Why I Did Not Use My HSA for LASIK

Why I Did Not Use My HSA for LASIK

May 07, 2024

I have been contemplating laser eye surgery for quite some time, but have been a bit chicken to take the leap. After wearing contacts and glasses for almost 20 years, it had become the norm for me at this point. But after a recent bout of dry eyes and irritation, I decided it was time to book a consultation. 

My first step was vetting a trusted surgeon, which led me to Dr. Lori Travers at Travers Lasik Vision Care (they rock!). Next, was determining how I was going to pay for the $4,200 procedure. Because LASIK is an elective surgery, it is rarely covered by insurance. 

My first thought was to take a tax free withdrawal from my Health Savings Account (HSA) as vision correction surgery is considered a qualified medical expense. However, this would remove a large sum of money from the account that could continue to stay invested, growing tax-free for many years.

After some reflection, I decided to take the advice that I give many of my clients and use my personal savings to pay for the expense rather than my HSA. To sweeten the deal, I used my cash back rewards credit card to foot the bill and paid the balance off immediately after. An extra $84 is nothing to sneeze at when you have to buy 90 days worth of eye drops! 

Let’s dive a little deeper into how I arrived at this decision and why you may want to consider a similar strategy in how you incorporate your HSA into your retirement savings strategy.

How do HSAs work?

Health Savings Accounts allow you to save money on a pre-tax basis to be used for future medical expenses, and unlike a Flexible Spending Account (FSA), you can carry your balance over each year. The biggest advantage to saving in an HSA account, in my opinion, is the triple tax benefits:

  1. Tax-deductible contributions
  2. Tax-free growth
  3. Tax-free distributions *for qualified medical expenses

This unique blend of features combines the best aspects of a Roth and Traditional IRA, making HSAs a financial powerhouse.

Take note, HSAs can only be paired with certain high-deductible health plans (HDHPs). If you switch to a non-HDHP plan later (Medicare for example), you’ll have to stop contributing to your HSA, but you can still use the funds you already have in the account. Medicare Part B, Part D and Medicare Advantage plan premiums, deductibles, copays and coinsurance are considered qualified medical expenses.

Similar to IRAs, there is an annual maximum contribution you can make to an HSA. In 2024, individuals can contribute up to $4,150 and families up to $8,300 per year.

Why you also might want to wait until retirement to use your HSA

Consider this example: Person A contributes $4,000 annually to an HSA, but uses $1,000 for medical expenses, creating a net contribution of $3,000 per year. Person B also contributes $4,000 annually to an HSA, but uses money from their checking or savings account to pay for the $1,000 in annual medical expenses. Both individuals are 35 years old and planning to retire at age 65. Assuming a modest 6% average annual return, Person A would have about $316,230 in their HSA and Person B would have about $237,175. While this is a hypothetical example, it demonstrates the power of leaving your money to grow as long as possible.

Having ample funds for healthcare expenses is crucial for retirees. According to the 2023 Fidelity Retiree Health Care Cost Estimate, the average retired couple at age 65 can expect to spend around $315,000 on health care expenses in retirement. HSAs can be a useful tool to help fill this gap in saving for healthcare. Many retirees believe Medicare will cover most of their healthcare costs, however, this is often not the case. Services such as eye exams, hearing aids, dental work and nursing home care are not covered by Medicare. 

In summary, investors with a long time horizon can benefit from maintaining and growing their HSAs and eventually using them in retirement, as opposed to using them throughout their lives as medical expenses arise. Take advantage of the tax-free compounding and you will thank yourself later.  

Keep in mind, this only works if you keep an adequate cash reserve throughout your life to fund unexpected expenses. Don’t forget to save for a rainy day. 

Feel free to contact me to discuss your unique situation and learn if tax savings strategies, such as an HSA, might be right for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.