Health Care Reform and the Expansion of Health Savings Accounts: Saving for the Future

Health Care Reform and the Expansion of Health Savings Accounts: Saving for the Future

Many Americans overlook the necessity to save for medical expenses that will be incurred during retirement.  Too often, hard-working individuals learn too late that their retirement savings are not sufficient to cover the health care costs they face in their golden years.  Thankfully, there is a powerful tool available to the savvy individual to plan for the inevitability of significant medical bills in retirement.

Since The Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama in 2010, employers and individuals alike have migrated towards high-deductible health plans (HDHPs).  For 2017, an HDHP is a health plan with a minimum individual deductible of $1,300 ($2,600 for families) with individual maximum of out-of-pocket-limits of $6,550 ($13,100 for families).  Due to their higher deductibles, HDHPs often have monthly premiums that are significantly less expensive than traditional health plans.  While covering an HDHP’s deductible gap may seem intimidating at first, participating in an HDHP can provide a unique opportunity for individuals to accumulate tax-advantaged dollars that can be used to pay for qualified medical expenses.  This accumulation occurs through pairing an HDHP with a Health Savings Account (HSA).

An HSA is a tax-exempt savings account established for the purpose of paying for the qualified medical expenses of an individual and/or his or her spouse and tax dependents.  HSAs are designed to provide eligible individuals with the following federal tax benefits:

  • HSA contributions are tax-free
  • Interest and other earnings on HSA contributions accumulate tax-free
  • Amounts distributed from an HAS for qualified medical expenses are tax-free

For 2017, the maximum HSA contributions are $3,400 for individuals, and $6,750 for families.

For many years, politicians on both sides of the aisle pushed to expand contribution limits to HSAs to a level commensurate with out-of-pocket maximums.  This is largely due to expert projections indicating that a 65 year-old retiring in 2017 can expect to spend at least $250,000 on health care related expenses during the course of his or her retirement.  Many politicians view HSAs as the best way for individuals to save tax-advantaged dollars with the specific objective of offsetting these future medical expenses.

Despite the failure of Congress to pass comprehensive healthcare reform legislation (including the most recent failure of the Graham-Cassidy proposal), expanding HSA contribution limits remains popular on both sides of the aisle.  As such, there is a possibility that Congress will introduce targeted, bi-partisan legislation aimed at expanding the maximum HSA contribution to a limit commensurate with out-of-pocket maximums.  This is certainly an aspect of healthcare reform worth following for those interested in saving for future medical expenses.

If you have any questions regarding HDHPs, HSAs, or health insurance generally, please do not hesitate to contact Scott Wham, Director of Compliance Services for Kistler Tiffany Benefits, at 484-321-5800.