Top 3 Misperceptions Doctors Have of HSAs

So you’re a physician running your own medical practice of 10 employees, and one day upon returning from lunch, lo and behold there’s a bulky packet on your desk with a yellow sticky note from your office manager that says “See me about starting an HSA plan.” The last thing that you want to deal with, right? As if you don’t spend enough time battling insurance companies…wouldn’t it be easier to just maintain the status quo with your current benefits plan?

Au contraire, mon frere. Health Savings Accounts (HSAs) are in fact a powerful option that many physicians might consider for themselves and their practices, yet aren’t fully utilizing them due to common misunderstandings. Here are the top 3 misperceptions you need to be aware of before you make your benefit selections this year:

#1. HSAs Are Not Good for Unhealthy People

Many physicians shy away from HSAs under the assumption that if they or their employees were to fall ill, there will be no savings left in the account -- which defeats the whole purpose.

Even if you spend the accumulated funds down to zero, you’re still doing something positive for yourself financially because you are spending pre- tax dollars. Contributions reduce taxable income, funds grow tax free, and withdrawals are tax free as long as they are directed towards qualifying medical expenses. This is a triple tax benefit.

And what if by good fortune you remain healthy? Unlike a Flex Spending Account (FSA), the unused balance in an HSA does not expire. In other words, there’s no “use it or lose it.” Any balance left in your account at the end of year simply rolls over to the next. In the meantime, you can leverage the investment options your plan offers to potentially grow your balance. In fact, as a high-income earner, you might consider paying your medical expenses out-of-pocket instead of using the HSA, allowing the balance to continue to grow in the tax-advantaged account.

Unsure of what your medical expenses will be for the year? Don’t assume you’re better off keeping your existing plan. Between increased premiums and creeping co-pays and deductibles, it’s likely the total cost will increase. There’s little risk in maxing out an HSA, as long as you’ll still have enough income to live off of. As the maximum out-of-pocket expenses for 2018 are $6650 for an individual and $13,300 for a family, total cost may be less than what you fear.

#2. A Change of Health Insurance Is Too Complicated

Many doctors are reluctant to use HSAs if they anticipate a change of practice on the horizon, if they anticipate staff turnover, or have a general sense of uncertainty. What they might not know: an HSA is an asset that is easily transferred to a new employer, just like a 401(k) or 403(b) plan. It can go with you wherever you go, maintaining its tax-advantaged status.

Heath Hykes of TriBridge Partners says it best. “An HSA is nothing more than a savings account that is held at a bank that is designated and used for all qualified medical expenses. It has a debit or credit card associated with it. People always use the term ‘health saving plan’ but in reality there is no such thing. There is a separation. The insurance, a qualified high deductible plan, is completely agnostic from the health savings account -- just like your health insurance is separate from your checking account.”

So rest assured, even in uncertain conditions your HSA will still be intact if you change health insurance providers, even if your new plan is not a high-deductible policy. You can no longer fund new dollars into the account, though, unless the new plan is a qualified high deductible plan.

#3. My Employees Will Hate Me Because It’s Too Expensive

When a physician is confronted by their CFO or head of HR about incorporating a high-deductible health insurance plan (which is a requirement in order to be eligible for HSAs), the first thought is, “I have employees earning $30k a year. How can they afford to pay $1k in health insurance premiums every month?”

Hykes advises physicians offering an employer sponsored program that depending on their overall goals and budget, it almost always makes sense to incorporate a HSA if they are offering a qualified high deductible plan. As premiums continue to increase at a substantial rate, an HSA provides high earning physicians the ability to shelter dollars above what they might already be putting into their other investment accounts. For physicians who have maxed out these other options, this is a great advantage.

For lower income earning employees, Hykes advises physicians to look past the monthly premium and consider the potential reduction of total overall spend. This would take into account premium contributions as well as all other out-of-pocket expenses.

Says Hykes, “If we are able to put a high deductible plan in place, and that reduces premiums by 20%, even if that person is a high utilizer who will hits the deductible it may still make sense for them to use the HSA. They’re going to get the tax break and their premiums are going to be lower than if they weren’t on the plan. In fact, their total spend for the year could end up being significantly lower.”

Many physicians are so blinded by the monthly cost that they don’t see it from a total cost perspective. Electing not to offer an HSA could be disadvantageous to staff in the long run. But still, a high deductible plan may be prohibitively expensive for some employees. In such cases it is advisable to offer several plans at different price points to give employees a choice of paying a high, medium, or low monthly health insurance premium.

Another consideration is that the employer can make contributions to employees’ HSA accounts. This can be done as a set amount or as a match, but all contributions will count towards the annual maximums. It is important to monitor this so that total contributions don’t exceed the IRS contribution limits.

Conclusion

Implementing an HSA plan can be a heavy decision for a physician to make. If you haven’t considered it or have previously written it off, now is a good time to reconsider and see if it makes sense for you and your practice. Physicians are encouraged to make the decision with the major myths debunked – that HSAs are only for healthy people, are complicated when changes occur, or are not attractive for the rest of the practice – and consider the long term overall cost savings as well as the tax advantages and investment opportunities that HSAs present.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of KAREN COYNE, CFP^® and not necessarily those of RJFS or Raymond James.