Tap your health savings account first for medical costs during the coronavirus outbreak

There’s one thing you may be overlooking when it comes to managing your cash during the coronavirus outbreak — your health savings account.

An HSA is a savings account you can use to pay for qualified medical expenses. You contribute momney pre-tax, the savings grow tax-free and your withdrawals generally aren’t taxed. HSAs are available only to those who have high-deductible health-care plans.

People are “looking for liquidity in these times of uncertainty,” said Charlene Quaresma, a financial advisor with Northwestern Mutual in Portland, Oregon.

“Rather than use money that you have in an emergency fund for out-of-pocket medical expenses, you can use the cash that you have in your HSA,” she added.

“That allows you to keep cash on hand for other items you may need.”

It’s also a good time to use those tax-free HSA funds to refill your first aid kit and stock up on what you may need if you get the coronavirus, or any other illness.

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In order to qualify for an HSA, your health plan must have an minimum deductible of $1,400 for an individual and $2,800 for a family. You can contribute up to $3,550 a year for self-only coverage and up to $7,100 a year for family coverage.

Yet while people may qualify, they aren’t necessarily signing up for an account.

There were an estimated 23 million to 36.8 million policy-holders enrolled in high-deductible, HSA-eligible plans in 2018, acccording to a December 2019 report by the Employee Benefit Research Institute. There were about 25 million HSAs as of the end of 2018, EBRI found.

Many people don’t quite understand what HSAs are and how they work, said Alison Moore, vice president of marketing for HSA provider HealthSavings.

“They are so different from a flexible spending account, a concept people are familiar with,” she said.

A flexible spending account, or FSA, is also used to put aside money, tax-free, to pay for certain out-of-pocket health-care costs. However, generally, you must use the money within the plan year or lose it.

If you have a high-deductible health-care plan, you no longer need to worry about paying for the testing and treating  coronavirus if you haven’t reached your deductible. The IRS recently announced the plans can cover the costs without losing their status as a high-deductible plan. 

When it comes to what you can use the money in your HSA account for, it varies from standard medical expenses — such as deductibles, co-pays, co-insurance, prescriptions, and vaccines — to emergency preparedness items.

Thermometers, batteries for medical devices, contact lenses and solution, prescription glasses, cold and allergy medicine, and first aid items like bandages, gloves and cleansing wipes are all covered, according to HealthSavings.

If you find yourself anxious or depressed because of the isolation you’re experiencing during the pandemic, you may use the money for a therapist, as well as drug and alcohol dependency programs, said Northwestern Mutual’s Quaresma.

HSAs can also be used for alternative treatments for things like stress and anxiety — think acupuncture or massage, she said.

“When this is over, that self care is really important,” she said.

While they may help out in the short term, HSAs are a great way to invest money to cover health-care costs in retirement, Quaresma said.

“You want to look at an HSA like your 401(k),” she said. “You have the opportunity to put money away, pre-tax, and save for the future.”

Just make sure you know how much of your money is in cash and how much is in other investments, like mutual funds, said HealthSaving’s Moore.

“[People] should at least make a conscious decision about where they are keeping their money,” she said.

The first thing you should do is see if your employer offers a plan, and if so, whether they contribute to it.

In fact, with many people home now, it is a good time to go through your employer’s benefits to see what is offered, Quaresma said.

You can also get an HSA through a credit union or brokerage.

Quaresma suggests committing to a certain dollar amount to put away month over month and year over year. If possible, contribute the maximum allowed.

“We are all in this together but, at the end of the day, you need to handle the risk management part of things for yourself and look at the tax leveraging that you can utilize,” she said.

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