The Health Savings Hack No One Knows About

When the Affordable Care Act (Obamacare) came into effect, it made a number of large impacts... but one in particular to the world of health savings accounts (HSAs). Here's what you need to know.
by Julia Rubano August 15, 2019
At Starship, we believe that health savings accounts (HSAs) are the most powerful savings vehicles out there. HSAs are the only option of their kind… they offer a triple tax advantage, which means that money goes into your account tax-free, comes out tax-free, and earns interest tax-free. As long as you use your HSA’s funds for qualified medical expenses, you’re golden. If you’re covered under a qualifying High Deductible Health Plan (HDHP), you can make contributions into an HSA within the standardized annual limits. Seems simple enough, yes? Almost. When the Affordable Care Act, AKA Obamacare, came into effect in March of 2010, it made an impact (in a lot of ways), but one in particular. If you were under age 26, Obamacare enabled you to stay on your  parents’ health plan. Previously, come age 18, it was sayonara, mom and dad! You were on your own.  Okay, okay, what does this have to do with HSA hacks? Well, there are four “don’ts” about utilizing an HSA in this way.

You cannot:

  1. Have a flexible spending account (FSA) or be eligible to use one,
  2. Be enrolled in any health insurance that is non-HSA-qualified
  3. Have Medicare or Medicaid, and lastly,
  4. Appear on anyone else’s tax returns as a dependent.
As long as any of these no-no’s doesn’t apply to you, you’re in the clear…

So What’s the Hack?

Any person under the age of 26 who is NOT a tax dependent and covered under your HSA-qualifying HDHP can contribute up to the annual family contribution limit, which is a whopping $7,000 (2019).  Wait, WHAT? Let’s backtrack a little bit. HSA eligibility is determined by your health plan coverage. But it’s also determined on an individual basis.  Ask yourself the following to figure out if you can open your own HSA and make annual family-level contributions.
  1. Am I covered under an HSA-eligible health plan? Yes? You may proceed!
  2. Does my HSA-eligible health plan cover me and at least one other person? Yes? Good news is ahead.
If you’re a parent whose HDHP covers tax independents (hey, kids), or if you’re a tax independent who is covered under your parents’ HDHP, you’re in luck, and you’re about to save really, really big in what will essentially act as a joint HSA. You’re about to save big.

Final Thoughts

It would be remiss of us not to tell you that there is, indeed, some disagreement on this topic. “Ask Mr. HSA”says that this hack is not a proper interpretation of law. On the other hand, Stephen D. Neelman points to this little (er, big) trick in his “The Complete HSA Guidebook.” No matter what you think about it, one thing’s for certain: the earlier (and more) you save, the greater the impact you’ll have on your retirement savings. We’re pretty sure you won’t regret saving for your future healthcare and financial well-being now, long before you’re due to use it… the way we see it? There’s no price tag for peace of mind. Now get to saving!

Take the first step
in taking care of you.