HSAs 101: What they are and how they work
When employees are first offered the chance to use a health savings account (HSA), they may be confused about what it is and what the benefits of using one are.
Tim Quitmeyer designs and administers employee benefit plans for a large company. He explains:
- HSAs’ triple tax savings
- How these accounts are different from flexible savings accounts
- How they can be used for retirement
Podcast transcript: What they are and how they work
Host: Thanks for joining us. I’m Veronica March, your podcast host. People generally have a lot of questions about Health Savings Accounts. Today we are talking to an expert who will highlight the basic things everyone needs to know about HSAs. Our guest specializes in employee benefits with a multi-national commercial real estate firm. Welcome, Tim. Would you introduce yourself?
Tim: My name is Tim Quitmyer, I work with JLL. I’m the director of benefits and well being, I basically head up our department for our employee benefit programs.
Host: How do you describe your job when talking to your friends and family?
Tim: I think the easiest thing to say is—you know your medical plan and dental plans, well, I am the guy that basically designs them and administrates them. And gets those out to our employee base and we help to make sure that it’s the right program for our population.
Host: Since we are starting with the basics, tell us what an HSA is.
Tim: A Health Savings Account is in the very basic terms, a savings account. It’s no different than any other type of savings account an employee might have. It’s just this account is going to be used for qualified health expenses. So, when you think about it, it’s a way you can put money into an account that you are not going to necessarily touch right away. It can build. It can grow on interest. And at the end of the day, you are going to have triple tax savings because you are going to save on taxes from your contributions that go into the account. You are going to save taxes on the investments because they grow tax-free. And then you are going to save when you spend the money. So as long as you are spending on qualified medical expenses or dental or vision, you are not going to get taxes on those dollars that you use. So, an example being, if you went out and you had to buy a prescription for $100 and you went and withdrew a $100 from your account, that money is tax-free. It’s not going to be taxed.
Host: Employees also have an option to contribute to an FSA which is a Flexible Savings Account. From what I understand, money in an FSA has to be spent during that calendar year, or the employee will lose the funds at the end of the year. Explain how HSAs are different for employees thinking about making financial contributions.
Tim: The great thing about HSAs is it’s going to roll over year to year. And, if I ever leave my company, or I change plans or anything, that will be mine. I take it with me. Because once it’s in my account it’s mine to do and invest how I want to. So, when you look at an employee who then maybe would need to access that money, they can draw it just like a savings account. Checking account. Write their doctor a bill directly from that account or reimburse themselves. However they want to do it. It’s just again, a great way for employees to be accountable. Be more invested in the cost of health care. Because if they are writing the check, they are going to be a little more conscience about well, am I going to go to get an X-ray that my doctor is telling me is down the hall, but it’s $1000 vs. am I going to try to go do a little research and possibly find this X-ray is going to me $500 down the street. So, I think there is the consumerism piece and the employees ownership in those decisions that also affects how health care dollars are spent.
Host: Does anything change with an HSA once you reach retirement?
Tim: Once you reach age 65, the dollars that you are able to spend from your health savings account no longer have to be for qualified medical expenses. In that case, if you say had started your balance out at a $1000, it grew for 20 years, and at the end of the day you had $5000 in your HSA account you have experienced the tax advantages of leaving it in there, letting it grow tax free. But now after age 65, if you want to spend that money on new TV or a new car, or anything, those dollars that you withdraw from your account will be taxed as normal ordinary income, its just only on what you are withdrawing.
Host: Really good information. Bottom line: Use your HSA to save on taxes and have money saved when you need it. Thanks so much to Tim Quitmeyer from JLL for sharing your expertise. You’ve helped us simplify HSAs. To learn more, visit OptumBank.com.