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HSA insurance
Old 02-10-2005, 04:34 AM   #1
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HSA insurance

Haven't seen this topic posted yet:

Does the new Health Savings Account insurance plan (signed into law by G. Bush in Dec. 2003) seem like a viable option for reasonable-cost health care insurance? (I think it once was called a Medical Savings Account (MSA), but was severely limited or lacking in features and has now morphed into an HSA).

It supposedly lets you put away pre-tax money to pay for medical costs, and grows in a mutual-fund type account with various choices of risk/performance. You also have to buy a related high-deductible insurance policy that covers med. expenses after the high deductible is met from the accumulated savings you've stashed aside.

The stashed money is only usable towards medical until age 65, then can be tapped for ANY purpose (new sailboats, vacations, whatever) without penalty.

I've heard it referred to as a "medical IRA".

Did I get it right?

What are the plusses, minuses, and untold pitfalls?

Who are some reputable companies selling this type of insurance?

Thanks!

cfcf
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Re: HSA insurance
Old 02-10-2005, 09:26 AM   #2
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Re: HSA insurance

I'm still trying to get my arms around all of the ins and outs.... my company has pushed for it in the last year

Here are some websites if it helps:

http://www.hsainsider.com/
http://www.msaver.com/
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Re: HSA insurance
Old 02-10-2005, 09:28 AM   #3
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Re: HSA insurance

Quote:
Haven't seen this topic posted yet:

Does the new Health Savings Account insurance plan (signed into law by G. Bush in Dec. 2003) seem like a viable option for reasonable-cost health care insurance? *(I think it once was called a Medical Savings Account (MSA), but was severely limited or lacking in features and has now morphed into an HSA).

It supposedly lets you put away pre-tax money to pay for medical costs, and grows in a mutual-fund type account with various choices of risk/performance. *You also have to buy a related high-deductible insurance policy that covers med. expenses after the high deductible is met from the accumulated savings you've stashed aside.

The stashed money is only usable towards medical until age 65, then can be tapped for ANY purpose (new sailboats, vacations, whatever) without penalty.

I've heard it referred to as a "medical IRA".

Did I get it right?

What are the plusses, minuses, and untold pitfalls?

Who are some reputable companies selling this type of insurance?

Thanks!

cfcf
Hi cfcf,

I don't really have a very complete answer for you, but I spent a little bit of time looking into this about a month ago. I decided that it would take more effort to evaluate these than I was willing to spend at the time and that I would re-visit the issue in a month. You've just reminded me that it's time for me to look again.

After probing around on the internet for a few hours and making a couple of phone calls, I became more confused than ever. The restrictions on the insurance policy that you can have and be eligible for these accounts is more than it appears from initial reading. I found out that my current Humana policy ($1750 deductible per person with $500 deductible per person on drugs policy does not qualify. In fact, none of the policies that Humana offered prior to this law fit the federal guidelines. They have developed new policies that can qualify and began offering them in January.

Most of the HSA accounts you find on the internet are part of the health insurance policy -- the insurance company offers a money market fund with the policy. The rates on the funds that I found were pretty abysmal. I also found at least a couple of mutual fund account options that were separate from the insurance company. One of these funds offered Vanguard funds, for example. But the accounts I looked at had very high maintenance fees associated with them. As an example, the Vanguard mutual fund HSA account had a $20 set up fee, $60 annual familiy administration fee and a .00125 quarterly maintenance fee. All of this was on top of the Vanguard fees.

My search was far from exhaustive and usually after you post something like this someone will respond, "You ignorant moron, here's the source for that kind of information." I hope that happens here. It will save me a lot of time.
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Re: HSA insurance
Old 02-10-2005, 03:12 PM   #4
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Re: HSA insurance

I look on my HSA account as a way to pay routine dental bills, medical checkups, etc., etc., from pre-tax money, not as a long-term savings mechanism.

The amount you are allowed to contribute is not all that large, so I don't worry too much about poor returns.

Peter
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Re: HSA insurance
Old 02-10-2005, 05:35 PM   #5
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Re: HSA insurance

Quote:
Haven't seen this topic posted yet:

Does the new Health Savings Account insurance plan (signed into law by G. Bush in Dec. 2003) seem like a viable option for reasonable-cost health care insurance?
In December I started a short-lived thread in the "Other topics" forum on the topic of HSAs. A link is here:
http://early-retirement.org/cgi-bin/...num=1104293881

I will admit that a drawback to the HSA concept is the relatively high fees (one reason I'm not too sold on privatizing SS). However, there are one or two recommendations I've found that have the lowest fees and best investment options (one lets you open up an investment account that will let you inveset in literally anything at a deep discount rate).

The last time I checked www.hsainsider.com, there were about 45 trustess; I'm sure a few more have probably been added since then.

--Peter
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Re: HSA insurance
Old 02-11-2005, 05:51 PM   #6
 
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Re: HSA insurance

You have got it right. The HSA savings can be used for any services or items the IRS allows you to itemize however it may not apply toward the deductable amount with your insurance company. Most of the Insurance companys allow you to set up your HSA with any bank, broker etc. that writes IRA's. Check out the HSAInsider wbsite. I have gone with Golden Rule in Pa and have been pleased so far.
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Re: HSA insurance
Old 02-15-2005, 04:28 AM   #7
 
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Re: HSA insurance

HSA (Health Savings Account) must be combined with HDHP (High Deductible Health Plan). Contributions to the HSA are tax deductible (pre-AGI, adjusted gross income), withdrawals from the HSA are tax free if used for medical expense. Medical expense includes expenses used in meeing your deductibles and co-pays, along with anything else recognized by the IRS as a medical expense, which is a very broad definition (mileage to the doctor, etc), and can even include long term care insurance premiums.
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Re: HSA insurance
Old 02-15-2005, 04:46 AM   #8
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Re: HSA insurance

Thanks for all the info on HSAs. Compared to the usual choices for unemployed or RE people, it sounds pretty decent.

Am kind of surprised more FIRE folks (apparently) aren't using it.

cfcf
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Re: HSA insurance
Old 02-15-2005, 05:56 AM   #9
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Re: HSA insurance

Duh

I was under the impression to qualify for an HSA - you had to be working - retired or unemployed was a disqualifyer.
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Re: HSA insurance
Old 02-15-2005, 10:32 AM   #10
 
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Re: HSA insurance

I suppose the issue is the tax deductability for the contributions and sheltering on the income made from the contributions.

If you are ER'd and just getting investment income - how deductable is it ? and what's your marginal tax rate?

You also get to deduct medical expenses above some percentage (3%) if you itemize and have those kind of expenses.

So it's sort of like an IRA for medical expenses - how many on this board contribute to an IRA even though you are ER'd?

It depends...
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Re: HSA insurance
Old 02-17-2005, 06:49 AM   #11
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Re: HSA insurance

Question: if you are ER'ed and taking taxable distributions from IRAs, 401k's, etc, can you take an HSA deduction against those tax-deferred distributions? Those were, after all, tax-deferred earnings, but do they count as "wages"?
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Re: HSA insurance
Old 02-17-2005, 06:55 AM   #12
 
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Re: HSA insurance

Hello nearly50. No, they are not "wages".

JG
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Re: HSA insurance
Old 02-19-2005, 03:44 AM   #13
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Re: HSA insurance

Hmmmm, gotta be working to use an HSA, eh?

That never dawned on me, but it's certainly not such a good thing for an ER person.

I wonder what the lower income limit is to be eligible? Maybe I could do some fun part-time work for a while.

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Re: HSA insurance
Old 02-19-2005, 04:08 AM   #14
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Re: HSA insurance

Quote:
Hmmmm, gotta be working to use an HSA, eh?

cfcf
No, you do not have to have "earned income" to qualify for an HSA. From the HSA Insider web site:

Q: I'm retired, age 63, spouse 60, current health ins. is BlueCross PPO with $5,000 deductible (per person). Main question is: can we set up one of the new HSA accounts for 2004 and put aside pre-tax dollars event though we have no "earned income"? Our income consists of my Soc.Sec. benefit plus interest from various investments. I guess our concern is if you must have "earned income" and secondly if our current Blue Cross PPO/%5,000 deductible primary health policy qualifies. Our current health is probably not good enough to quality for a new health insurance policy. Would appreciate your advise.
A: You can open an HSA if you do not have "earned income," (and you do not need to itemize either) but you must have a HSA qualified health insurance policy to open an HSA.

http://hsainsider.com/

I am 68 days from retiring at age 58 and in the process of applying for an HSA policy from Golden Rule Ins. My research shows they have the best track record for these new policies and the underlying carrier (United Health Care) is the same as my company plan, so we can use the same network of physicians.

REW
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Re: HSA insurance
Old 02-19-2005, 07:03 AM   #15
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Re: HSA insurance

Quote:
No, you do not have to have "earned income" to qualify for an HSA. From the HSA Insider web site:

Q: I'm retired, age 63, spouse 60, current health ins. is BlueCross PPO with $5,000 deductible (per person). Main question is: can we set up one of the new HSA accounts for 2004 and put aside pre-tax dollars event though we have no "earned income"? Our income consists of my Soc.Sec. benefit plus interest from various investments. I guess our concern is if you must have "earned income" and secondly if our current Blue Cross PPO/%5,000 deductible primary health policy qualifies. Our current health is probably not good enough to quality for a new health insurance policy. Would appreciate your advise.
A: You can open an HSA if you do not have "earned income," (and you do not need to itemize either) but you must have a HSA qualified health insurance policy to open an HSA.

http://hsainsider.com/
This has been an interesting thread. Like one of the other posters, I had thought that a person had to be employed with earned income in order to be eligible for a HSA. I will check out the hsainsider.com web site.
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Re: HSA insurance
Old 02-19-2005, 07:48 AM   #16
 
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Re: HSA insurance

keep in mind you cannot contribute to HSA after age 65 (medicare), your HSA, if it has money in it, will still be yours to spend on medical expenses (tax free withdrawal), or anything else (taxable), but you cannot contribute to HSA.
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Re: HSA insurance
Old 02-19-2005, 08:09 AM   #17
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Re: HSA insurance

Quote:
keep in mind you cannot contribute to HSA after age 65 (medicare), your HSA, if it has money in it, will still be yours to spend on medical expenses (tax free withdrawal), or anything else (taxable), but you cannot contribute to HSA.
Right. In addition to using the funds in the HSA account to pay the deductible on your qulaifying high deductible policy, you can use this tax free savings account to pay for other IRS approved expenses. According to the HSA Insider:

In general, you can spend tax-free from your Health Savings Account on all medical, dental (including braces for your children), and vision expenses, chiropractic visits, and even acupuncture, but not on your insurance premium, unless you are unemployed and are collecting Federal unemployment benefits.

Although you cannot use HSA funds to pay the insurance premium, you CAN use the funds to pay for LTC insurance premiums.

Specific details of what the IRS will allow can be found at:
http://www.irs.gov/pub/irs-pdf/p502.pdf.

REW
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Re: HSA insurance
Old 02-19-2005, 05:19 PM   #18
 
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Re: HSA insurance

Hi,

I've had an HDHP for a year now. You can go to ehealthinsurance.com, input your data, and then click the 'HSA Eligible' tab when the list of all available health plans shows up. A couple of things:

1) When compared to a regular health plan, the prices aren't competitive. For example, for $63 I can get a Unicare HSA plan with a deductible of $5000. For $64, I can get a Unicare regular plan with a $2000 deductible. The out-of-pocket limit is the same as the HSA ($5000) but the regular plan has a 25% co-insurance.

2) I haven't been satisfied with any of the banks or brokers. A 1% interest rate means the funds will waste away due to inflation and I think the fees are too high at some of the brokerage options. Plus, I really dislike recurring maintenance fees.

I haven't deposited my $2500 for last year yet but I'm looking at American Chartered (which offers CDs) or Town Bank (which Peter76 mentioned, and is supposed to offer investment options this spring).

Finally, 3) I had a sports injury recently and went to several doctors (one referral after another...). It confused some that I was paying out-of-pocket rather then running it through the insurance paperwork process. Some doctors even gave me a discount (15% in one case) for paying out-of-pocket. I don't know if this discount is better or worse then insurance negotiated rates.

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Re: HSA insurance
Old 02-19-2005, 07:34 PM   #19
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Re: HSA insurance

I spent a couple of days reviewing my HSA options a little more thoroughly and I've decided to pass. My reasoning is somewhat unique to me, so don't anyone get the impression that I am advising them.

First, my DW and I are mostly retired already. I still do some work (up to 1/4 time) and she does some substitute teaching if she's not busy, but we expect that we will quit entirely within a year or two. So we only have a couple of years to build up an HSA account. And in order to do that, we would have to change insurance policies.

Second, the start-up and maintenance fees on the accounts I was able to get information on were obscene. They only beat what you could do outside an HSA if you are in a high tax bracket. My earnings and tax sheltering is enough that I don't pay much at all in taxes now and that will drop further when I quit working entirely.

Third, my current insurance policy has one deductible ($500/yr) per person on prescription drugs and a second deductible ($1750/yr) per person on all other medical coverage. The new HSA law requires that one deductible (/yr) per family is applied for both drugs and medical. When I look at drug costs and escalation, I don't think this is a tradeoff I want to make.

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Re: HSA insurance
Old 02-19-2005, 08:02 PM   #20
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Re: HSA insurance

Quote:
I spent a couple of days reviewing my HSA options a little more thoroughly and I've decided to pass.
Salaryguru,
Came to the same conclusion. *Some of the same reasons, coupled with the amount of administivia necessary to run the HSA and relatively "small" amount of sheltered assets that could be generated, many other better ways to use the time.
Maybe others are getting better rate quotes for HSA policies (only could find 2 when I checked 6 months ago), the spread just was not worth the trip.
Nwsteve
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