How big should your HSA account balance be?

[cloudeleven]

I have begun saving in an HSA (bi-weekly paycheck deductions for 2011, will contribute $3050 lump sum for 2010 before April 15 since I had my HDHP all of 2010), and I'm 30 years old. Plan on maxing it out every year, but how much should I sock away in an HSA given the strict rules and penalties on the account (can only use for health expenses before age 65 or pay income taxes and a 20% penalty on the withdrawal, etc.). And with Obamacare starting in 2014, I'm not sure how HSAs will be affected or for how many years I should max out the HSA.

Given the strict rules, should I just save enough to cover the deductibles, coinsurance, copays, etc. of my HDHP for a few years if I got sick? Or save more?

(I'm already maxing out my 401k and Roth IRA, btw).

 

[Gone4Good]

There are a couple of things I know for sure.

1) I buy health insurance on the individual market
2) The individual health insurance market is a disaster
3) I'm 39 years old, and healthy
4) One day I'll be older, and less healthy
5) Medicare may be significantly scaled back for people my age
6) HSAs currently give me a tax advantaged way to self-insure my health care expenditure risk

Given 1-5, I'm planning to make the maximum contribution to my HSA for as long as I can to build the biggest fund possible to try to provision for #6

 

[TromboneAl]

Think of it as an traditional IRA with a withdrawal age of 65 instead of 59.5 and no RMDs.

 

[Mulligan]

There are a couple of things I know for sure.

1) I buy health insurance on the individual market
2) The individual health insurance market is a disaster
3) I'm 39 years old, and healthy
4) One day I'll be older, and less healthy
5) Medicare may be significantly scaled back for people my age
6) HSAs currently give me a tax advantaged way to self-insure my health care expenditure risk

Given 1-5, I'm planning to make the maximum contribution to my HSA for as long as I can to build the biggest fund possible to try to provision for #6

+1 !
Plus if you have or are planning a family you can use your HSA for any of your families medical expenses, too.

 

[Rich_by_the_Bay]

Think of it as an traditional IRA with a withdrawal age of 65 instead of 59.5 and no RMDs.

And maybe even better - you can use it to pay Medicare premiums after that, I understand.

 

[REWahoo]

And maybe even better - you can use it to pay Medicare premiums after that, I understand.

Yep. You can use it for payments of premiums for Medicare Part B, D or Medicare Advantage - just not medigap premiums (strange but true). http://www.irs.gov/pub/irs-pdf/p502.pdf

 

[cloudeleven]

Are you not concerned about the government changing the rules? Maybe not allowing non-health expense withdrawals until 75, or not allowing them at all? Or not allowing HSA to be used for Medicare premiums (if Medicare even exists in 35 years)? I'm sure there are tons of other possible detrimental changes. I'm only 30, so lots of time for big changes to be made.

 

[ziggy29]

Are you not concerned about the government changing the rules?

The government can change the rules on us for anything at any time. We can either be paralyzed by that fact and do nothing, or we can make moves that seem optimal today (making sure you don't put all the eggs in one basket in case the gummint does something to make it a bad deal).

I'm maxing it out every year. I'm keeping about 3 years of maximum out of pocket annual costs in cash and investing the rest in a 50/50 allocation to stocks and bonds.

I think the same about the HSA as a Roth IRA -- at some point they may freeze new contributions and cancel the programs, but most likely if they close that deal anything already in the accounts could be grandfathered under the old rules.

 

[REWahoo]

I anticipae changes to HSA rules but I would expect any changes to not be retroactive to monies already contributed to a HSA.

 

[cloudeleven]

I anticipae changes to HSA rules but I would expect any changes to not be retroactive to monies already contributed to a HSA.

Well, they've already increased the penalty for non-health withdrawals from 10% to 20% starting Jan. 1 of this year, and it's retroactive to previous years' HSA contributions.

 

[Gone4Good]

Are you not concerned about the government changing the rules?

Yup, but I'm more concerned about $500K in uninsured medical expenditures.

Sure, the government can, and might, tweak these things around the edges. But they're probably at no greater risk of political meddling than 401(k)s and the like. Besides, what's the worst that happens under your list of concerns? I lose the tax advantaged status? In which case I'm no worse off than if I never got the tax break at all.

I look at my HSA money as a self-insurance fund. I don't view it as part of my other assets. I don't care if I lose the ability to withdraw the money for non-medical care related expenses, because I never intend to do that. The day I stop needing money set aside for medical expenditures is either the day I die or the day I find some bulletproof health insurance plan that can never go away. And I'd be delighted if my HSA funds were made obsolete by a bulletproof health insurance scheme, even if that means I'd get penalized on HSA withdrawals.

I consider health care expenditures to be one of my largest financial risks. It's only prudent to put aside as much money as I can to try to cover that risk.

 

[MooreBonds]

I have begun saving in an HSA (bi-weekly paycheck deductions for 2011, will contribute $3050 lump sum for 2010 before April 15 since I had my HDHP all of 2010), and I'm 30 years old. Plan on maxing it out every year, but how much should I sock away in an HSA given the strict rules and penalties on the account (can only use for health expenses before age 65 or pay income taxes and a 20% penalty on the withdrawal, etc.). And with Obamacare starting in 2014, I'm not sure how HSAs will be affected or for how many years I should max out the HSA.

Given the strict rules, should I just save enough to cover the deductibles, coinsurance, copays, etc. of my HDHP for a few years if I got sick? Or save more?

(I'm already maxing out my 401k and Roth IRA, btw).

It sounds like you're in relatively good health. Given that, I'd strongly suggest you look at getting quotes on your own individual policy. Healthy young workers are what drive down the group cost for the workers who are older and/or have high healthcare expenditures - you could easily find substantial savings for getting your own individual high deductible policy, even after factoring in the tax benefit of buying it through your employer (and you can set up your own HSA account on your own regardless of whether your policy is through your employer or yourself).

I do have slight concerns about changes to the HSA rules (I've maxed out contributions since the second year they've offered them, and have roughly $30k in my stash, thanks to some decent returns)...however, there are bigger concerns to keep me up at night than higher taxes/penalties on my HSA, especially considering that I've already received the tax deduction on contributions.

 

[Rich_by_the_Bay]

Oh - one more use of HSA: long term care expenses.

My only regret is that I didn't start an HSA sooner.

 

[homestead]

Is it true HSA contributions do not have to be earned income?

 

[REWahoo]

Is it true HSA contributions do not have to be earned income?

True.

I haven't had a dime of earned income in more than five years but have contributed the max to my HSA annually.

 

[MooreBonds]

True.

I haven't had a dime of earned income in more than five years but have contributed the max to my HSA annually.

And even better: you can deduct HSA contributions regardless of total income (ROTH had limits of under $100k for individual filer, or something like that), so not only do you get tax free growth and get to deduct contributions in the year you make them, but it can qualify for any income level!

 

[sheehs1]

Do all of you have HDHP plans...meaning a plan that actually states it is a HDHP? I ask because I looked into this several years ago and it seems (if I am remembering correctly) that I had to get a qualified plan offered from the provider - one they had specified as HDHP). At that time, I didn't like the high deductibles (boy have things changed!). So now I have Anthem Premier with a $3,500 deductible. I know it meets the deductible criteria from the IRS but it doesn't state that it is a HDHP from Anthem. Can I use that plan and start a HSA?

 

[MooreBonds]

So now I have Anthem Premier with a $3,500 deductible. I know it meets the deductible criteria from the IRS but it doesn't state that it is a HDHP from Anthem. Can I use that plan and start a HSA?

The basic requirement is that you are responsible for 100% of all costs up to your deductible (free annual wellness visits do not apply), and once you reach your deductible, the 0% co-insurance kicks in and you pay 0% after the deductible, with a minimum of a $1,000 deductible. Consult the IRS and your health plan rules and regulations for full details.

I have Anthem's Lumenos plan, which makes a reference to pairing with an HSA:
Find a Health Insurance Plan - Anthem Blue Cross Blue Shield

Usually, in order to[-] maximize their profits and get a cut of the layers of the fees[/-] serve you better, a most valued customer better, they will [-]inundate you with requests and attempts [/-]ask if you want to open up an HSA plan with your HDHP if it qualifies.

 

[Rich_by_the_Bay]

Is it true HSA contributions do not have to be earned income?

...though you do lose out on part of their non-taxed status if you contribute using post-tax funds.

 

[MooreBonds]

...though you do lose out on part of their non-taxed status if you contribute using post-tax funds.

Remember that HSA contributions are deductible on your 1040 if you use post-tax dollars. I don't know if your pre-tax HSA dollars are still hit by Social Security/Medicare or not...but even if you gain a 7.6% benefit by using pre-tax dollars by contributing through your employer's plan, your employer's HSA plan could contain unsavory investment options, whereby it might be worth it to lose the 7.6% benefit by going with a bank that has lower fees/better investment options.

 

[sheehs1]

The basic requirement is that you are responsible for 100% of all costs up to your deductible (free annual wellness visits do not apply), and once you reach your deductible, the 0% co-insurance kicks in and you pay 0% after the deductible, with a minimum of a $1,000 deductible.

umm...my plan does have some coverage benefits for doctors visits, dental,vision... etc. But since I'm basically responsible for the $3,500 and the 0% co-insurance kicks in at that point.....I shouldn't have any out of pocket after that anyway.
Still..am thinking I will investigate again since premiums and deductibles have skyrocketed the last several years.
I'm thinking mine does not technically qualify but might be worth looking into again. This thread reminded me ....to take another look.

 

[Gone4Good]

But since I'm basically responsible for the $3,500 and the 0% co-insurance kicks in at that point.....I shouldn't have any out of pocket after that anyway.

So you'd think. But then you go in for surgery for a pre-approved procedure at an in-network hospital with an in-network doctor and you have every reason to think you're financial exposure is capped at $3,500. But then you find out that the anesthesiologist isn't "in-network" and neither is the lab they sent your blood work to. Then you find out that this "in-network" hospital is charging you 20% more than what the insurance company views as "reasonable and customary." When you get out of the hospital, you discover that your prescriptions aren't covered and neither is your physical therapy.

So instead of a $3,500 bill, you end up with a $20,000 one. And that is with "good" insurance.

Better to have cash set aside than to rely completely on some third party payor who writes the rules in a way designed to collect premium dollars and then avoid paying claims.

 

[sheehs1]

I am certain you are right - GoneforGood as the devil always seems to be in the details. Details one doesn't really see or can't reasonably know about until it happens. My insurance has always performed as expected. I was put in the hospital for pnuemonia a couple of years ago and they paid all of it. Of course that didn't take an anesthesiologist but I think I do remember a bill from the lab I had to pay. Investigating HDHPs is my next project. I say "project" because Anthem took forever to get me changed from Flexible Choice to Premier this year.
Again, thanks to this "thread" for reminding me!
Sandra

 

[ziggy29]

Remember that HSA contributions are deductible on your 1040 if you use post-tax dollars. I don't know if your pre-tax HSA dollars are still hit by Social Security/Medicare or not...

If your HSA contributions come from a qualified "Section 125" cafeteria benefits plan through payroll deductions (as mine are, fortunately), HSA contributions are indeed exempt from SS and Medicare taxes. As I understand it, any other contributions would be subject to those taxes.

 

[cloudeleven]

It sounds like you're in relatively good health. Given that, I'd strongly suggest you look at getting quotes on your own individual policy. Healthy young workers are what drive down the group cost for the workers who are older and/or have high healthcare expenditures - you could easily find substantial savings for getting your own individual high deductible policy, even after factoring in the tax benefit of buying it through your employer (and you can set up your own HSA account on your own regardless of whether your policy is through your employer or yourself).

My HDHP premium through work is only $7 a month. I don't think I'll find anything cheaper than that on the open market in an individual policy.