piggybankWith the elec­tion of a new Pres­i­dent, health care plans and the fate of the Afford­able Care Act are a hot top­ic of dis­cus­sion. As part of his 7‑tier health plan, Pres­i­dent-Elect Don­ald Trump has pro­posed a shift in the way health sav­ings accounts (HSAs) are offered to work­ing Amer­i­cans. Sim­ply put, an HSA is a sav­ings account for med­ical expens­es. They are tax advan­taged accounts an indi­vid­ual can open in addi­tion to their cur­rent health plan to pay out-of-pock­et expens­es rang­ing from co-pays to surgery deductibles. Typ­i­cal­ly, HSAs have been offered to indi­vid­u­als with high deductible health plans (HDH­Ps). How­ev­er, if the President-Elect’s new health plan strat­e­gy is enact­ed, an HDHP would no longer be an eli­gi­bil­i­ty require­ment, sig­nif­i­cant­ly impact­ing health­care options for mil­lions of Americans.

HSA vs. FSA – Which one is right for you?

When choos­ing a sav­ings account for med­ical expens­es there are two options: HSAs and FSAs. Each type of account is gen­er­al­ly non-tax­able for qual­i­fied med­ical expens­es, except under cer­tain cir­cum­stances in which a med­ical expense was incurred pri­or to open­ing an HSA, and each is accu­mu­lat­ed by con­tri­bu­tions from your pay­check. Some employ­ers offer HSA and FSA match­ing contributions.

In the past, there have been some promi­nent dif­fer­ences between health sav­ings accounts and flex­i­ble spend­ing accounts (FSAs). Tra­di­tion­al­ly, FSAs have been the option for those who choose health plans with low deductibles. The mon­ey you con­tribute from your pay­check into your FSA account must be spent with­in the year, and can­not be rolled over. Con­verse­ly, you must have an HDHP to open an HSA, and funds accu­mu­lat­ed from pay­checks can be rolled over into the next year if left unused.

Accu­mu­lat­ing tax advan­tages have made HSAs more pop­u­lar and ben­e­fi­cial in com­par­i­son to FSAs. When it comes to chang­ing jobs, HSAs typ­i­cal­ly are not affect­ed, while FSAs are impact­ed due to restric­tions in rollover of funds. How­ev­er, FSAs do not have eli­gi­bil­i­ty require­ments, which have made them more wide­ly avail­able to individuals.

What’s Next? How HSAs would change under Trump’s health plan

Trump’s new health plan would make HSAs read­i­ly avail­able to every­one by remov­ing the HDHP eli­gi­bil­i­ty require­ments that are cur­rent­ly in place. In addi­tion to this dras­tic bar­ri­er removal, Trump has said he will change pol­i­cy to allow fam­i­lies to share the accounts between one anoth­er. Any con­tri­bu­tion or inter­est-earned by an HSA is tax-deductible, and indi­vid­u­als with HSAs can with­draw­al mon­ey tax-free for cer­tain med­ical expens­es rang­ing from trans­plants to acupunc­ture. The com­bi­na­tion of these three tax-advan­tages cre­ates an unmatched sav­ings option for those who choose HSAs. While Trump has said he will change some fac­tors of HSAs, he plans to keep these tax advan­tages.

Who will ben­e­fit from the new HSA model?

In the past, HSAs have been more attrac­tive for retirees. Health care costs tend to rise in the retire­ment stage of life, which makes an HSA a more cost-effi­cient option for retirees. Since indi­vid­u­als are allowed to take out mon­ey for med­ical expens­es with­out being taxed, retirees have the poten­tial to save large amounts of mon­ey in the lat­er stages of their life. How­ev­er, under Trump’s pro­posed plan, HSAs will also become increas­ing­ly attrac­tive for younger peo­ple. Because indi­vid­u­als will con­tin­ue to be allowed to roll over mon­ey con­tributed to their HSA in a giv­en year into the next, young and healthy peo­ple will be able to save siz­able amounts for use lat­er in life.

While much remains to be seen about which aspects of Pres­i­dent-Elect Trump’s health plan will be enact­ed when he takes office, take the time now to edu­cate your­self on how an HSA can work for you.


By Nicole Fed­eri­co & Kate McGaugh­ey, eTekhnos