Benefits of HSA Plans Have Increased Since COVID
Since 2004, Health Savings Accounts (HSAs) have provided employees covered under High-Deductible Health Insurance Plans (HDHPs) with a convenient way to pay for out-of-pocket healthcare expenses including deductibles, copays, and coinsurance for things like routine doctor, dentist and vision appointments, specialty care, and prescriptions. In recent years, as healthcare costs continue to rise, there has been an increased interest in HSAs. Of the estimated 25 million HSAs in place at the end of 2018, 71% had been opened since 2015.1 Plus, the benefits of HSA plan value and flexibility have only increased since COVID.
The triple tax benefit of the HSA is one reason for the account’s popularity. Typically, employees fund an HSA through pretax payroll deductions. Account holders earn interest on their balances tax-free and can make tax-free withdrawals for qualified purchases. (Meanwhile, employers also save on payroll taxes.) The account has other advantages as well. Unlike a Health Reimbursement Arrangement (HRA) or a Flexible Spending Account (FSA), there is no end-of-year, use-it-or-lose-it provision. The account can grow from year to year tax-free with no limit to how much can be rolled over. The HSA belongs to the employee and is portable. In fact, one of its most valuable benefits is that it can be used in retirement to pay for Medicare premiums and other health-related expenses.
Over the years, the rules around Health Savings Accounts have changed to meet evolving healthcare needs. In 2019, the IRS broadened its list of qualifying HSA expenses to include services and items useful in the prevention of heart disease, diabetes, asthma, depression, osteoporosis, and other health conditions.
HSAs changed again to meet the unique needs of the current pandemic, broadening the benefits of HSA plan participation. In March 2020, the IRS announced that testing and treatment of COVID-19 could be covered by a HDHP without eliminating the plan’s status as a High-Deductible plan. (They were given “flexibility…to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost sharing.”2) Qualifying expenditures include thermometers and vaporizers, professional counseling and treatment for depression or anxiety related to the pandemic, massage or acupuncture, and alcohol or drug dependency programs. The passage of the CARES Act in March 2020 removed the requirement that prescriptions are necessary to use HSA dollars for the purchase of over-the-counter (OTC) medications (retroactive to January 1, 2020).3
Since layoffs have been an unfortunate reality of the economic fallout from the pandemic, it’s important to note that unemployed persons can use HSA funds to pay health care premiums on COBRA coverage or an independent policy.
BASIC HSA Administration
BASIC has been a leader in benefits administration for over 30 years, and our HSA Administration can help your participants get more value from their healthcare dollars. BASIC HSA pairs with any qualified high-deductible-health-plan and takes advantage of the smart BASIC Card, which can directly pay for expenses from the HSA! Participant funds also earn interest on both their cash account and investment account. Participants can choose a maximum cash balance that automatically transfers any excess funds into their HSA investment accounts.
- “Health Savings Account Balances, Contributions….,” EBRI, December 2019: https://www.ebri.org/content/health-savings-account-balances-contributions-distributions-and-other-vital-statistics-2018-statistics-from-the-ebri-hsa-database
- “High deductible health plans and expenses related to COVID-19,” IRS 2020: https://www.irs.gov/pub/irs-drop/n-20-15.pdf
- “How does the CARES Act affect my HSA?” HSA Store, 2020: https://hsastore.com/cares-act-faqs