We have seen our industry face tough times, with businesses having to furlough employees and employees having to file for unemployment due to COVID-19. Their health care coverage could be of great help to them at this time if they have an HSA plan. Half of Americans say they do not know much about HSAs, and many believe HSA funds are lost if not spent by the end of the year. Employees struggle to understand what an HSA is and how it can help them save money tax-free for medical expenses now and in retirement.
When HSAs first came into existence, they were lumped into a benefits package along with Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs). This was a critical early mistake that has led to persistent misunderstandings. HSAs, unlike FSAs and HRAs, are actual bank accounts where real dollars are deposited.
This is an important distinction. With an HSA, the employee is in possession of their money, and they can control how that money is used. They can make their own contributions to save on taxes. They can invest in mutual funds to build a nest egg for retirement. They can use the money tax-free at any time for qualified expenses. Or, they can watch their balances build over time and reimburse themselves when they retire for all the expenses they paid for out of pocket from the day the HSA was opened. The HSA stays with them for life.
With the COVID-19 global pandemic, the financial implications of the crisis are becoming more pressing. Here are some ways your employees can use an HSA to address immediate concerns.
There are no tax penalties for using HSA funds to cover qualified expenses. Make sure your employees know that HSA funds can be used for paying for doctor bills, prescriptions, hospital visits, lab tests, eyeglasses and dental care. Employees can also use HSAs for supplies like thermometers, first aid items, batteries for medical devices, and transportation to receive any needed treatments.
Also, the Coronavirus Aid, Relief and Economic Security (CARES) Act provides many new HSA expansions. Feminine hygiene products can now be purchased tax-free with HSA funds, and the same goes for many over-the-counter medications — no prescription needed. HSA funds can also be used to pay for qualified medical expenses for a spouse and tax dependents — again tax-free — regardless of their insurance coverage.
New rules for high deductible health plans have been implemented to allow insurance providers to voluntarily cover telehealth services and COVID-19 treatment before the deductible has been met. HSA-qualified health plans are required to cover COVID-19 testing, regardless of deductible.
For those experiencing an immediate, significant cash crunch, HSA account holders can also reimburse themselves tax-free for past qualified medical expenses to keep more cash on hand. That means that they can pay themselves from their HSA funds for qualified expenses that have been incurred since the account was opened without incurring any tax penalties or fees.
Account holders can use their HSA to pay for COBRA premiums and health care coverage while receiving unemployment compensation under federal or state law. This offers critical financial support for furloughed employees in our automotive industries and those now facing unemployment.
And, as long as an employee retains HSA-qualified health coverage after leaving their employer, they can continue to contribute to their HSA, even if they want to use the account for tax-free pass-through spending.
Now is a good time for employers to make sure that employees on a qualified health plan have opened an HSA (meaning an HSA bank account), are properly educated about it and understand it. If more employees are made aware of the many ways they can use the HSA to help manage their health and financial challenges now during the current pandemic, it can be of great help.
Laurie Churchill, Licensed Insurance Producer