Disability Pride Month, which was celebrated in July, is an important time to honor the diversity and uniqueness of each person in the disability community and celebrate people who have disabilities. But it's important that we prioritize those with disabilities throughout the year. As someone with a family member who has disabilities, I can share from personal experience that navigating health care and its associated costs can be overwhelming.
I'd like to share ways health savings accounts (HSAs) can cover costs of living with a disability – now and in retirement – and ask employers to consider how we're supporting our employees who are disabled and those employees who are supporting or caring for a family member who is disabled. For example, if you offer HSAs, there might be more ways for employees to take advantage of this account.
If you, your employees, or members of the family have disabilities, there's assistance in the form of tax advantages you can receive if you have an HSA. HSAs are designed to help individuals save for long-term health care needs through investment options and help to pay any health care costs in the present, all while offering a triple tax break. Contributions are tax-deductible, or pretax if made through payroll deduction, money grows tax-deferred, and withdrawals are used to pay medical expenses tax-free. HSAs also stay with the employee whether they change jobs, need to take an extended leave of absence, or retire. The money that's not used rolls over from year to year, and after age 65, the funds can be used for any purpose without penalty – only income tax is assessed if used for non-health-related expenses.
It is important to evaluate the potential financial advantages that an HSA and its underlying high deductible health plan (HDHP) might offer. Even for those with significant medical expenses, these plans may offer powerful short-term and long-term savings. Let me use my own family as an example. Excluding preventative services, and even if no one in my family gets sick or injured, I know we will have to pay for at least 32 office visits and 48 prescriptions every year related to my family member's disability. As a result, I can pretty much guarantee every year that my family will hit our deductible and maximum out-of-pocket limit. However, just because we utilize a lot of medical services, doesn't mean that an HDHP isn't the best financial option. In my circumstances, the math works out that indeed the HSA-based plan affords me the lowest total expenses between premium and out-of-pocket costs. The savings is driven by lower plan premiums and the tax savings I realize on my contributions to my HSA. But while the HSA-based plan affords me these current savings, it also provides me with long-term flexibility.
For example, let's say my family spends $5,000 (as a round number) on health care annually. I can contribute at least $5,000 to my HSA, and up to $7,300, the maximum family limit for 2022. [Also those 55 or older can contribute an extra $1,000 to their HSA as a catch-up contribution. That includes another $1,000 catch-up contribution if their spouse is also 55 or older with an HSA.] If we spend that same $5,000 in health care expenses every year for the next 20 years, that will add up to $100,000 of incurred expenses. If I use another form of payment instead of my HSA to cover those expenses, save those receipts, and then when I retire, I could take out $100,000 tax-free in a lump sum from my HSA. Or I could take out part of that $100,000 at any point as a tax-free reimbursement to myself for those 20 years of health care expenses or elect to pass those assets to my heirs on a tax-free basis. Recognizing how my health expenses are likely to increase over the years, the lump sum in this example is likely to be even much more significant. In any of these cases, I can reimburse myself no matter the type of coverage I am on in future years, including Medicare.
And that's just the tax-free reimbursement aspect of an HSA to cover the health care costs of living with a disability. There's more.
Here are five additional ways an HSA can help you, your employees or family members with disabilities save:
- Home improvements – HSAs can cover the costs of home improvements or accommodations for a disability. Multisensory smoke alarms, handrails, widened doorways, wheelchair ramps and more are IRS-qualified expenses if used to accommodate a disability.
- Transportation – Whether used for wheelchair costs and maintenance or to equip a new or existing vehicle with hand controls, HSAs can cover these expenses. Transportation to and from health care appointments is also IRS-qualified expenses.
- Service animals – HSAs can cover the costs of getting a service animal, training it and maintaining its health if the animal is primarily for the care of someone with a disability. Food, veterinary care and grooming are also covered expenses.
- Nursing care – If help is needed to care for someone with a disability, HSAs can cover the costs of bathing, medicating and more. This is true whether the services are performed by a nurse or not.
- Education – From special education tuition and tutoring to specialty subject focus for the senses with Braille, sign language or lip-reading, HSAs can cover these costs.
You, your employees, or members of a family with disabilities can use HSAs to pay for emerging technology, experimental medications and other healthcare-related expenses insurance may not cover, too. If it's prescribed by a doctor, it's most likely covered as an IRS-qualified expense.
No matter the time of year, it's important to reflect on how we might be able to provide more support to employees with a disability or a family member with a disability. HSAs are designed to help individuals save for long-term healthcare needs through investment options and help to pay any healthcare costs in the present, all while offering a triple tax break, but they also offer many other savings opportunities for those with disabilities.
Kevin Robertson is the CRO at HSA Bank.
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