HSA card While health insurance premiums aren't generally treated as qualified medical expenses for HSAs, account holders can use their HSA to pay for COBRA premiums. (Photo: Shutterstock)

According to a survey by the National Association of Plan Advisers, 60% of plan sponsors say education about health savings accounts (HSAs) is a pressing need. In fact, 50% of Americans say they are not knowledgeable about HSAs, and 40% believe HSA funds are lost if not spent by end of year. The primary reason cited for so much confusion is lack of education. 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.

Distinct advantages

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. They are not "notional" accounts where the employee must incur an eligible expense before funds are paid out. Likewise, HSAs are not subject to ERISA requirements.

This is an important distinction. Because 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.

Ways to use an HSA during COVID-19

As the COVID-19 global pandemic moves into its next phase, the financial implications of the crisis are becoming more apparent and more pressing. Unemployment numbers are skyrocketing, and the economy has contracted considerably. While there are some positive signals from the stock market and other indicators, your employees may be experiencing immediate challenges. Here are some ways your employees can use an HSA to address immediate concerns.

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