Following a few turbulent years brought on by the pandemic, a growing chorus of economists and financial experts are predicting that the country is headed for a recession. This is not only due to a slower economy, but as we reach two sequential quarters with a significant, pervasive decline in economic activity. While this may be bad news for the overall economy, it could actually be good news for those with a Health Savings Account (HSA).
What is an HSA?
HSA’s are the only account to provide a triple-tax benefit. Funds deposited into an HSA tax-free, grow tax-deferred, and remain tax-free. The pre-tax savings in you HSA account can be used to pay for a wide variety of medical expenses. This includes doctor visits, prescriptions, and even some insurance premiums. HSAs offer a number of advantages, from tax breaks to the ability to roll over unused funds. But are HSAs recession-proof?
HSA Spending in a Recession
During a recession, people may be more likely to put off non-essential medical care, which could lead to less use of HSAs. On the other hand, HSAs can also help people save money on health care costs during tough economic times. While non-essential medical needs might be put off during a recession, overall medical costs tend to increase. Having an HSA can help insulate against some of the financial impacts of an economic downturn.
Although HSAs were created to help save for healthcare expenses, most HSA owners aren’t using them to their full potential. According to a recent study, only 9% of HSA owners invest a portion of their funds. The rest, 91%, hold cash.
Invest or Save?
Given the tax benefits of HSA accounts, it’s not surprising that more people are taking advantage of them to save for future healthcare costs. For those who are able to invest their HSA funds, the potential rewards are considerable. HSA savers who have the means to invest at least a portion of their money will generally see their savings grow at a more rapid rate and therefore have more money to cover health costs in their older years.
However, there are a number of reasons why HSAs are not being used as investment accounts. One reason may be that many people are still feeling the effects of the pandemic and are unsure about the predicted recession. Therefore, they are hesitant to invest their money. Another reason may be that people simply don’t know that they can use their HSA to invest in stocks, bonds, and other securities. The current situation has made people more aware of their finances and many are trying to save as much money as possible. The good news with HSAs is the money will always be yours. Whether you travel from job to job or stay at one company throughout your career, your funds stay with you. This helps provide a lot of relief to account holders, especially during economic shifts.
Tenure and Age Play a Role in HSA Utilization
Younger account holders tend to have lower average contributions than older account holders, as well higher balances – especially those who’ve had their accounts for more time! Account holders with longer-term HSAs also invested more often outside of cash investments. This can be worthwhile considering how long you’ll need before accessing savings during retirement.
Do Your Homework
HSAs are an excellent way for employees to save and invest money. However, they need the right knowledge in order not only to understand how they work best for you personally; but also to understand what is going on with our economy now.
So if you’re worried about a potential recession, make sure you have an HSA in place – it could end up being a valuable asset during tough times. Connect with your employer or benefits provider to learn more about your HSA options and flexibility.