5 Healthyish Things, a special HSA edition

Okay, I promised a full rant on Health Savings Accounts (HSAs) some time ago and now here it is in “special edition” form with 10 parts instead of 5—double the fun! May explore doing more of these in the future, so let me know if you like it.

Let’s start with the good. The idea behind HSAs is a fundamentally good one. Introduced in 2003 as part of the Medicare Modernization Act (which also defined the guidelines for high deductible health plans, or HDHPs), HSAs were meant to improve on medical savings accounts, which were only available to people who were self-employed or employees at small businesses. Anyone covered by a qualifying HDHP (i.e. plans that meet the minimum deductibles and out-of-pocked maximums) could open an HSA, a portable, tax-exempt savings account intended for health costs and owned by the individual. 

As health insurance deductibles rise, more people have to pay more out of pocket. Now imagine giving those folks a break if they spend on “qualified medical expenses” before they reach their deductible. Love that!

Basically, if you qualify and if you spend on the right stuff, HSAs become essentially the best savings account out there… plus one you can lean on when you’ve got extra healthcare costs crop up that insurance won’t cover. Every year (again, if you qualify—I’ll return to this), you can deposit up to $4,150 as an individual or $8,300 as a family into an HSA, then use those funds whenever you’d like to pay for qualifying health costs. HSAs are triple tax advantaged, meaning you’re not taxed on:

• Income when it goes in

• Growth while it’s there

• Withdrawal/spend (if used for qualified medical expenses)

@ecommjess

PLEASE do not cook like me I am pure chaos in the kitchen and there is no plan #money #health #saving #investing #learnontiktok

HSA accounts also are yours. Though most people first discover them through an employer (Flexible Spending Accounts (FSAs) is another topic, yeesh), once you open an HSA account it’s just like any other savings account—accessible and transferable forever (not that it’s easy), no matter who you work for.

Oh—and you can invest the money in your HSA the same way you would with another retirement account (although most people don’t know that), including investing in all kinds of funds, individual stocks, bonds, ETFs, etc. And, if you open a self-directed HSA you can even use it to invest in startups, real estate, and other alternative assets.

Everyone likes saving money, and I dig the government’s attempt to incentivize people to spend money on healthy things. Buuuut…

Unfortunately far too few people (except healthcare x finance weirdos like me) use, understand, or even feign interest in their HSAs. Womp womp.

The numbers are staggering, especially for what’s essentially “free” money.

As of 2023, 24% of covered employees are enrolled in HSA-qualified HDHPs. (That’s about 38M of the 160Mish total employees in America.) Of those, 88% of qualifying employees (about 33M) opened an HSA in 2022 and of those 80.1% (about 26M) made a contribution. Even if we (charitably) assume 20% of the 17Mish self-employed folks have HSAs and use them, that adds 3M or so—totalling roughly 30M people in the US that use & engage with their HSA. Yes, that’s far less than 10% of the country.

For those that do… there’s currently $123 billion in HSA assets held in 37M accounts (my back-of-the-napkin math is pretty good, it turns out!) just sitting there. 😳 

Do you have an HSA? My guess is you don’t or can’t remember if you do—and you’re even reading this health nerd newsletter! 

My theory is most people don’t use HSAs because they combine the two things we hate most: healthcare acronyms and taxes. 

And that’s why ultimately my hot take is that HSAs are a failed government policy. I still believe in them, yes. But today HSAs just don’t really move the needle in terms of making health care more affordable and accessible for almost anyone–and that’s especially true for the people that need it most.

Cool plan, government—everyone on a high-deductible health insurance plan is eligible for one, right? Nope, think again. In fact, my experience is that fewer and fewer health insurance plans are HSA-eligible, which is very frustrating. 

If you shop on the open exchange/ACA independently (or through the growing ICHRA/QSEHRA crowd), it’s often only the most expensive monthly plans that are eligible. This adds to the tremendous confusion—and, again, probably benefits wealthier people who need it least.

In my opinion, HSAs should be automatic for any health plan with a deductible over $1,600/month (no exceptions!). And frankly, I think HSAs should work the same way as basically any other long-term savings account—everyone with income qualifies and can put a certain amount in every year, then use it however they want. Universal HSAs for everyone!

For the people who are eligible and contributing to their HSA, there are even more hurdles to navigate—namely, figuring out what it does and doesn’t cover. In general, HSA funds can be applied to “qualified medical expenses” like copays, prescription drugs, and clinical care appointment costs your insurance doesn’t cover. 

There are also plenty of things that seem like they maybe should be covered by HSA that aren’t—gym memberships, insurance premiums (awkward), organic food, and most nutritional supplements, to name a few.

Parsing out what qualifies and what doesn’t is annoying, but even if that part was less complicated, the shopping is still a pain. You don’t shop by SKUs on a product-by-product level. So if you go to the pharmacy to pick up your prescription and want to buy vitamins while you’re there, too, you essentially have to use multiple cards at check out. It’s a pain, and basically leaves you guessing at what’s HSA eligible and what’s not.

I highlighted some time ago how Bilt Rewards has started tackling this part of the HSA conundrum in their new partnership with Walgreens. They flag HSA eligible expenses to make HSA use easier. 👏 I love this idea (and executed a version in my last startup, Ness) and am excited to see people develop more user-friendly solutions for HSAs. 

In my experience, figuring out how to pay for different expenses from separate buckets using the same card is the holy grail. (Like, imagine one card linked to multiple accounts that can pull from someone’s HSA for their eligible expenses, their employer benefits to pay for their covered gym membership, and their checking account to pay for a TV.). Closest thing I’ve heard to this is NationsBenefits (maybe Optum Financial). I also recently discovered InComm’s Benefits program, which lets people link a checking account AND their HSA to one card, then it automatically sorts qualified expenses while tracking receipts for you. 🙌 

Aside: If you’re curious whether something is HSA-eligible, there are lots of “apps” for that. Also, there’s a whole business built at HSA Store helping you utilize these more. (Their FSA Store is obvi more popular because that’s a “use it or lose it” account. My hot take on FSAs is they’re a scam. AMA.)

Now, not everything that you feel is healthy is technically covered. HSAs cover health care expenses—but what fits under that umbrella? A Plunge cold plunge? An Eight Sleep mattress? A botox injection? A protein-rich cereal? A microbiome supplement that hasn’t been scientifically proven to do anything? 

This is tricky, and a space TrueMed and others play in. Essentially they create an HSA “loophole” of sorts using the Letter of Medical Necessity (a fancy doctor’s note for the IRS) which can get most healthy-ish things (within reason) covered. Just check out TrueMed’s marketplace of products and services. This can help justify your health-adjacent costs so you can use your HSA to pay for them. (I put “loophole” in quotes because this is actually a very legit thing according to the IRS, but it just seems very loophole-y.)

Adjusting and refining the definition of health is an interesting challenge, one I’ve struggled with my whole career. I think most of what TrueMed and others are covering is positive, and the definition should broaden for sure. But I also worry about abuse here. Like are you paying for juice cleanses with your HSA? Non-alcoholic cocktails? The line probably has to be drawn somewhere… but who gets to decide?

Say you don’t have a Letter of Medical Necessity, and you try to use your HSA to pay for something not health-related. Chances are, nothing will happen. (Unless, of course, you’re audited. In that case you’ll have to pay back the taxes plus a 20% penalty for any non-qualified spending.) But that doesn’t stop people from abusing it. In fact, someone once told me they used their HSA to buy beer from CVS Pharmacy in college. 🤔 I didn’t fact-check this, but I do believe that a lot of people misuse their HSAs (probably less on purpose than by accident) and see no consequences.

Technically, if you’re being audited by the IRS, they could ask for proof that your HSA purchases were eligible. But there’s not much in the way of regulating actual spending.

It’s all pretty sloppy, and kind of a disaster—and it leaves so much risk and responsibility on the individual. In general, I like the idea of people getting freedom of choice, but in this very confusing space we might just need more guardrails.

There are effectively three ways to use an HSA:

1. Use it as you go to pay for eligible medical expenses.

2. Save up for larger medical expenses (expected or unexpected) and carry that balance with you year to year until you need it.

3. Save the money (and your medical receipts) until you can take it out and spend it on whatever you want

Ironically, the most lucrative way to use your HSA is as a long-term savings account (option #3). It’s counterintuitive, because the account is meant to help you pay for things. So you should take out money, right? But those who can afford to save the money get more out of letting their HSA build through compound interest and/or investment. Because eventually (once you turn 65), you can withdraw money from your HSA for non-medical expenses and still enjoy the tax advantages.

Now, technically you do have to pay income tax on non-medical withdrawals. (After 65, an HSA essentially turns into an IRA account, in that contributions and growth still aren’t taxed, but withdrawals for non-medical expenses are. Before 65, withdrawals for non-medical expenses are taxed and fined 20%.) Buuuut if you want to avoid paying those taxes, you can use the shoebox strategy. (This is the land of the wacky and complicated HSA, so of course there’s another “loophole”!) 

The shoebox strategy hinges on the fact that there is no time limit for when you can reimburse yourself for an eligible medical expense. As long as an eligible expense came after your HSA was opened—and you have the receipt to prove its occurrence—you can pay yourself back from the HSA account any time. This is why keeping all of your medical receipts (in a shoebox, or somewhere, uh, better) is a very smart option for anyone with an HSA.   

@bougiecheapskate

Did you know this HSA hack? #finance101 #money #financialfreedom #financialliteracy #savings #investing

Here’s an example of the shoebox approach in action. Let’s say Joe Schmo is wealthy enough that he doesn’t need to tap into his savings to pay for his medical expenses. But, since he has an HSA and loves tax advantages he still puts the maximum amount in his savings account each year. He invests the money and watches it grow. Meanwhile, any time he pays for a medical expense he saves the receipt in a Google Drive folder. By the time he’s 67 and ready to take his entire family on some epic luxurious vacation, Mr. Schmo can withdraw the money he needs for the trip tax-free from his HSA by “reimbursing” himself for that same amount of prior medical expenses. 

This approach makes HSAs the ultimate tax advantage retirement account. But it’s also weird? The point of the account should be to help more people afford health needs before reaching their deductible, shouldn’t it?

Finally, HSAs need a rebrand. Like seriously, “HSA” is a truly terrible name. Not helpful, not clarifying, not sexy. It sounds unapproachable and confusing—which it is. 

Yes, it being a literal Savings Account (with unique IRS restrictions) is limiting as a form factor. But what’s the way to make it feel more like a benefit, not another thing to manage? What’s the way to make it sound more like it’s for something instead of blandly about nothing? What’s the way to make it come across more like an initiative tackling a crisis/problem than another financial instrument? Some suggestions:

• Health Spending Account (even that one little adjustment makes it better)

• Consumer Health Improvement Program or Comprehensive Health Investment Plan (CHIP)

• The Health Spend Program (HSP)

• Yearly Healthy Allowance

• Health Spend Exception

• SpendWell Account

• HealthFund

• Savings Program for Investment in Comprehensive Health Expenses (SPICE)

Kidding about that last one. In a world where everyone complains about health insurance (which, yes, is mostly awful) you’d think more people would be embracing the HSA—but then again, that would require it to have a good name, be easy to access, and/or make much sense at all.

Many years ago, I worked with a company called First Dollar and was tasked with helping them sell cooler, better, extra benefits-laden HSAs directly to consumers. Unfortunately, I saw firsthand how, er, impossible this was. Trying to teach people what an HSA is if they don’t already know is basically a fool’s errand. By the time you’ve started talking about it, they’ve stopped listening. And if they already have an HSA, getting them to move it, optimize it, or frankly do almost anything with it is also near impossible. For the few that do listen, it’s still a hard sell since we’re still talking about a tax benefit that doesn’t affect anyone’s pocket immediately. You may ultimately be saving $30 for every $100 you spend through your HSA, but that savings doesn’t make itself obvious.

This was all very discouraging for First Dollar, which ended up moving into B2B, started crushing it, and got acquired recently by Inspira Financial. (Startups in a nutshell, amiright? 🙄) But I still thought they were on to something so much that Ness, the last company I started, was deeply influenced by this—trying to rebrand/redesign the experience of making healthy things more accessible. This is still desperately needed—unfinished business!

Because HSAs are so convoluted, it’s a hard business to tackle. While First Dollar may have pivoted, there are a few companies finding ways to innovate the HSA landscape. 

Lively (who I use today) has a pretty user-friendly platform, and makes it easy to start investing your HSA dollars with no minimum. Other companies that offered HSA accounts direct-to-consumer were Starship (but they were acquired in 2022 by Optum Financial) and Bend (acquired by HSA Bank in 2022). As of today the HSA landscape is mostly dominated by just a few big companies. There’s the aptly named HSA Bank, HealthEquity, Fidelity, and Optum. These four collectively make up roughly two thirds of the HSA market’s assets. If you ever think you had an HSA at some point, but can’t remember with whom, it’s probably one of these four. 

I’ve mentioned all these companies before, but I’m hoping that companies like TrueMed, Sika, and Flex will help popularize and demystify HSAs as a payment option for qualified medical expenses by going through the merchant. That’s a pretty unique approach! They’ve effectively BNPL button-ified HSA payments. This will definitely help adoption (and accessibility).

I’m also intrigued by the Paytient model (available through employers or certain health plans), which offers interest-free loans so it’s easier for people to use their HSAs OR save/invest and pay off the loan later. 

What other companies are improving on the HSA user experience? Let me know.

Ok, so we’ve established that HSAs have a lot of issues—but I remain confident there’s still potential for them to be great. In the landscape of over-priced healthcare and not-that-helpful health insurance, cutting people some slack with a triple tax advantage savings account is a noble cause. We just need to make it better—like, way better. 

Here’s what I propose be done to fix HSAs:

• Universal HSA: Everyone gets an HSA (with a contribution limit) regardless of their insurance plan. (Or at least with a plan above a $1,600 deductible.)

• Meet CHIP: We rename HSAs to something fun like CHIP (thinking SNAP here) that’s more accessible. Yes, I’m aware there’s already a CHIP and I’m jealous. Maybe we go with Comprehensive/Consumer Health Options Program (CHOP)?

• Clarify Data: Payment networks (like Visa and Mastercard) collaborate to integrate automatic flagging of HSA-eligible expenses into every payment experience, including existing credit cards. Think a new variation of MCC codes.

• Broaden Definition: Preventative, healthy lifestyle things should count and officially be included as HSA-eligible without any Letters of Necessity required. (Imagine companies can submit their products and services online for consideration on a rolling basis).

• Prevent Misuse: Restrict HSA spend to eligible expenses (maybe you can still manually submit some receipt/form and get reimbursed separately) and create a clear process for reversing accidental, non-qualified charges. This would prevent people from accidentally spending on other things without penalizing them if they get it wrong.

• Fill In Loopholes: Remove the “shoebox strategy” by making eligible expenses only reimbursable within, say, 5-10 years. Sorry, but gotta stay true to the intention here.

Here’s hoping some of these come to fruition sooner than later. I think that’s the only way we’ll see HSAs actually make a meaningful difference in healthcare accessibility for all. What do you think could fix the HSA mess? And what name would make the HSA sexier and more approachable?

Looking forward to hearing your ideas.

The Healthyish League

Building something in health? I love to help and love to recommend others who help, too. Here are a few of my carefully selected recommendations, all of which I’ve personally worked with (and some of which I have a formal relationship with): Herman-Scheer (branding & creative), Aequitas Partners (exec & board recruiting), Healthyish Content (my SEO & content agency), Perceptual Advisors (comms & public affairs), Right Side Up/Lantern/Matchnode (growth marketing), Verbose (embedded lifecycle marketing), Titan (exec coaching), and Lakehouse (pre-seed venture capital). Email me anytime for intros.