HSAs help cover medical expenses

Across the United States, millions of people are enjoying the benefits of health savings accounts (HSAs), including quality health insurance coverage, the ability to save money by following a healthy lifestyle, and tax advantages.

A measure now being considered by the Legislature (House Bill 407) proposes creating a Hawaii HSA that would enable local employees to open a tax-exempt account funded by employer contributions, which can be used to pay medical expenses.

The tax advantages can be significant. No income tax is paid on the portion of the employee’s income deposited to an HSA. And when the funds in the HSA are withdrawn to pay for medical expenses, they are not taxed. Funds in an HSA can also be invested, just like those in a 401(k), and the interest earned on HSA investments is also tax-free.

Employees must be enrolled in an HSA-eligible (high deductible) health insurance plan to open an HSA. And while some have objected to allowing high-deductible accounts in Hawaii, a Hawaii HSA plan must comply with the state’s Prepaid Health Care Act, which means employers would be required to pay at least 80 percent of the deductible amount. And the maximum out-of-pocket amounts would be similar to those in currently offered health insurance plans.

Many people are familiar with flexible spending accounts that allow employees to set aside a certain amount income for various medical expenses tax-free. The tax advantages of a Hawaii HSA improve on flex accounts in two ways. First, as mentioned, the money in the HSA can be invested and earn tax-free interest. Second, the Hawaii HSA is not a use-it-or-lose-it type account, and any funds in the account at the end of the year will roll over and can continue to grow in the next year.

Growing funds in an HSA also allows employees to put something aside for the future when they are older. For example, premiums for long-term care insurance can be paid from an HSA. Other medically related products and services such as glasses or dental service are also eligible expenses.

The Hawaii HSA also empowers those participating in an eligible plan to take control over their health care dollar. The healthier the lifestyle an employee with an HSA adopts, the fewer medical problems he or she will likely encounter, and the more money that can be saved tax-free for future medical needs. In addition, preventive care is covered at 100 percent and is not subject to the deductible.

If employees move or change jobs, their HSA funds go with them. And while a Hawaii HSA might not be for everyone, HSA eligible plans would only be an option. Employers would continue to offer currently available plans from HMSA, Kaiser, UHA and other insurers. No one will be required to subscribe to an HSA-eligible plan. But with all of the benefits, we hope this new option can be made available for those who want it.

Howard Lee is president of UHA Health Insurance, and chairman of the Hawaii Health at Work Alliance.