HSA's - more questions

[justin]

I've read all the old HSA threads on here. A few questions remain:

1. I'm making the switch to a high deductible plan with an HSA for the 2007 year through DW's employer. My understanding is that I can set up the HSA through the employer as part of their "section 125 cafeteria" plan and the HSA contributions I make are "pre-tax" (as in I don't pay federal or state income tax, and no FICA tax). Or I can set up my own HSA wherever I want. I can then deduct the HSA contributions on my federal tax form as an "above the line deduction" which would reduce my federal taxable income and my state taxable income. But if I set up my own HSA, I don't get any tax savings on my FICA taxes. In other words, if I go with the employer provided HSA, I get a 7.65% tax savings beyond the tax savings available if I set up my own HSA elsewhere. Correct?

Correct if the employer's cafeteria plan allows the HSA contribution. Also correct on the tax issue. You only save the FICA if it goes through the cafeteria plan.

The treasury department website should have the rules. Here is at least a web site that agrees with me: http://www.coredocuments.com/corehsa.php

[Martha]

Justin, I screwed up and edited your post instead of quoting your post. So sorry. As a result of the editing your other three questions disappeared. I know you asked about Aetna as a provider and also asked about whether you can move your account before retirement or termination of service.

[justin]

Here's my original post (or pretty close to it):

I've read all the old HSA threads on here. A few questions remain:

1. I'm making the switch to a high deductible plan with an HSA for the 2007 year through DW's employer. My understanding is that I can set up the HSA through the employer as part of their "section 125 cafeteria" plan and the HSA contributions I make are "pre-tax" (as in I don't pay federal or state income tax, and no FICA tax). Or I can set up my own HSA wherever I want. I can then deduct the HSA contributions on my federal tax form as an "above the line deduction" which would reduce my federal taxable income and my state taxable income. But if I set up my own HSA, I don't get any tax savings on my FICA taxes. In other words, if I go with the employer provided HSA, I get a 7.65% tax savings beyond the tax savings available if I set up my own HSA elsewhere. Correct?

2. The employer provided HSA is through Aetna. Anyone have any experience with them? Know what interest rate they are paying? They also allow accounts with $2000+ to invest in a selection of 8 no-load JP Morgan mutual funds for $30/yr. The JP Morgan funds seems decent (no Vanguard-like expense ratios, but not as bad as I was expecting). Typically 0.45-0.75% expense ratios for a selection of bond funds, balanced funds, SP500 index, international, etc. Seems like a good enough plan compared to other options out there.

3. If I go with the Aetna HSA through the employer, can I switch/roll over the HSA to an outside HSA of my choosing while employment continues? In other words, I know the HSA money is mine, but is it like a 401k in that you can't move it to a custodian of your choice while you are still employed by the plan sponsor?

4. My local credit union has a HSA available that has no minimums, no fees, and pays 5% APY. I can also transfer money to/from my other accounts at the credit union through my regular internet access account. Sounds like it is better than just about any other HSA out there?

Thoughts? I plan on putting the max of $2400 in during 2007. I haven't decided if I want to use it as an IRA-like savings account, or if I should use it to actually pay for current medical expenses.

[Martha]

Originally Posted by justin

Here's my original post (or pretty close to it):


3. If I go with the Aetna HSA through the employer, can I switch/roll over the HSA to an outside HSA of my choosing while employment continues? In other words, I know the HSA money is mine, but is it like a 401k in that you can't move it to a custodian of your choice while you are still employed by the plan sponsor?

If you look at the rules, a person owns their own HSA account and can roll that account into a new account, but no more than once a year. http://www.irs.gov/pub/irs-pdf/p969.pdf

However, the question is whether the employer can restrict you to a particular provider by getting your agreement as a condition of establishing the FSA contributions through a cafeteria plan. Maybe so, see page three of this document:

http://www.benefits.net/new_regs/04/040622_IRS.pdf

[maddythebeagle]

Justin: could you give some more details on this....it doesnt appear that many employers offer HSAs....I thought most did them that were retired and self employed....Anybody that works for a larger employer getting offered a plan and do the employers do some kind of contribution to the savings account or what is encouraging you to sign up...

[justin]

Originally Posted by Maddy the Turbo Beagle

Justin: could you give some more details on this....it doesnt appear that many employers offer HSAs....I thought most did them that were retired and self employed....Anybody that works for a larger employer getting offered a plan and do the employers do some kind of contribution to the savings account or what is encouraging you to sign up...

Credit Suisse is the employer (18000+ employees?). The incentive is immediate tax savings (primarily). I don't know how common these type plans are. The employer offers a high deductible health plan as one of the health insurance options and it is almost free ($372 for the year for the four of us in our family). The HSA is an option available to those who sign up for the High Deductible plan ($1200 deductible per individual, $2400 for the whole family).

This employer doesn't offer a matching contribution, but in reading up on HSA's, it sounds like some employers do. We can put up to $2400 in to the HSA on a pre-tax basis, which saves us around 30% of our contribution in taxes (30% is our marginal tax rate). The HSA is administered through Aetna as is the high deductible health insurance policy. No idea what kind of fees Credit Suisse pays to Aetna to administer the HSA's. My guess is that they make their money off of paying below market interest on the HSA accounts (but I don't have any evidence of that yet).

The reason I would choose the employer provided HSA over an "outside" HSA (say, at my local credit union), would be for the 7.65% tax savings due to not paying FICA taxes on any contributions done on a payroll deduction "pre-tax" basis. If I made a contribution to an outside HSA, I could claim the deduction on my taxes (fed and state), but couldn't get back the 7.65% FICA tax.

[maddythebeagle]

ok thanks....I am thinking about lobbying my employer to add the option...

[Martha]

I think the trend is for more and more employers to have a high deductible plan, if it saves money for the employer. To cover part of the increase in the deductible for the employee a number of employers are making "matching" contributions to the HSAs.

Our office looked at it, but there wasn't enough of a cost saving to make it worthwhile.

[bow-tie]

Justin,

It sounds like your plan is an HSA for a family. Is that correct? If so, I believe you have a youngin', if memory serves me. I'm trying to figure out if having an HSA with a new family addition would prove cost effective, or if I should ditch the HSA and go with the more traditional employer health insurance.

Care to share your opinion/assumptions for your case that I might be able to use for my own?

[justin]

Originally Posted by bow-tie

Justin,

It sounds like your plan is an HSA for a family. Is that correct? If so, I believe you have a youngin', if memory serves me. I'm trying to figure out if having an HSA with a new family addition would prove cost effective, or if I should ditch the HSA and go with the more traditional employer health insurance.

Care to share your opinion/assumptions for your case that I might be able to use for my own?

Sure.

So far we've had very healthy babies (2 of em under age 2 right now). That tainted my decision. We also don't run to the doc at every snivel and we take advantage of calling the nurse hotline and the doc's clinical assistant if it is a questionable illness/malady that we aren't sure needs medical attention.

With our High Deductible plan, preventative care is 100% covered w/ no copay, so the half dozen or so well-baby visits the first 1-2 years won't cost us anything, versus a $25 copay per visit (at least) under the full insurance $0 deductible plan. That's $150 for the newborn that we'll save. If the baby is sick, we can potentially squeeze in a well-baby visit at the same time as the sick visit and have it covered as a well-baby visit. If/when we make a sick visit, it usually runs $50-80 after the ins. co. discount. But that is only $25-55 more than what we would have paid with the $25 copay from the full insurance $0 deductible plan. So throw in a few sick visits per kid per year (that may or may not happen) and the occasional prescription out-of-pocket, and you have a couple hundred dollars extra per year under the high ded. plan above the full insurance $0 deductible plan.

The big unknown is an unexpected accident, injury or illness. If one kid incurs a large medical bill, as long as the negotiated rate of all medical expenses for that kid are $9400 or less, then the High Ded. plan is cheaper. A couple days in the hospital, a minor surgery, etc. might fit within the $9400. If two kids have serious medical bills of $1200 each (the deductible amount), then we lose $177 from having chosen the high ded. plan.

Our max out of pocket under the plan is $3500 per kid or $7000 per family. If something catastrophic were to occur (cancer, heart attack, major car wreck, brain injuries, etc), we'd be out either $3500 or $7000 versus $1500 or $3000 under the full insurance $0 deductible plan. That extra risk of $2000-4000 isn't going to hurt us too bad, given that we are saving $1800 by choosing the high ded. plan. To reach $3500 out of our pocket, we would have to have incurred a medical bill of $12,700 (negotiated rate).

Plus DW and I get free physicals, and she gets free "female" doc visits (pap, mammogram, whatever else?). I take a generic maintenance drug - it's $4/month at Walmart now (although I still have my own insurance through my employer).

We figured we're saving $1800 by choosing the high ded. plan, and have access to the Health savings account to boot (which we will end up funding mostly with the savings of choosing the high ded. plan). A scenario where our incremental cost due to choosing the high ded. plan is greater than $1800 is a low probability event. And our maximum incremental loss is capped at $4000 no matter what.

We just observed that we are atypical medical consumers it seems these days. We can use resources to figure out if we really need medical attention for ourselves or our kids, and don't go to the emergency room/doctor otherwise. Nothin worse than hearing the doc say "it's fine, let the little one get some rest, drink plenty of fluids, give her children's tylenol for the fever, and call us back if the fever goes over 10x degrees. It should clear up in a few days, call us if it doesn't."

[bow-tie]

Thanks. I appreciate the insight.

[TromboneAl]

If the baby is sick, we can potentially squeeze in a well-baby visit at the same time as the sick visit and have it covered as a well-baby visit.

That may work for you, but here's what happened at my first BC/BS wellness check.

I normally consider a general physical as the time to check out all the little things that aren't worth making a special trip to the doctor for, so for my first checkup, I made a list of all these things ("What's this bump here?" "Is this clicking sound normal?" "It hurts a little when I do this." etc.). But when I brought these up, the response to all was "Hmmm, you'll need to see your physician about that."

[2B]

I am just nearing the end of my first year in a high deductible plan with a HSA.

I have a nice tax deferred account equal to my deductible that I can now treat as an IRA. I assume I can always spend the money on health care later.

My deductions were (at least I thought) had FICA taken out but it doesn't really matter because I earn over the FICA maximum.

We had a $35 name brand, $20 doctor and a $10 generic deductible in the old plan. Combined with the deductible and premium, I would have to spend $9,000 before the high deductible was not the way to go. We've not really changed our behaviors (wife a hypocondriac, daughter aspiring hypocondriat and me who get an annual physical but would rather die than really "see" a doctor). We are saving about $2000 this year. I calculated we would need a major injury or disease costing over $16,000 in a given year before we'd have been better off in the regular plan. In 2 years, we'll have enough savings to make it a mute point.

2B

[Martha]

Originally Posted by 2B

We've not really changed our behaviors (wife a hypocondriac, daughter aspiring hypocondriat and me who get an annual physical but would rather die than really "see" a doctor).

I have to admit, that this has some similarity to my family.

[2B]

How did I hit a "t" instead of a "c"?

[justin]

Originally Posted by TromboneAl

That may work for you, but here's what happened at my first BC/BS wellness check.

I normally consider a general physical as the time to check out all the little things that aren't worth making a special trip to the doctor for, so for my first checkup, I made a list of all these things ("What's this bump here?" "Is this clicking sound normal?" "It hurts a little when I do this." etc.). But when I brought these up, the response to all was "Hmmm, you'll need to see your physician about that."

I assumed "well-baby" visits and physicals would be provided by my primary care physician (like they are now), except with the high ded. plan (through Aetna, btw), I don't pay anything at the time of the well-baby/physical visit.

Even if I have to pay the full negotiated rate of $55-80, it still isn't a lot more than the old $25 copay.

[runnerr]

If you have an HSA can you still use the Veterans Administrations medical facilities?