and root canals. Or maybe you plan on participating in a wellness program through your doctor, or a smoking cessation program. And if you are seeing a therapist through telehealth sessions, those sessions might be covered due to the telemedicine allowances under the CARES Act.
And what about healthcare expenses you can't really anticipate? You might commit to setting aside a percentage of what's in your HSA account toward expenses that are either variable or are unpredictable.
You can also comb through your medical expenses and see how an HSA can help you cover anything you like to have in your medicine cabinet throughout the year — over-the-counter medications and home first aid kits.
Invest HSA funds for retirement
While not exactly a retirement account, an HSA account bears similarities to a retirement account 401(k) in that retirement account in that you and your employer can make pre-tax contributions to your account. That money can grow in your account and you won't have to pay any taxes. Plus, the money rolls over each year.
If the HSA brokerage account gives you the option to invest your funds, you might want to consider putting some of that toward investing. Over time, it could help serve as part of your retirement savings.
Maximize your HSA contributions
Part of the reason why you probably opted for a high deductible health plan was to lower your monthly expenses. If you can swing it, aim to contribute as much as you can into your HSA. In 2021, the limits for HSAs have been bumped up slightly to $3,600 for individuals, and $7,200 for families.
Set up auto-contributions, so you save the same amount every week or month. If you're a party of one, see if you can save $69 a week. If you're a family with an HSA, aim to squirrel away about $140 a week. It might sound like a lot, but it's money that comes with triple-tax savings, and can go back to maximize your existing benefits, and ultimately help you be a healthier you.
Seeing how the funds in your HSA account can work together with your other benefits can help you get the most out of your benefits package. In turn, that equates to greater savings and potentially less financial stress.
Jackie Lam is a personal finance writer and is based in Los Angeles. Her work has appeared in Business Insider, Salon, Mental Floss, and GOOD. She is a candidate for the ACFPE® financial coaching certification.
Jackie is passionate about helping artists, freelancers, and gig economy workers with their finances. She has in-depth experience writing about budgeting, investing, frugality, money, and relationships, and loves finding interesting stories that revolve around money.