“American healthcare is broken,” according to Tim Shively, a pediatric anesthesiologist who does contract work for the federal government. “Both sides of the aisle just can’t agree on what would be best for the nation, and there are too many moneyed interests who want to keep things the way they are.”
The facts support Shively’s negative prognosis: at the end of 2016, over 28 million Americans remained uninsured, and this number may be increasing. Many more Americans are underinsured. Furthermore, efforts by the Republican-led government have stalled, as the plans they have put forward have been widely criticized from people on both sides.
There is one area, however, where Democrats and Republicans have found common ground: Health Savings Accounts, or HSAs. The Republicans have even made these accounts an integral part of their Obamacare replacement efforts.
Tim Shively is an enthusiastic advocate of HSAs for helping Americans obtain healthcare. “This is one way that the government is trying to help by putting things back into the hands of the people.”
HSAs give people the power to save money in a triple-tax-advantaged account to pay for qualifying medical expenses. The first aspect of why HSAs are helpful is who they are available to: anyone with a high-deductible insurance plan.
High-deductible plans are any plans with deductibles above $1,300 for an individual or $2,600 for families. This means that each year, the first $1,300 or $2,600 of medical expenses are covered out of pocket, before insurance kicks in. The upshot is that these plans have much lower premiums, sometimes even half as much as comparable plans with lower deductibles.
“They’re fantastic,” Shively said. “If you’re young and healthy and can sustain a high deductible, it just makes a whole lot of sense.” Young, healthy people are the ones who feel the most negative effects of the Affordable Care Act as they are expected to purchase health plans that subsidize older people who are more likely to have greater needs.
The triple-tax-advantaged status of HSAs is also crucial. When offered through an employer plan, contributions go into an HSA pre-tax; when they are made by an individual they are fully tax-deductible. Then, earnings accrue tax-deferred. Finally, money withdrawn from an HSA that is spent on qualifying medical needs remains completely, 100% untaxed.
Many HSAs are operated much like a savings account, accumulating modest interest, but to get the most from them, they can also be invested in stocks, bonds, and funds. This could lead to striking results if they are maintained for long periods of time.
Maintaining and growing an HSA over time is already being talked about as a strategy for retirement. Estimates vary, but couples retiring today at age 65 can expect to spend around $245,000 on healthcare during retirement, not including dental, vision, hearing, copays, and other assorted out-of-pocket costs. With these included, estimates go as high as over $400,000. Women also can expect to pay more as they have a longer life expectancy. Worst of all, these costs are only increasing.
Opening an HSA early and tending to it until retirement can help to offset these costs. Shively agrees:
“Say I opened an HSA today, and contributed the maximum amount every year,” Shively said (the maximum yearly contribution is $3,400 for individuals and $6,750 for families). “In 4 years, growing at 1%, I’ll have about $34,500 in that account.”
That number could be much higher. For example, my company, American Homeowner Preservation, currently offers returns of up to 12%. Within twenty years at maximum annual contributions, an HSA invested in AHP would be worth around $635,500, more than enough for most people’s retirement needs.
For healthy people with enough time to save for retirement, HSAs can be a potent tool for helping Americans cope with the “broken healthcare system.”.