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HSA+QDHDP is Easy Money?
Old 12-20-2011, 07:24 PM   #1
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HSA+QDHDP is Easy Money?

Hello everyone,

This is my first post here, but I have been a reader for quite some time. I've been looking over some of the arguments for and against HSAs with a high deductible health plan, and I can't quite figure out why someone with average health issues wouldn't taking an HSA and a high deductible plan plan as soon as possible.

If you are a college graduate who starts with a HSA+high deductible plan and you can invest the amount in mutual funds, the tax-deferred nature of the account and above-the-line deduction make the HSA option very attractive. In fact, the savings are so substantial it makes sense to pay for medical expenses out of a separate, non-tax-deferred account and to use the HSA as a retirement account. My calculations (shown in the attached spreadsheet) show that the only way this candidate wouldn't take the HSA option is if he pays $91 in premiums annually for a low deductible plan and needs $4250 worth of medical expenses (the max contribution amount) each year. Why doesn't everyone do this? Can anyone explain to me where I've gone wrong with this logic?

Long story short: it seems like having an HSA and a high-deductible plan is a no-brainer for most people with average health expenses, as the potential retirement savings are enormous. What am I getting wrong here?

Looking forward to hearing from everybody!
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File Type: xls HSA+QDHDP Calculations.xls (84.0 KB, 12 views)

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Old 12-20-2011, 07:44 PM   #2
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I agree with you and I wish they had started 20 years ago!

About 20 years ago, I was helping with a pig lab (dr's trying out new medical devices) and I had a chance to chat with a surgeon during one of the breaks. He said health insurance in it's current form was the worst thing that ever happened to healthcare. I asked him to explain and the example he used was car maintenance and car insurance. He asked how much I thought an oil change or a new set of tires would cost if they were covered by insurance.

The HDHP is true insurance like car insurance. The policyholder covers the oil changes and new tires and insurance kicks in to cover the big stuff. It also motivates the HDHP policyholder to live "defensively" to reduce costs like driving defensively reduces costs.

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Old 12-20-2011, 08:09 PM   #3
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I think reasons folks (like college kids) who qualify don't go the HSA route might be because HSAs may not be as popular as conventional health insurance and because having a HSA does require record keeping.

For me, I love my HSA and it was what sealed the deal that allowed me to FIRE. Otherwise, I would have hung on (hating my j*b) until I'd qualify for retirement insurance (who knows if they wouldn't have even let me go before then).

The S in my HSA is for Spending. That is, I reimburse myself for qualified expenses incurred the previous year. Whereas, some use the S for saving. In 2012, I expect to reimburse myself for almost $4,500 (a lot of dental work) which is gonna help a lot.
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Old 12-20-2011, 08:18 PM   #4
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Originally Posted by samjerry View Post
....I can't quite figure out why someone with average health issues wouldn't taking an HSA and a high deductible plan plan as soon as possible....
Because not all employers have offered it as an option and it could have been less expensive to stick with the employer-provided insurance option than going private with an HSA?

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Old 12-20-2011, 08:25 PM   #5
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I have an HDHP and max out my HSA annually. Given that I can switch to a normal health plan when my company's annual enrollment comes up (were I to develop a need for chronic medical care), I really don't see the downside.

The worst case scenario is if I get so sick that I can no longer work through to the open enrollment period and have to continue on the HDHP while on disability. Even then, it's not like the deductible is _that_ high. Mine is $2k. I suppose it's not a clear win in this case, but it's not a huge penalty either.

Every other scenario I can envision, the HSA is a clear win. It rewards individuals who will be prudent with their use of the doctor. I wish I'd been able to participate in one sooner.
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Old 12-20-2011, 09:00 PM   #6
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I agree, that HSA's have tremendous value, and are the first "investment" I fully fund each year. Why does everyone not have one? A five year old survey showed around 45% of people with HD plans did not open up an HSA at all. Maybe a lot of them are like my college educated retired friend who has HD plan. I asked if his plan is HSA compatible? His answer was ... " what is an HSA?" He had never heard of it, he just knew he had a high deductible plan and it was cheaper than a traditional plan even with the deductible. ObamaCare scares me in relation to the future of HSA's and HD plans. Companies have increasingly been moving to these type of plans. I hope they will have " influence" in helping generous provisions continue in this arena.

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