Health Savings Account (HSA) question?

[QuarterMillionMan]

Is it just me or have other missed the boat on this great tax advantaged medical savings account known as HSA? Given that I can afford to contribute into this type of account and possibly even contribute the max (for 2014), does anyone advise against it? I'm still awestruck at how good this all sounds. The current issue of Money magazine enlightened me about HSA's.


1) Funds not subjected to federal income tax at time of deposit.
2) Funds rollover & accumulate year to year if not spent (I always thought I would lose it or at the least pay the taxes on funds not used in each given year. I also thought that this type of account was for people who utilize a lot of medical services).
3) Funds can be used for qualified medical expenses at any time without federal tax or penalty.
4) After age 65, funds can be used for non-medical expenses very similar to an IRA.
5) 2013 max contribution is $3250.

[KTP]

Not only should you contribute to it, you shouldn't use it to pay for medical expenses if you can afford them from other money.

Think of the HSA as a deductible Roth IRA. It is an amazing deal. If you retire before age 65 you can draw from other sources such as traditional or Roth IRA and then tap the HSA at age 65 (unless you have valid medical expenses after you retire but before age 65).

[disneysteve]

You really need to run the numbers. Here in NJ insurance hell, HSAs are not good deals because the premiums on the high deductible/HSA policies are insane. It is way cheaper to take a traditional insurance plan. I would love to do it but it just doesn't make sense financially.

[QuarterMillionMan]

I got this article from Money magazine's September 2013 issue;







However, my plan administrator shows a "use it or lose it," forteiture;

[KTP]

FSA and HSA are not the same animal.

[QuarterMillionMan]

Can someone tell me if my insurance (Kaiser) is considered a "High deductible health plan," which is required to open up a Health Savings Account.

[Goldy]

That looks very similar to my insurance and I don't really consider mine a high deductible. Does your company give you incentives to take the cheaper insurance? We get 750 added to our HSA if we take the higher deductible insurance.

[QuarterMillionMan]

Nope, I won't get any incentive for switching to a cheaper insurance. Actually, Kaiser is the cheaper insurance amongst my choices (shrug).

[moneybags]

"Federal rules require these plans to have deductibles of at least $1,200 for an individual and $2,400 for family coverage for 2012."

http://www.pbs.org/newshour/rundown/2012/04/top-10-things-to-know-about-high-deductible-health-plans-1.html

[scfr]

Can someone tell me if my insurance (Kaiser) is considered a "High deductible health plan," which is required to open up a Health Savings Account.

If there is no deductible, then no. According to the IRS web site, in order for a plan to qualify as a HDHP in 2013 the MINIMUM annual deductible for an individual is $1,250, and for a family $2,500. There are also limits on MAXIMUM out of pocket expenses ($6,250 for individual, $12,500 for family). Here is a link to the source: http://www.irs.gov/publications/p969/ar02.html

DH & I have a HSA from back when we had a HDHP. That was back when we had an individual health insurance plan. We now get our insurance through my employer, and a HDHP is not an option, so we are no longer contributing to our HSA. If we ever go back to self-insuring, I would absolutely consider a HDHP again and unless our situation or the rules have changed drastically would probably choose it. On our "life's balance sheet of good & bad financial decisions," the HSA/HDHP decision falls squarely on the good side.

I would not recommend a HDHP with HSA for anyone who does not have the funds to cover the high deductible. A HSA could be funded with the money you save from the lower premium with a HDHP, and the money in the HSA can then cover the deductible, but if you are one of those folks who spends every penny instead of saving it, that won't work.

P.S. - We were relatively early HDHP/HSA adopters ... I blogged about our choice, and ended up being contacted and interviewed by a reporter for the Wall Street Journal for an article she was writing. That was kind of cool.

[Caoineag]

Yup, I am a big fan of mine, so much so that I refused my company funded 80/20 plan and self-insure with an individual high deductible policy (and sadly, I still pay less than I would for my share of the 80/20 plan). DH is able to get a high deductible plan through work so he has one as well. We do use ours for medical expenses but since we require very little medical care, we still accumulate. DH's HSA balance just reached the tipping point for investing a portion so that part is in an S&P 500 index fund.

Biggest issue I have with HSAs is that they tend to have higher fees and expenses than regular accounts but once you add in the tax breaks, there really is no contest.

[KTP]

I am pretty sure it is still the best idea not to use the HSA funds to pay for medical expenses, but instead to let them grow since they will be treated just like a Roth IRA after age 65.

Would you ever dream of tapping your Roth IRA each year to pay for medical expenses if you had other money available?

[MonkeyMama]

Kaiser does have HDHP plans, but maybe your employer does not offer them?

We personally have a HDHP plan but do not use a HSA. There are several reasons. We get a bigger regular tax deduction (itemizing) for our health insurance and bills. California does not recognize HSAs, so is a bit of a tax nightmare. & we don't pay enough income taxes in the first place, to deal with all of the hassle.

As with many tax breaks, this is a better "higher income" tax break. We'd probably use an HSA if my spouse were working. We'd probably treat it as a supplemental retirement fund in that case. We don't have big medical bills (is very good insurance), but we have huge health insurance premiums. Unfortunately, can not use the HSA funds for health insurance. Which makes it kind of a useless medical savings backup for our own purposes. We have the HDHP because it is by far the best value. My feeling was that our insurer was pricing them lower to entice people in, and would probably significantly raise deductible and costs over time. But then Obamacare intervened a bit. In fact, our plan is Grandfathered, and my insurer seems desperate to make us switch to some other plan (all of which make less financial sense).

[Caoineag]

I am pretty sure it is still the best idea not to use the HSA funds to pay for medical expenses, but instead to let them grow since they will be treated just like a Roth IRA after age 65.

Would you ever dream of tapping your Roth IRA each year to pay for medical expenses if you had other money available?

Not to be picky, but it only acts like a Roth for medical expense distributions. It acts like a traditional IRA if used for non-medical expenses past age 65. Theoretically you could save every medical receipt between now and then to make it tax free but I am not that dedicated.

If the only reason I contributed to an account was to pay medical expenses at a slightly cheaper rate, yes I would use the account to pay medical expenses. I have other savings vehicles that are cheaper and far more versatile at this point. Really, this won't become a major savings vehicle until after we hit the 25% tax bracket.

[KTP]

Ok true, I didn't realize it was taxed for non-medical expenses after age 65..but at least there is no penalty for withdrawal then.

So it is more like a tax deductible traditional IRA in that case, with the added benefit that if you use it for medical expenses it turns into a tax deductible Roth (which doesn't exist in any other place or form).

Somehow I don't think it will be hard to come up with $5000 a year in medical expenses when you are past age 65. So you can use your HSA for this, and use your Roth to go on a cruise.