Let’s start with the basics: an HSA (Health Savings Account) helps you save some of your salary on a tax-deferred basis to be used for future medical costs. Once the money is inside of this account, it can be kept in cash, invested to grow on a tax-deferred basis, and then when used for medical expenses, it can be withdrawn tax-free. It’s a tax-deferred contribution, tax-deferred growth, and tax-free withdrawal (for medical expenses) – the trifecta of awesome tax consequences.
Is AbbVie’s HSA the same as the Health Care Flexible Spending Account?
To get the best benefits, you have to make sure that you are using HSA/HDHP (High Deductible Health Plan) medical plan. AbbVie has two health savings accounts – one being an HSA, any other being a healthcare FSA. There are some differences between these two accounts, with the main one being everyone at the company can use the FSA. Only people who elect a high deductible health plan (HDHP) can get access to the HSA. If you’re not using the HDHP, you will not have access the HSA account.
I’m using the HDHP – what should I be doing with the HSA?
By having access to the HSA, you should be saving regularly to this account. Contributions are made by payroll deductions, and there is a maximum amount you can save depending on if you have a single or family HDHP. In saving to this account, AbbVie will also make contributions to your account. In 2019, if you have a single medical plan, they will contribute $500, or if you’re on the family plan it will be $1000. This is on top of your maximum contributions of $3,500 for single and $7,000 for family plans in 2019 (subject to a $1,000 additional contribution for those over 55).
Once you’ve been saving to this account for a while and to maximize your account balance, you want to determine how much to keep in cash and how much to invest. My rule of thumb is to keep 12 months of out-of-pocket expenses in cash and then invest the rest into the stock market. This will give your HSA an opportunity to grow by being invested and also help you increase your overall wealth. It doesn’t matter if you’re using Optum or HSA bank to hold HSA account, both places will allow you to invest in the markets.
How does this help grow my long-term wealth, isn’t an HSA just for medical expenses?
The HSA account is frankly quite weird. It’s known as the trifecta account – meaning the contributions are made tax-deferred, investments grow tax deferred, and withdrawals can be tax free as well. But there’s another cool thing that happens as you get older. When you turn 65, an HSA turns into a pseudo-IRA. The account is now not just for medical expenses, it can be used for everyday expenses as well. There’s no requirement of distributions like an IRA, so the account can keep growing if you wanted to. And you’re not forced to take money out after your reach age 70.5. You have to be careful though – if you withdraw money prior to age 65 and spend on non-medical expenses, there is a penalty for doing so.
What happens when I retire and get off AbbVie’s health care plan?
That’s the beauty of HSA accounts. Once you put money into an account, it’s yours. If you decide to leave AbbVie, you can roll the account to another HSA, whether it be a new company or an account just for yourself. At retirement, when you enroll in Medicare, you’re not able to contribute anymore, but you can take money out to pay for medical expenses.
Let’s use an example: Mike and Mary are 40 years old. They make the $7000 contribution every year, and don’t do any catch-up amounts after age 55. They spent $3000 dollars of this amount each year in medical expenses. The other $4000 is then left to grow and increase their wealth. They both retire from AbbVie at 65. If their accounts were invested just in the S&P 500, and averaged a 7% return, their HSA will hold roughly $270,000. This money can be left alone or it can be used just like an IRA and used for retirement expenses.
How do I know if I should use the HDHP/HSA versus the PPO/HMO plan?
An HSA is not for everybody. If you have complex medical needs, ongoing medical expenses, a large family that frequently visits the doctor, or need to make sure that you have specialists and network, then this health care option might not be for you. It may be best to stay on a PPO or HMO plan. But if your health is stable and you can save on a consistent basis, an HSA plan maybe the perfect account to use to add to your growing wealth.
If you’re an AbbVie employee, and have questions on the plans available, you can reach me at email@example.com.