Are HSAs the New 401(k)?

Are employer-sponsored Health Savings Accounts the new “401(k) plans for health care”? According to a Fox Business report they may well be. Money going in and out of HSAs — if spent on medical expenses — is tax free and grows tax free. And unlike health flexible spending accounts, unspent funds remain in the account and grow over time. People can take the money out after 65 for non-medical expenses if they pay the applicable taxes. While individuals can only contribute $2,500 a year, families can put away up to $6,000 a year. And if the HSA is offered by an employer that offers a qualifying health plan, the employer may contribute to the HSA too. With health care costs expected to increase as Obamacare is phased in, companies are looking to keep a lid on their health care costs. A less expensive, high-deductible health insurance policy can cover catastrophic illnesses while the HSA pays for routine expenses. This, according to an industry article in Bloomberg, is the best of both worlds — people are covered and the health care industry would be forced to compete on price, service and quality. Entry-level employees can expect to contribute $1.9 million over the course of their careers; those with an employer match can expect additional funds. Thus, HSAs may offer plan advisors an opportunity to manage more money while helping employers and employees save money. And if employees have to pay for their own out-of-pocket expenses, or see it grow in their HSAs, they should be wiser spenders — and might even take better care of themselves.