How to Keep Your HSA Forever And Not Switch With Every Job

If you’re reading this, you either have an HSA, are thinking about getting an HSA, or are just now finding out what these three letters stand for (it’s: Health Savings Account, of course!) Lucky for you, no matter which category you fall under, we’ve created an ultimate guide to keep your HSA throughout your career so that, as your career changes, your HSA stays to support your healthcare needs, financial goals, and retirement plan. 

Whether you’re starting a new job, beginning your own business, going freelance full-time, experiencing unemployment, and/or any of the other career changes life throws at us, your HSA can stick with you no matter what.

We’re going to cover the following topics, so feel free to jump to the section that you need to learn about the most:

• Starting a New Job
• Owning Your Own Small Business
• Working Freelance or Self-Employed 
• Leaving or Losing Your Job

First things first.

Look, we know a Health Savings Account (or, HSA) can be tricky to fully understand. For example, did you know an HSA is a checking account and not actually a savings account? The good news is all you really need to know is what it does, not what it is. And what an HSA does is act as the most powerful and underutilized form of savings out there (FSAs don’t even compare—see our chart on this below.)  How? Well, your money goes in tax-free, comes out tax-free (on qualified medical expenses, of course) and can be invested tax-free (yes, three tax-frees!) And whether you’re saving for retirement, health care needs, or maximizing your investments, your HSA belongs to one person: YOU.

To get your hands on an HSA, you need to be on an HSA-eligible, high-deductible health plan (HDHP). An HDHP plan means you’ll likely have to pay a lot of out-of-pocket costs before you reach your deductible (that’s why it’s “high”), so HSAs were created to make more affordable (thanks to all the tax savings) for you to pay for these costs before insurance steps in. ‍

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The 2020 deadline for contribution has already passed, but the IRS announced 2021 contribution limits, which are $3,600 for an individual and $7,200 for a family.

Most of us become familiar with an HSA through their employer while choosing their health benefits. In 2018, The Society for Human Resources Management (SHRM) conducted a survey that found about 56% of employers offered HSAs to their employees and about 37% of those employers contributed to the HSAs. However, this doesn’t mean that you have to rely on your employer to choose an HSA. You’re in charge and your HSA provider is 100% up to you! Now, let’s get into the good stuff and dive into some various career stages you might experience!

Part I: You’re starting a new job! Congrats.

New job, new you! That’s the saying, right? Even if it’s not, a new job likely means new benefits. So, you have some decisions to make! Do you want something comparable to your previous insurance or are you up for trying something new? Either way, you have options.

When it comes to health savings accounts (HSAs), remember it sticks with YOU (not your employer) no matter what. Even if your new employer has a different recommended provider or no HSA options at all, your previous HSA and its funds are all yours. Whether this is your first time choosing benefits or you’re preparing to switch plans with the new employer, there are some things you should consider in the process.

“The best thing for people to know is to at least understand where their health stands and what some of their future expenses might be. We can’t predict what our health is going to look like, but you might want dental care, Lasik, plastic surgery and that should be considered. On top of that, start saving sooner and putting money aside now, because we really don’t know what inflation of health costs will look like in the future.”‍ —Tarra Jackson of Madam Money, author of The 4 Financial Languages.

How long does insurance from an old job last after leaving the company?

Don’t forget to check with Human Resources before leaving because your insurance often goes beyond your last day of the job. That could mean through the end of the month you leave or even 60 days later.This will help you determine if you need any interim insurance.

How long does it take for new insurance to kick in at a new job?

Employers often implement a waiting period before health insurance kicks in, ranging from 0 - 90 days. It’s important to ask so you know the exact calendar date you start receiving benefits.

What should I do if I don’t have insurance between two jobs?

While you can take your chances and go without coverage until your new benefits kick in, there are some options like COBRA that extends your health insurance coverage from your previous employer. (We’ll dive into how this works a little later.)

What if I don’t want the coverage my employer offers?

More power to you! Enrolling in individual coverage that you choose is an option within state healthcare marketplaces. While employers won’t contribute to your monthly premiums (which only matters if they were offering to in the first place), it is an option. 

Does my deductible from my previous employer rollover to my new benefit plan?

Unfortunately, no. A new plan means a new deductible. This is something to consider based on the timing of your new job. In some cases, extending coverage through COBRA could be a good option so you don’t lose what you’ve already paid on your deductible.

What if my coverage changes and I want to catch-up on contributions?

Good question! This is where the “last month” or “full-contribution" rule comes in. This means that If your HSA eligibility begins by December 1 of the current year, you’re considered eligible to max out your contribution all at once. You don’t have to prorate your contributions on a monthly basis because you technically made it in under the deadline of “the first day of the last month.” But they’re strict. If your HDHP coverage doesn’t start until December 2, you’re out of luck. 

And of course, there has to be a catch. If you take advantage of the “last month” rule, you have to remain under HDHP coverage until November 30 of the following year. If something happens and your insurance changes or you lose coverage and your HSA eligibility changes, you will face extra taxes and penalties under any contributions you were able to make due to the “last month” rule. Learn more here. 

Here’s a simple look at the differences between health plans you might see from your employer for more context. Here we compare an HSA + HDHP compared to a PPO (or, a Preferred Provider Organization plan, which is the other type of health insurance you’ll see most often.):

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Once that decision is made, you’ll want to think about how to save money in the various vehicles your employer offers. Every employer differs, so you’ll want to ask questions and strategize to get the most out of your HSA.

“If your company's plan doesn't give you the ability to save AND invest, realize that, unlike a 401k plan, you can ALWAYS have a second HSA. Roll money from your current HSA on a regular basis into your "investment" HSA so that you have the ability to invest. “Many people will read this and think, "But what if I need that money right away?" That's a valid concern. But I'm as lazy as the next guy and I LOVE it when someone else pays my bills.

What if my interest on my investments can pay my bills later? Here's a neat twist: if you can afford to pay "out of pocket" for expenses now, leave your HSA money alone and invest it. Later, use your receipts to turn in many years down the road to withdraw the money from your HSA. You're now getting retirement money tax free that you allowed to grow. Investing your HSA money, whenever possible, is a powerful tool.” 
— Joe Saul-Sehy of The Stacking Benjamins Podcast

Employer offers HDHP and contributes to your HSA

• What this means: Your employer contribution is part of your yearly limit, so be sure to subtract whatever amount they’re contributing to determine how much you can save.
• Your best action plan: Consider using their recommended HSA provider or see if there’s a way to connect the HSA platform of your choice. Try your best to max out your contributions since you have less to worry about factoring in the employer contribution.
• Other ways to optimize: You can utilize multiple HSAs to separate saving, spending and investing and keep track of how your funds are being used. This is also helpful if you have an HSA from a past employer and just want to let it be or transfer in the future.

Employer does not contribute to your HSA:

• What this means: Don’t fret! Even if your employer doesn’t contribute, your HSA is still powerful. You’re in charge of contributions and what that looks like on a monthly or yearly basis. Set goals!
• Your best action plan: Pick the best HSA provider to fit your needs. There are lots of options out there, so decide what’s important to you, such as modern design, specific investment options, guidance and education, etc. As always, we recommend that you max out your HSA to really get the tax benefits.
• Other ways to optimize: Make a savings plan to ensure you put aside as much as you can. If you want to grow your savings, consider investing your HSA dollars!

Employer contributes to your 401(k), but not your HSA:

• What this means: You can have both! That’s right, you can take advantage of both savings vehicles at the same time as you save towards retirement.
• Your best action plan: Contribute as much as you can to your HSA to really get the tax advantages while your employer contributes to your 401(k).
• Other ways to optimize: Use your HSA as an investment vehicle to grow your savings even further while you let your employer contribute to your 401(k).

Employer contributes to your 401(k) AND your HSA (lucky you!):

• What this means: All good things! Take advtantage of the opportunity to contribute to, and even max out, both accounts. If you were to meet both limits in 2019, you would have saved $26,000 towards your health and retirement. 
• Your best action plan: Many experts recommend HSA-users to max out HSA contributions before maxing out 401(k) contributions because of the tax advantages that come with the HSA. There’s no minimum age for HSA fund distributions, so when you need it to spend money on health care, it's got your back. 
• Other ways to optimize: When you turn 55, the HSA catch-up rule applies and you can contribute an additional $1,000 every year. When you turn 65, your HSA turns into a retirement fund that can be used for anything, therefore giving you two retirement accounts for the future.

Part II: You’re a small business owner.

What a boss! As a small business owner with a tight budget and team, you want your employees to have access to the best healthcare for the best price. Understanding different healthcare needs and ensuring everyone has access to options is simply a smart business choice when it comes to both time, costs and employee retention. While it’s always advised to give your employees options between HDHPs and PPOs, there are some huge benefits for everyone involved when you offer an HDHP with an HSA.

What benefits will the employees receive with an HSA?

• Tax advantages: The tax advantages quite literally mean that a dollar saved is a dollar earned for health care spending. 
• Control: Employees have more control over their healthcare spending and can make contributions based on their individual situations.
• A forever account: The HSA belongs to the employee, stays with them forever, and they can contribute to the HSA even if they leave the current place of work or are not working at all.

What does providing an HSA to employees do for business?

• Tax advantages for the business: Those tax savings we mentioned above also means employers don’t have to pay payroll taxes on their employees’ HSA contributions as long as they’re deducted directly from the payroll, which saves you money and provides savings to employees.
• More tax write-offs: There’s an additional federal tax deduction for contributions made toward employee HSAs, and we know how important getting those tax write-offs are.
• Save on admin costs: There are less administrative costs on your end because employees have more ownership over their healthcare planning and spending.
• Save for yourself: Additionally, as a small business owner, you probably aren’t saving as much for retirement as someone in a big corporate office. So planning and saving through an HSA for your own retirement is massively beneficial.
  

Now that you have a good idea of the benefits, what are the actual steps you need to take to get an HDHP + HSA plan set up for your people? Great question. There are guidelines and rules to ensure you and your employees are doing everything right and documenting it along the way. You can check out the full IRS guidelines to HSAs, but we’re going to break it down for you right here.  

1. Talk eligibility and contributions. Determine if your employees already have or are interested in an HSA with an eligible HDHP, either purchased individually or looking for an employer-provided option. Then have a discussion around contributions--how much they want to contribute and if the business is able to contribute.

2. Pick an HSA provider. This is the fun part! HSA providers come in many different forms: banks, HSA-specific platforms, benefits platforms, and more.So it’s up to you to decide what’s important, such as ease of use, little to no maintenance fees, HSA education for employees, and even benefits beyond just the HSA, like discounts on health care products and services, which is exactly what we do here at First Dollar. Once you choose the best fit, they’ll help take care of the logistics of getting everything set up for your employees. 

3. Keep track of contributions and tax documentation. You’re all set! Now your employees can start contributing to their HSAs via a provider of their choice or an employer-recommended one. If you decide to contribute to employees’ HSAs, you must send them directly from payroll to their account. At the end of the tax year, you will need to provide appropriate tax documents (like W-2s) to your employees to avoid penalties, audits, etc. For what it’s worth, most small businesses utilize accountants and accounting firms who are used to helping with this part.

Part III: You’re self-employed!

We love independence. With the rise of this gig-economy we’re living in plus the large amount of people taking charge and going freelance, it’s important to talk about health insurance. Almost half of the population in the United States gets healthcare from their employer, but what should you do when you are your own employer? Spoiler alert: Get an HSA.

"Right around the time we moved [to Austin], I was making the decision to go out on my own and work for myself. My mom had to drop me from my insurance around then, so I went without insurance for about three years until I found Oscar. As it got closer to the [2016] election, I realized nothing was going to change [about healthcare] and it was just a ticking time bomb. I felt like the longer I didn't have coverage, the bigger chance there was for things to get up-ended if I got sick or hurt myself somehow. What I learned was to always try to have a couple months of savings because you just never know what's going to happen. If the past six months have taught us anything, it's that you truly never know." —Chelsea Francis, photographer, founder and creative powerhouse based in Austin, Texas.

So, how do you make sure you choose the right plan to support an HSA? Well, we’ve explained how you need to have a HDHP that’s HSA-eligible, so when open enrollment comes along, that’s the first thing you need to look for. We know how daunting open enrollment can be and how much information is thrown at you, so let’s talk about how to make that process easier.

Luckily, some consumer-facing companies have stepped up to make the decision-making process easier. On top of that, 13 states have their own state-sanctioned healthcare marketplaces (see if your state is on the list). So you have options! Let’s talk about them.

• Choosing a plan through HealthCare.gov. This is the most common way people choose their own healthcare. Simply through providing your zip code and going through a few screener questions, they’ll provide you with options and further details on each plan.
• Using a state healthcare marketplace. As mentioned above, 13 states now use their own healthcare marketplaces for residents. Similarly, you’ll provide your information and answer some questions to determine their best recommendations. 
• Third-party apps and other independent insurers. There are a handful of companies on the rise that provide insurance for the self-employed and people looking to buy their own. These companies use a similar system of checking your eligibility and giving you options based on your location. Some popular options you’ll see out there are Oscar and our friends Kind Health.

What are the immediate benefits of having an HDHP + HSA as someone who’s self-employed?

• The monthly premium of a high-deductible health plan is usually lower, so you’re not paying a ridiculous monthly amount for healthcare that you’re probably not even using.
• As a freelancer, taxes are hard, and anything you can save instead of owe is a huge win. That’s exactly what an HSA can do for you!
• You don’t have an employer that supports a 401(k), so you can think of your HSA as a retirement fund that also supports healthcare needs like prescriptions, copays, and deductibles until you’re 65.
• And, if you ever decide to work for someone other than yourself again, you can still keep your HSA no matter what.

Some other things to note:

• You may be eligible for special enrollment based on different life events you may have experienced (“Qualifying Life Events” include childbirth, losing insurance, getting married, etc…)
• You cannot get an HSA if you’re on a spouse’s insurance that’s not HSA-eligible, sorry!
• If you’re still listed as a dependent on someone else’s insurance, you cannot get an HSA.

“[As freelancers], we are all about trying to find ways to owe less. We probably would’ve gotten [an HSA] already, but ironically, COVID-19 is why we haven’t. It’s really affected our ability to save any money,” she says while discussing future healthcare needs. “The primary thing that comes to mind [about HSAs] is having a good safety net. Also probably applicable for people my age is having savings for family planning.”
— Tess Rolli of TLC Photography

All in all, if you’re looking to take control of your career and live by your own rules, you’ll have to think about how you’re going to take control of your healthcare, too. And if you can save money and even grow that money over time, you’re all set!

Part IV: You’re leaving or have lost your job. 

Onto the next one! If your career took an unexpected turn or you decided it was time for the next move,then you have some choices to make as well. As we mentioned above, the HSA belongs to you, not your employer.. So, in the event you’ve been laid off or choose to leave, that HSA stays with you—and that includes your contributions, employer contributions, gains made while investing, and interest growth.

Pro Tip: We do recommend checking with your employer to see if they charge maintenance fees after a certain period of time, as that may affect where you’d like to keep your HSA.  

If part of losing your job includes losing health insurance, we’re sorry! But you have options, and we’re here to help. One thing you can do to ensure you still have coverage is switching over to paying monthly premiums for COBRA so that you can keep the same health insurance in the interim. But first, let’s talk more about COBRA.

• COBRA stands for The Consolidated Omnibus Budget Reconciliation Act (sounds scarier than it is!) It’s a rule that allows people to continue health insurance for up to 18 months after their last day at work when they lose or leave a job.
• Some life events that qualify someone for COBRA include voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and more.
• You have 60 days to enroll in COBRA after your final day at the job. If you choose to enroll at any point before that 60 days is up, your coverage is retroactive in that it  can cover healthcare costs that occurred between your last day at work and the day you enrolled in COBRA.
• You can use your HSA dollars to cover COBRA premiums because it qualifies as a medical expense under these circumstances. This is a big deal! If you’ve been diligent about saving, your HSA can support you during more uncertain times like unemployment.
• On the topic of unemployment, your HSA can also cover insurance premiums outside of COBRA while you’re receiving state or federal unemployment benefits.
• COBRA premiums are known to be expensive (the cobra stings!) because employers are no longer covering some of the costs of health insurance. It’s recommended to utilize COBRA until open enrollment/qualified special enrollment so you can then choose the best insurance option for your needs and budget.

When you’re ready to start a new job and get health insurance from your new employer, don’t forget to revisit all our recommendations above. 

If unemployment lasts longer than expected and you find yourself in a situation where you don’t have health insurance anymore, you should use open enrollment as an opportunity to pick the best coverage for you. The thing about HDHPs is that they are a much lower monthly cost for you, which can be very compelling when you're looking to save money. Plus, they often come with an HSA! If you don’t expect to incur a lot of medical expenses, combining a high-deductible insurance plan with an HSA may be your best bet. 

Part V: Looking into the crystal ball that is your bright future.

“People don't think about healthcare costs enough, and how they're going to handle them. Retirement healthcare, by some estimates is a $300k or more problem we all need to solve. Figuring out how to efficiently solve the health care riddle can be the difference between doing more in retirement and not realizing your dreams.

“It's a well-known fact that we're all going to interface with the healthcare system more as we age. Even if we're healthy, we're going in for checkups more often to maintain our health. Each of these visits cost money. If we're not healthy, it's worse. Now our healthcare costs are spiraling. Worse yet: if you retire early, the healthcare system doesn't give you a good option for coverage until you reach "normal" retirement age. You'll need to account for all of these issues.”
— Joe Saul-Sehy of The Stacking Benjamins Podcast

Retirement planning is a much longer conversation that deserves its own article (stay tuned, it’s coming), so without diving too deep into the nuances of HSAs and retirement, let’s talk about planning ahead.

There are a few additional bonuses to an HSA--yes, we’re talking even more perks! Like a fine wine, the HSA only gets better with age... That’s because…

• When you reach age 55, you can increase your annual contributions by $1,000. This is called the “catch-up rule.”
• When you hit 65, your HSA turns into a traditional IRA (individual retirement account) and can be used for any purpose. Like that dream vacation you’ve been planning since the kids left for college, maybe?
• Again, you can have an HSA and a 401(k) to really maximize your future savings. And, if you ever need to get your HSA funds early for qualified healthcare needs, there are no penalties.

Here’s some numbers to help explain the impact planning for retirement could have on your future: Let’s say you’re 33 years old now and have managed to set aside an average of $10,000/year in your 401(k). Your company contributes 50% of your contributions up to 6% of your salary. You’d like to retire by the time you’re 66 years old, if not sooner. Factoring in the average annual rate of return on savings (7%)... by the time you retire, you’ll have $1,766,775 in your 401(k).

Applying the same logic to your HSA, and assuming you maxed out the annual contribution limit for a family (~$7,200) every year, you could have an additional $1,066,047.

Which brings your retirement grand total to $2,832,822. Yep. Two whole commas.

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Pro tip: If you enjoyed this math wizardry, check out this 401(k) retirement calculator to  help you really set some goals.

Of course there are many things life could throw at you that might affect what this really looks like, and we’re not factoring in healthcare costs that use your HSA, inflation, changes in maximum contribution limits and all that stuff, but this should make it pretty clear that saving, investing and planning for the future is a game changer!

Part VI: Key takeaways to keep forever!

No matter what stage of career you’re in, it’s always important to understand your healthcare needs and what tools best support those needs. So as you step away from this article and take your new knowledge into the real world, here’s what you need to know:

On health insurance:

• Know the differences between an HDHP and PPO. Especially how the premiums differ. 
• Determine what you need from coverage (dental, vision, etc.).
• Find out if your current doctors are included in a potential new plan.
• Be aware of your pre-existing conditions and what you need out of insurance to support your care.
• Know if the offered HDHP is HSA-eligible.
• Ask how much your company can contribute to your HSA.
• Pick an HSA provider that you really like and trust.

For families/family planning:

• Know what kind of coverage your spouse/children receive in the plan.
• Discuss maternity costs and how your health plan can support you.

Other things to keep in mind:

• Put yourself and your health first. Ask all of the questions you need to in order to make the best decision. And definitely don't let employers or insurance companies steamroll you into scenarios that feel uncertain.
• An HSA is very different from an FSA and arguably the most powerful and flexible of the options. Use it to your advantage when available!
• Invest your HSA dollars when they’re not integral to paying for health care. The tax advantages and ability to grow your money are too good to pass up.
• Set retirement goals for yourself and factor in the benefit of building up your HSA funds right now.

Knowing your wants and needs when it comes to your HSA provider will make it easier to choose a platform that not only meets your needs, but guides you to your goals and beyond. Make sure to prioritize what you want out of the above questions to get the best experience for YOU. At First Dollar, we’re all about listening to understand your needs and building an HSA that puts you and your health first.