If you’re reading this, you either have an HSA, are thinking about getting an HSA, or are just now finding out what these three letters mean.
If you’re reading this, you either have an HSA, are thinking about getting an HSA, or are just now finding out what these three letters stand for (it’s: Health Savings Account, of course!) Lucky for you, no matter which category you fall under, we’ve created an ultimate guide to keep your HSA throughout your career so that, as your career changes, your HSA stays to support your healthcare needs, financial goals, and retirement plan.
Whether you’re starting a new job, beginning your own business, going freelance full-time, experiencing unemployment, and/or any of the other career changes life throws at us, your HSA can stick with you no matter what.
We’re going to cover the following topics, so feel free to jump to the section that you need to learn about the most:
Look, we know a Health Savings Account (or, HSA) can be tricky to fully understand. For example, did you know an HSA is a checking account and not actually a savings account? The good news is all you really need to know is what it does, not what it is. And what an HSA does is act as the most powerful and underutilized form of savings out there (FSAs don’t even compare—see our chart on this below.) How? Well, your money goes in tax-free, comes out tax-free (on qualified medical expenses, of course) and can be invested tax-free (yes, three tax-frees!) And whether you’re saving for retirement, health care needs, or maximizing your investments, your HSA belongs to one person: YOU.
To get your hands on an HSA, you need to be on an HSA-eligible, high-deductible health plan (HDHP). An HDHP plan means you’ll likely have to pay a lot of out-of-pocket costs before you reach your deductible (that’s why it’s “high”), so HSAs were created to make more affordable (thanks to all the tax savings) for you to pay for these costs before insurance steps in.
Most of us become familiar with an HSA through their employer while choosing their health benefits. In 2018, The Society for Human Resources Management (SHRM) conducted a survey that found about 56% of employers offered HSAs to their employees and about 37% of those employers contributed to the HSAs. However, this doesn’t mean that you have to rely on your employer to choose an HSA. You’re in charge and your HSA provider is 100% up to you! Now, let’s get into the good stuff and dive into some various career stages you might experience!
New job, new you! That’s the saying, right? Even if it’s not, a new job likely means new benefits. So, you have some decisions to make! Do you want something comparable to your previous insurance or are you up for trying something new? Either way, you have options.
When it comes to health savings accounts (HSAs), remember it sticks with YOU (not your employer) no matter what. Even if your new employer has a different recommended provider or no HSA options at all, your previous HSA and its funds are all yours. Whether this is your first time choosing benefits or you’re preparing to switch plans with the new employer, there are some things you should consider in the process.
“The best thing for people to know is to at least understand where their health stands and what some of their future expenses might be. We can’t predict what our health is going to look like, but you might want dental care, Lasik, plastic surgery and that should be considered. On top of that, start saving sooner and putting money aside now, because we really don’t know what inflation of health costs will look like in the future.” —Tarra Jackson of Madam Money, author of The 4 Financial Languages.
How long does insurance from an old job last after leaving the company?
Don’t forget to check with Human Resources before leaving because your insurance often goes beyond your last day of the job. That could mean through the end of the month you leave or even 60 days later.This will help you determine if you need any interim insurance.
How long does it take for new insurance to kick in at a new job?
Employers often implement a waiting period before health insurance kicks in, ranging from 0 - 90 days. It’s important to ask so you know the exact calendar date you start receiving benefits.
What should I do if I don’t have insurance between two jobs?
While you can take your chances and go without coverage until your new benefits kick in, there are some options like COBRA that extends your health insurance coverage from your previous employer. (We’ll dive into how this works a little later.)
What if I don’t want the coverage my employer offers?
More power to you! Enrolling in individual coverage that you choose is an option within state healthcare marketplaces. While employers won’t contribute to your monthly premiums (which only matters if they were offering to in the first place), it is an option.
Does my deductible from my previous employer rollover to my new benefit plan?
Unfortunately, no. A new plan means a new deductible. This is something to consider based on the timing of your new job. In some cases, extending coverage through COBRA could be a good option so you don’t lose what you’ve already paid on your deductible.
What if my coverage changes and I want to catch-up on contributions?
Good question! This is where the “last month” or “full-contribution" rule comes in. This means that If your HSA eligibility begins by December 1 of the current year, you’re considered eligible to max out your contribution all at once. You don’t have to prorate your contributions on a monthly basis because you technically made it in under the deadline of “the first day of the last month.” But they’re strict. If your HDHP coverage doesn’t start until December 2, you’re out of luck.
And of course, there has to be a catch. If you take advantage of the “last month” rule, you have to remain under HDHP coverage until November 30 of the following year. If something happens and your insurance changes or you lose coverage and your HSA eligibility changes, you will face extra taxes and penalties under any contributions you were able to make due to the “last month” rule. Learn more here.
Here’s a simple look at the differences between health plans you might see from your employer for more context. Here we compare an HSA + HDHP compared to a PPO (or, a Preferred Provider Organization plan, which is the other type of health insurance you’ll see most often.):
Once that decision is made, you’ll want to think about how to save money in the various vehicles your employer offers. Every employer differs, so you’ll want to ask questions and strategize to get the most out of your HSA.
“If your company's plan doesn't give you the ability to save AND invest, realize that, unlike a 401k plan, you can ALWAYS have a second HSA. Roll money from your current HSA on a regular basis into your "investment" HSA so that you have the ability to invest. “Many people will read this and think, "But what if I need that money right away?" That's a valid concern. But I'm as lazy as the next guy and I LOVE it when someone else pays my bills.
What if my interest on my investments can pay my bills later? Here's a neat twist: if you can afford to pay "out of pocket" for expenses now, leave your HSA money alone and invest it. Later, use your receipts to turn in many years down the road to withdraw the money from your HSA. You're now getting retirement money tax free that you allowed to grow. Investing your HSA money, whenever possible, is a powerful tool.”
— Joe Saul-Sehy of The Stacking Benjamins Podcast
Employer offers HDHP and contributes to your HSA
Employer does not contribute to your HSA:
Employer contributes to your 401(k), but not your HSA:
Employer contributes to your 401(k) AND your HSA (lucky you!):
What a boss! As a small business owner with a tight budget and team, you want your employees to have access to the best healthcare for the best price. Understanding different healthcare needs and ensuring everyone has access to options is simply a smart business choice when it comes to both time, costs and employee retention. While it’s always advised to give your employees options between HDHPs and PPOs, there are some huge benefits for everyone involved when you offer an HDHP with an HSA.
What benefits will the employees receive with an HSA?
What does providing an HSA to employees do for business?
Now that you have a good idea of the benefits, what are the actual steps you need to take to get an HDHP + HSA plan set up for your people? Great question. There are guidelines and rules to ensure you and your employees are doing everything right and documenting it along the way. You can check out the full IRS guidelines to HSAs, but we’re going to break it down for you right here.
We love independence. With the rise of this gig-economy we’re living in plus the large amount of people taking charge and going freelance, it’s important to talk about health insurance. Almost half of the population in the United States gets healthcare from their employer, but what should you do when you are your own employer? Spoiler alert: Get an HSA.
"Right around the time we moved [to Austin], I was making the decision to go out on my own and work for myself. My mom had to drop me from my insurance around then, so I went without insurance for about three years until I found Oscar. As it got closer to the  election, I realized nothing was going to change [about healthcare] and it was just a ticking time bomb. I felt like the longer I didn't have coverage, the bigger chance there was for things to get up-ended if I got sick or hurt myself somehow. What I learned was to always try to have a couple months of savings because you just never know what's going to happen. If the past six months have taught us anything, it's that you truly never know." —Chelsea Francis, photographer, founder and creative powerhouse based in Austin, Texas.
So, how do you make sure you choose the right plan to support an HSA? Well, we’ve explained how you need to have a HDHP that’s HSA-eligible, so when open enrollment comes along, that’s the first thing you need to look for. We know how daunting open enrollment can be and how much information is thrown at you, so let’s talk about how to make that process easier.
Luckily, some consumer-facing companies have stepped up to make the decision-making process easier. On top of that, 13 states have their own state-sanctioned healthcare marketplaces (see if your state is on the list). So you have options! Let’s talk about them.
What are the immediate benefits of having an HDHP + HSA as someone who’s self-employed?
Some other things to note:
“[As freelancers], we are all about trying to find ways to owe less. We probably would’ve gotten [an HSA] already, but ironically, COVID-19 is why we haven’t. It’s really affected our ability to save any money,” she says while discussing future healthcare needs. “The primary thing that comes to mind [about HSAs] is having a good safety net. Also probably applicable for people my age is having savings for family planning.”
— Tess Rolli of TLC Photography
All in all, if you’re looking to take control of your career and live by your own rules, you’ll have to think about how you’re going to take control of your healthcare, too. And if you can save money and even grow that money over time, you’re all set!
Onto the next one! If your career took an unexpected turn or you decided it was time for the next move,then you have some choices to make as well. As we mentioned above, the HSA belongs to you, not your employer.. So, in the event you’ve been laid off or choose to leave, that HSA stays with you—and that includes your contributions, employer contributions, gains made while investing, and interest growth.
Pro Tip: We do recommend checking with your employer to see if they charge maintenance fees after a certain period of time, as that may affect where you’d like to keep your HSA.
If part of losing your job includes losing health insurance, we’re sorry! But you have options, and we’re here to help. One thing you can do to ensure you still have coverage is switching over to paying monthly premiums for COBRA so that you can keep the same health insurance in the interim. But first, let’s talk more about COBRA.
When you’re ready to start a new job and get health insurance from your new employer, don’t forget to revisit all our recommendations above.
If unemployment lasts longer than expected and you find yourself in a situation where you don’t have health insurance anymore, you should use open enrollment as an opportunity to pick the best coverage for you. The thing about HDHPs is that they are a much lower monthly cost for you, which can be very compelling when you're looking to save money. Plus, they often come with an HSA! If you don’t expect to incur a lot of medical expenses, combining a high-deductible insurance plan with an HSA may be your best bet.
“People don't think about healthcare costs enough, and how they're going to handle them. Retirement healthcare, by some estimates is a $300k or more problem we all need to solve. Figuring out how to efficiently solve the health care riddle can be the difference between doing more in retirement and not realizing your dreams.
“It's a well-known fact that we're all going to interface with the healthcare system more as we age. Even if we're healthy, we're going in for checkups more often to maintain our health. Each of these visits cost money. If we're not healthy, it's worse. Now our healthcare costs are spiraling. Worse yet: if you retire early, the healthcare system doesn't give you a good option for coverage until you reach "normal" retirement age. You'll need to account for all of these issues.”
— Joe Saul-Sehy of The Stacking Benjamins Podcast
Retirement planning is a much longer conversation that deserves its own article (stay tuned, it’s coming), so without diving too deep into the nuances of HSAs and retirement, let’s talk about planning ahead.
There are a few additional bonuses to an HSA--yes, we’re talking even more perks! Like a fine wine, the HSA only gets better with age... That’s because…
Here’s some numbers to help explain the impact planning for retirement could have on your future: Let’s say you’re 33 years old now and have managed to set aside an average of $10,000/year in your 401(k). Your company contributes 50% of your contributions up to 6% of your salary. You’d like to retire by the time you’re 66 years old, if not sooner. Factoring in the average annual rate of return on savings (7%)... by the time you retire, you’ll have $1,766,775 in your 401(k).
Applying the same logic to your HSA, and assuming you maxed out the annual contribution limit for a family (~$7,200) every year, you could have an additional $1,066,047.
Which brings your retirement grand total to $2,832,822. Yep. Two whole commas.
Pro tip: If you enjoyed this math wizardry, check out this 401(k) retirement calculator to help you really set some goals.
Of course there are many things life could throw at you that might affect what this really looks like, and we’re not factoring in healthcare costs that use your HSA, inflation, changes in maximum contribution limits and all that stuff, but this should make it pretty clear that saving, investing and planning for the future is a game changer!
No matter what stage of career you’re in, it’s always important to understand your healthcare needs and what tools best support those needs. So as you step away from this article and take your new knowledge into the real world, here’s what you need to know:
On health insurance:
For families/family planning:
Other things to keep in mind:
Knowing your wants and needs when it comes to your HSA provider will make it easier to choose a platform that not only meets your needs, but guides you to your goals and beyond. Make sure to prioritize what you want out of the above questions to get the best experience for YOU. At First Dollar, we’re all about listening to understand your needs and building an HSA that puts you and your health first.