HSA advice

[KTP]

We just got notice today that my wife's company will be changing the healthcare plan in 2013 to reduce expenses for them. Right now they pay just about 100% of everything...a very nice plan. They are giving the option of switching to an HSA as early as 2011 where there is a $2000 copay and a $3000 deductable, but they will contribute $2500 a year to the HSA. So if I understand things correctly, we would have a max out of pocket each year of $2500 but if we didn't have any major medical expenses in a year (normal checkups are 100% covered) then the next year we would have $5000 in the HSA and so on. Also, I guess now we could contribute some of her gross income to the HSA which would be pre-tax and reduce her AGI? If she leaves the company we take the HSA account and funds with us. Money pulled out of the HSA is tax free.

Sounds ok if you are reasonbly healthy. I don't know if we should go ahead in 2011 and start on the HSA (in 2011 they will put in $3000 instead of $2500 as an incentive to sign up early) or stick with the all expenses paid cadillac plan until we are forced to the HSA in 2013.

What do you guys think? Remember that we hope to retire early (maybe as early as 2016) and I expect that we will qualify for some government assistance then because of our much lower income, but I don't know how the HSA would figure into this (would they make us spend it down to zero before we could get subsidized health care?)

[jIM_Ohio]

If you do not anticipate high expenses in 2011, the HSA is an EXCELLENT short and long term move.

Check details...
We have an HSA/HDHP and here is how ours works.

Employers puts $1500 into HSA
yearly max is about $5300 or $5500, I calculate the difference and put the max into the HSA- the limit changes year over year usually.

The first $3000 for us is on "us" that is the deductable
it is then a 10%-90% split until we spend $7000
after $7000 (the yearly max) everything is free

My focus is to "plan" to spend the $5500 which is in the HSA
and also spend the $7000 max (so we have $1500 expected out of taxable accounts) and when the money is not spent, its a bonus.

There are restrictions on how HSA money is withdrawn/spent.
It also adds forms to the tax return if you SPEND HSA money.

[MonkeyMama]

A few thoughts:

We switched to a HDHP/HSA (from a more cadillac type plan) because it was simply all we could afford.

The first couple of years were typical for us, and very cost effective (no doctor visits, we are all very healthy). This year, on the other hand has been a doozy. I share, because I would still prefer the HDHP, hands down. The deductible is *only* $3k, and we are saving far more than $3k in insurance premiums.

I told my dh initially that this was "too good to be true" and that I expected the deductibles to rise significantly in the future. (bait and switch?). I still think this is quite likely.

As Jim mentioned, deductible is NOT out-of-pocket. For us, our out-of-pocket equaled the deductible in years 1 & 2 since we switched. This year, our-out-of-pocket doubled to $6k. "Great!" is what I thought about that. My dh had surgery this year and I am having my own medical issues. We have probably been to the hospital 20 times between the 4 of us, this year (versus a normal 0 year). But, in the end, we have barely spent anything above the deductible. We paid $3k for the surgery and $50 here and there for MRIs and stuff like that. Knock on wood, but I don't expect to be much over $3k for the year, in expenses. Under our "everything covered plan" emergency room and hospital stays were something like $100-$500 per visit or night. Since we have hit our deductible, we are charged very nominally (maybe $50 for emergency?). So, we have come out way ahead, and this year probably won't be as bad as I thought. Though I am sure every plan is different. I highly recommend reading all the fine print on your old plan, and on this new one. So yeah, I thought this was our bait and switch, but we have been charged pennies for a pile of doctors visits, prescriptions, and procedures, over the deductible. Phew!

HSA - I haven't actually funded our HSA for various reasons that probably wouldn't apply to you. The State of California does not recognize HSAs, and it is a bit of a tax nightmare. Cali may be the only state with this issue. This is just one reason of a handful that the HSA hasn't really worked for us. (On the flip side, when my spouse returns to work, the HSA will be awesome - a great tax break for higher income. Which means you will probably benefit from the HSA greatly - recalling you were in a higher tax bracket).

[KTP]

Thanks both of you for the input.

I will have to read up a lot on these to determine if we should switch in 2011 or wait until 2012 or be forced into it in 2013. The extra $500 incentive in 2011 does sound nice.

I need to find out how the HSA funds are invested...can I direct them into a Vanguard mutual fund or something? When I take out HSA money to pay for medical expenses that are qualified, it has zero effect on my MAGI?

It sounds like a bit of a gamble...here is $2500, but you may have $5000 in expenses, or you may have $0 in expenses. Spin the wheel...

[maat55]

I hope DW's employer offers an HDHP/HSA plan. I personally, am not in favor of government incentives to employers for health ins. The incentives should go to the individuals in order to promote competition and reward frugality in healthcare.

[jIM_Ohio]

Thanks both of you for the input.

I will have to read up a lot on these to determine if we should switch in 2011 or wait until 2012 or be forced into it in 2013. The extra $500 incentive in 2011 does sound nice.

I need to find out how the HSA funds are invested...can I direct them into a Vanguard mutual fund or something? When I take out HSA money to pay for medical expenses that are qualified, it has zero effect on my MAGI?

It sounds like a bit of a gamble...here is $2500, but you may have $5000 in expenses, or you may have $0 in expenses. Spin the wheel...

I use my HSA like a savings account, and plan to do so until there is 14k cash inside the HSA (max cost X2 years). Some people use the HSA as an investment vehicle and pay cash for their medical expenses. I do not- we generally plan to spend the money we put in, then when money is left, it's a BONUS.

My logic with 2 years expenses in cash is that my HSA has fees (not high, but fees do exist) for every transaction -Buy/Sell- so in an effort to reduce risk, I want most of the next 2 years expenses in cash, then that third year I might invest 7k, and have that new year's deposits replenish the cash supply.

Treat the HSA more like an EF than you would a retirement account, because the risk profile is closer to an EF than it is to retirement risk profile.

You need to read up on the HSA costs, fees, and investment options. If you are getting free money to switch, I would switch sooner, as long as you do not **expect** high medical expenses the year you switch.


My logic for using the HDHP and HSA was two fold. Only one of these reasons applies to you.

1) We were paying $500/mo+ in health care premiums and having low doctor visits. This was $6k per year which was LOST every year for the privilege of having insurance. The HDHP costs me about $75/mo for my family (employer is kicking in a little here too, but they were also kicking in something above the $500/mo too). So $900/mo out of pocket for health insurance was a no brainer when compared to $6000/year.

2) My employer was offering $1500/ year free money to the HSA. Plus the $5100 we saved could be directed to the HSA, so the net take home went up (not all $5100 could be put into HSA). The cash flow improved month over month.


We hit the $7000 out of pocket max within 3 months of being on the HDHP (kids had some medical issues we were told were covered 100%, and it turns out insurance company and my employer lied to us. If you do HDHP and get some $2000 treatments early on, make sure you have high cash on hand to handle the problems. Not many medical procedures cost $2000, but know your worst case scenario, and as long as it does not scare you, it's a good move- you will come out way ahead in a high tax bracket.

HSA's are like 401ks and Roth IRAs. Money goes in pre-tax and comes out tax free. Just use distributions for qualified medical expenses (read the rules) and this is a great plan to be on.

[scfr]

My husband & I switched to a HDHP w/ HSA about 3 years ago. DH is self-employed, and we are self-insuring. For us, it was the right decision (no regrets at all).

For information, go straight to the source. The US Treasury Web Site has some great information:
U.S. Treasury - Health Savings Accounts (HSAs)

[snafu]

Can you ask your Senator's office to send you details of the Obama Medical Ins. plan? Will seniors be required to pay premiums? Will they have premium subsidies based income brackets? If the Obama plan is actually implemented, the HSA requirements/rules will have been drastically changed by 2016.

We who live in other countries remain puzzled by the fact that USA is the only developed country without universal health care. While the position of private, for profit insurance is understandable, we wonder why low level clerks decide whether a medical procedure will - or will not be paid by your insurance carrier. I've tried to imagine that procedure for auto insurance. Those that wished to have auto insurance, saw the value, could afford it or had employers willing to pay/subsidize your auto insurance would be covered to a certain value with a chosen deductible. Those who didn't wish auto insurance, found it unaffordable, or whose employer didn't subsidize insurance would not be covered. Isn't auto insurance mandatory? What happens to indiividuals someone who fail to carry up-to-date insurance?

[JoshuaHeckathorn]

I've had an HSA/HDHP for my family since 2005. I've always loved the concept of an HSA and basically treat it like an additional investment vehicle for retirement. So, I pay for our medical expenses out of pocket and keep the funds in our HSA invested in several different Vanguard mutual funds. Make the switch earlier rather than later - you won't regret it.

[Seeker]

HSA - I haven't actually funded our HSA for various reasons that probably wouldn't apply to you. The State of California does not recognize HSAs, and it is a bit of a tax nightmare. Cali may be the only state with this issue. This is just one reason of a handful that the HSA hasn't really worked for us. (On the flip side, when my spouse returns to work, the HSA will be awesome - a great tax break for higher income. Which means you will probably benefit from the HSA greatly - recalling you were in a higher tax bracket).

The following was updated in Oct 2006 ; California was not the only state then ; not sure of now... but the four states listed then: Alabama, Wisconsin, New Jersey and California.

Tax Laws in a Few States Still Don't Jibe with Federal HSA Rules

[muexm]

My company is offering an HSA/High deductuctible PPO plan in 2011. Nothing comes out of my paycheck per month for medical expenses and they will contribute $1250.00 per year into my HSA. The in-network out of pocket maximum is $4000. So I think I will contribute $2,750 ($4,000 - $1,250) into my HSA account in case a medical emergency happens to me or my wife. My family hardly ever gest sick so the plan is to always keep the out of pocket maximum amount in my HSA account and slowly contribute less and less into the HSA throughout the susequent years. I also asked HR if you could contribute extra money to your HSA at any time throughout the year and she said yes.

[JoshuaHeckathorn]

If you're looking for more deductions and have the cash, you may want to think about contributing the max every year. Remember, once you turn 65, you'll be able to take distributions from your HSA for anything without penalty. That's pretty nice :-).

[MonkeyMama]

The following was updated in Oct 2006 ; California was not the only state then ; not sure of now... but the four states listed then: Alabama, Wisconsin, New Jersey and California.

Tax Laws in a Few States Still Don't Jibe with Federal HSA Rules

Still true - I just read about those 4 states the other day.

Problem with Cali is they have no intent to conform, either. I'd conclude the same for the other states since they have held out so long.

[cypher1]

Awesome post. This is the information I needed for changing my plan (open enrollment ends next week for 2011). Only 29, healthy (knock on wood) but haven't gone to the doctors in awhile, and looking at tax advantage with changing to HDHP with HSA.

[buildmybudget]

What if you're going to have a child in your first year of being on the HDHP/HSA? Would you all still recommend the switch?