HSA value after 2014?

[smjsl]

Does it make sense to save in HSA accounts given the healthcare reforms (and that HSA savings can only be used primarily for health bills)?

Does the value of these HSAs diminish after 2014 or is there still going to be a lot of out-of-pocket expenses?

Are you thinking about contributing less to HSA (if you are using this option)?

(Please keep this non-political - just asking about how you think the new law affect financial planning...)

 

[stephenandrew]

I am planning to continue my HSA enrollment, and see no reason not to invest the maximum possible. I figure if it goes away, I might as well take full advantge of it while I can.

 

[easysurfer]

I'm going to keep on contributing. I use my HSA for spending for medical expenses and not as an investment. Enjoy the triple tax benefit of HSAs. For me, anything left over in my HSA after reimbursing myself is gravy.

 

[ziggy29]

Until they say HSAs are going away, I won't change what I'm doing. Even if they eventually do away with HSAs, I'm pretty confident they won't significantly change the rules for existing account balances (tax-free for qualified health care expenses, penalty-free for anything after 65)... but they may well prohibit new contributions at that point. We "ain't there yet," so I'm staying the course with mine.

 

[REWahoo]

What Ziggy said...

 

[smjsl]

All the replies so far are talking about HSA's themselves going away.. I was asking something else (which probably means my question was too nonsensical - a sign that I don't really understand the upcoming changes). I was wondering whether there will be "enough" qualified healthcare expenses to spend your HSAs on? Otherwise, could you end up with HSA from which you cannot get your money because vast majority of your healthcare expenses are covered by the government... ?

 

[easysurfer]

For me this year, the majority of my qualified expenses were dental expenses. Since it doesn't make a whole lot of sense to obtain dental insurance that isn't through employment (we had another thread discussing this subject), my HSA comes in handy for these unforseen denntal expenses.

 

[REWahoo]

smjsl, I don't think any of us can answer that question at this point. The future changes to US healthcare and how those changes will impact HSA accounts is unknown.

I really doubt the govt will have a cradle-to-grave, no-out-of-pocket health care system - at least not any time in the foreseeable future. But if so, I suspect the worst case situation is our HSA funds will be taxed as ordinary income if spent on non-qualifying services - just like today once you turn 65.

 

[Rich_by_the_Bay]

Does it make sense to save in HSA accounts given the healthcare reforms (and that HSA savings can only be used primarily for health bills)?

Does the value of these HSAs diminish after 2014 or is there still going to be a lot of out-of-pocket expenses?

Are you thinking about contributing less to HSA (if you are using this option)?

(Please keep this non-political - just asking about how you think the new law affect financial planning...)

Barring changes in the law, you can even use your HSA funds to pay Medicare premiums, so I see no reason not to contribute (tax-free) to the account, and distribute (tax-free) for something you know you'll need to pay.

 

[kramer]

Our freedom to use non-grandfathered high deductible health care policies has been taken away by the new law, starting in 2014, at least for those over 30 years old. The highest allowed deductible will probably be in the neighborhood of $2000, based on projections that I have seen (and presumably the average policy deductible will be much less than that). Also, starting in 2011, most over-the-counter non-prescription medicines will no longer be deductible. The penalties for withdrawing the money for non-qualified medical expenses will double from 10% to 20%.

Some major out-of-pocket expense areas besides insurance deductible and prescription medicines:

* Dental
* Eye exams, glasses, contacts
* Medical expenses incurred by a spouse or dependent
* COBRA premiums
* Medicare premiums, for instance Part B and Part D, (but not for a supplemental medigap policy).
* Long term care insurance premiums

You can add up your cumulative eligible out-of-pocket medical expenses from the time you started your HSA, and withdraw them at any time in the future.

To directly answer your question, I think it depends. For someone with a big HSA account, yes, I think they should reconsider adding more after carefully considering their personal circumstances (number of dependents, age, health, policy deductible, etc). For most of the rest of us, with smaller to medium size accounts, I think they will be OK.

Also, I would be more likely to add funds if I had a low expense HSA account. I just transferred my HSA to HSA bank which comes with a TDAmeritrade account. I pay fees of about $27 per year to HSABank, and then there are no additional expenses, I can invest in what I want at low cost.

One other item, I am not even sure about what kind of HSA-eligible policies will be available in the future. One must have such a policy to contribute (not to use the HSA funds, but to contribute). I don't know how non-grandfathered, HSA-eligible policies will fit into the new system. So it is possible that the opportunity to contribute to HSAs in the future will be greatly reduced.

Even those of us with grandfathered HSA eligible policies will probably be forced quickly into the new system since there are no new customers for these policies anymore (no one can legally buy these policies anymore -- so the pool of remaining customers in your insurance pool is falling all the time). Most of these plans will probably die a short to medium term death with no new customers and go into a death spiral of higher premiums.

Kramer

 

[TromboneAl]

The highest allowed deductible will probably be in the neighborhood of $2000, based on projections that I have seen

IOW, we will no longer be able to save money by having high-deductible health insurance?

 

[stephenandrew]

Even those of us with grandfathered HSA eligible policies will probably be forced quickly into the new system since there are no new customers for these policies anymore (no one can legally buy these policies anymore -- so the pool of remaining customers in your insurance pool is falling all the time).

Can you elaborate on this a bit? I was not aware that HDHP/HSAs were not taking "new customers". Is this the case?

 

[kramer]

Can you elaborate on this a bit? I was not aware that HDHP/HSAs were not taking "new customers". Is this the case?

The rules are already changing for new policies. The policy you had before 2010 cannot be sold to anyone in 2011, for instance. Those insurance policies are allowed to continue as grandfathered policies. New HSA policies that abide by the new rules can be sold until the end of 2013. What amount of change is allowed to still call a policy grandfathered is not yet well defined.

Each policy has a pool of people using it, and this represents the risk pool to the insurer and the policy holders. When the expenses go up in that pool because people have been filing claims, the rates go up for everyone in that pool. Since the rules have changed for older policies, no one can be added to that pool anymore. What happened before is that new users were continually being added to the policies, but that can't happen because the rules have changed.

And essentially all individual policies sold before 2014, including the new HSA policies sold between now and then, will be invalid under the new system, unable to accept any new comers, even the new HSA-eligible policies sold between now and then, BUT they will be grandfathered. The system is completely changing, from underwritten coverage (people passing criteria to get the insurance) to effectively taking all comers (you can't turn down anyone).

It is highly probable that anyone with an individual insurance plan, as opposed to a group plan, will be hurt severely by these changes, as no one can join their risk pool anymore. The pools will get smaller and less profitable over time for the insurance company, and I would guess many will just get canceled.

The people hurt most by these changes are those that have an individual plan that requires underwriting to join. Those helped most are those that did not qualify (for example, many pre-existing conditions) and do not currently have an individual insurance policy. No one is really sure what policies will cost. One could probably look at the unsubsidized policy rates in Massachusetts or New Jersey, which do not have underwriting, as a guide. My understanding is that they have the highest rates in the country, and the rates in Massachusetts are also increasing the fastest.

 

[kramer]

IOW, we will no longer be able to save money by having high-deductible health insurance?

Another way to say it would be that this option is now forbidden by the new law except for grandfathered policies that are purchased before 2014.

My main point was that even these grandfathered policies probably will not last too many years. Then those people will be forced to join low deductible plans that have no underwriting, and the rates will be much, much higher (due more to no underwriting than the low deductible).

 

[stephenandrew]

The rules are already changing for new policies. The policy you had before 2010 cannot be sold to anyone in 2011, for instance.

I am in an HDHP with an HSA. My employer provides several options for health insurance including the HDHP as well as standard/traditional policy, and an HMO. We are allowed to change policies annually--to the best of my knowledge I have not heard that anyone who is not currently in the HDHP can no longer join. Is what you are saying only true for the individual market?

 

[FUEGO]

smjsl,

I think I understand your question and I have the same concerns. We have about $23000 or so in our HSA right now. Maybe $3000 of unreimbursed medical expenses from years past. Which means a net of $20,000 in the HSA for future medical spending.

This $23000 balance may produce earnings of something like $2300 a year (assume 10%). So if I leave the money in the account, it will generate something like $2300 a year in growth (long term average). If my annual medical/dental expenses are less than $2300 a year, then the HSA will grow more rapidly than the medical/dental expenses incurred each year.

My question, I guess like the OP's question, is whether I should keep dumping $6000+ a year into an HSA if most of my future medical expenses will be paid by a gold (or silver or bronze) plated government subsidized health plan. Or medicaid.

Going back to the often quoted Kaiser Health Insurance subsidy calculator for answers:
Health Reform Subsidy Calculator - Kaiser Health Reform

If my family of 4 has income in ER of $31,100, we get medicaid with "modest" out of pocket payments. I think these are the $1 or $5 copays I hear about from those I know who have/had medicaid. If our income jumps to $32,200, we are not eligible for medicaid, but receive a huge subsidy, and pay just under $1000 for the health insurance. Here is the text that makes me think our out of pocket would be limited (assuming an income of $32,200 or thereabouts):

"The guaranteed plan for the person/family will have an actuarial value of 94%. This means that for all enrollees in a typical population, the plan will pay for 94% of expenses in total for covered benefits, with enrollees responsible for the rest."

I think this means that the total of copays and deductibles to the insured for the experience group in the insurance plan will only be 6% of the total medical costs. So if the average policyholder has medical expenses of $11,632 (the total cost of the policy premiums), then I the policyholder cannot pay more than 6% of that I think. Or $697. I have no clue how the mechanics of this would work. Do I receive an additional refundable tax credit if my copays and deductibles exceed the 6% figure (more than $697)?? This type of knowledge is currently above my paygrade.

The bottom line is that if I can keep my taxable income low enough in ER, I may be on the hook for very little in the form of medical expenses year to year. Dental expenses will still be there (and they currently represent more than half our med/dental expenses today WITH dental insurance).

So at the end of the day, I'm not sure I need a whole lot more than $23000 in my HSA, but the alternative is NOT contributing, and guaranteeing I pay the tax on the foregone contributions now instead of maybe getting a tax break each year or worst case, withdrawing at 65.

I may just stick it out for 2011, 2012, and 2013, and keep maxing the HSA since the details of the 2014 health insurance, subsidies, payments, tax treatment of HSA's etc are "subject to change".

 

[REWahoo]

I may just stick it out for 2011, 2012, and 2013, and keep maxing the HSA since the details of the 2014 health insurance, subsidies, payments, tax treatment of HSA's etc are "subject to change".

I think this is a logical approach. It is simply too soon to tell how all the ongoing changes will ultimately impact those of us with HSA accounts.

 

[shotgunner]

smjsl,


If my family of 4 has income in ER of $31,100, we get medicaid with "modest" out of pocket payments. I think these are the $1 or $5 copays I hear about from those I know who have/had medicaid. If our income jumps to $32,200, we are not eligible for medicaid, but receive a huge subsidy, and pay just under $1000 for the health insurance. Here is the text that makes me think our out of pocket would be limited (assuming an income of $32,200 or thereabouts):

My understanding is Medicaid eligibility is based on both income and assets, at least it is in my state. The subsidies for health insurance available to those who have qualified insurance plans (HDHP w/HSA would not be qualified) appear to be income based. Many of us may have to settle for ESR rather than ER so we earn enough to stay above a Medicaid income threshold but not earn so much so as to lose out on getting any subsidy for medical insurance.

What a mess!

 

[Jay_Gatsby]

My wife's company now requires that any over the counter medications be authorized in writing before her 2011 HSA account can be tapped for reimbursement. Is this a new aspect of the healthcare law? Sounds like a gift to doctors (who collect a co-pay and insurance payments just for seeing someone).

 

[FUEGO]

I think this is a logical approach. It is simply too soon to tell how all the ongoing changes will ultimately impact those of us with HSA accounts.

I figure the amounts in question are small enough relative to total net worth that it doesn't really matter. And I also know that I can't estimate my medical expenses in a few decades based on what I'm spending today as a 30-something (for many reasons).

 

[FUEGO]

My understanding is Medicaid eligibility is based on both income and assets, at least it is in my state. The subsidies for health insurance available to those who have qualified insurance plans (HDHP w/HSA would not be qualified) appear to be income based. Many of us may have to settle for ESR rather than ER so we earn enough to stay above a Medicaid income threshold but not earn so much so as to lose out on getting any subsidy for medical insurance.

I thought the 2014 changes will include medicaid eligibility being tied to income (AGI on the 1040 more specifically). I could be wrong because I have a very imperfect understanding of the health care reform legislation (and many of the regs to implement it are not written yet).

I'm sure I could "find" income to get me to $31,200 a year, even if I had to start a company that paid me w-2 income. Although I'm sure I could find cap gains to get me to that level without having to get any craftier (unless the Great Depression III kicks in ).

Edited to add:

It looks like assets will not be a criteria of eligibility for the broad new medicaid program mandated for 2014. Apparently states can voluntarily start covering "low income" people now if they wanted:

PPACA establishes a new Medicaid coverage group defined as individuals with incomes below 133 percent of the poverty line who are under the age of 65, not pregnant, not enrolled in Medicare, and not eligible under any other mandatory Medicaid coverage group (such as the coverage groups for people receiving SSI benefits and very low-income parents). An individual’s assets are not considered in determining eligibility for this coverage group. States can start covering some or all of the individuals in this new group as early as April 1, 2010, even though their coverage is not required until January 2014.

from http://www.cbpp.org/cms/index.cfm?fa=view&id=3162

I know it is a fluid situation for the next couple years, but I wonder how big the gap in quality of coverage will be between the medicaid coverage and the regular subsidized health insurance policies. If medicaid reimbursement rates are inadequate, I could see more doctors walking away from accepting medicaid patients. Presumably the top tier docs will opt out of medicaid and take the privately or publicly subsidized insured patients?? Maybe there is a provision in the health care reform that somehow requires or entices docs to accept medicaid patients if they accept other insureds? In any event, if there ended up being a significant difference in quality or flexibility of coverage between medicaid and the highly subsidized $1000 a year health insurance, I might make sure my income just pushed me out of the medicaid eligibility.

 

[Rich_by_the_Bay]

No matter what happens, the contributions are a nice (if limited) tax shelter and the expenses they can be used to pay for will have to get paid one way or another. I'm gonna keep on contributing for the few more years I am eligible.

 

[kramer]

I am in an HDHP with an HSA. My employer provides several options for health insurance including the HDHP as well as standard/traditional policy, and an HMO. We are allowed to change policies annually--to the best of my knowledge I have not heard that anyone who is not currently in the HDHP can no longer join. Is what you are saying only true for the individual market?

Anyone, up through the end of 2013, can apply to join a higher deductible policy (although I have not studied in detail the other changes coming before 2014). My point is that pre-2010 policies are "stale". And in 2014, all previously sold health insurance policies will become "stale", even low deductible policies.

Yes, group insurance can be different. That is because, if the group is large enough, it is its own risk pool. That is why someone in a large group, unlike an individual, can change their policy each year. It is also why the insurance company can do the same -- essentially, the entire thing is often renegotiated annually.

However, many smaller groups are experiencing this dilemma (along with virtually all individual plans). There has been a great deal of debate about what it means to be grandfathered and the debate is still happening, the people writing and interpreting the regulations are in control of this.

Sometimes I think that many folks don't realize the magnitude of the change coming. Or they falsely believe that there is a high probability that they will be able to keep their existing policy a long time. In my opinion, these people are in for a big shock to their pocketbooks and their freedom to manage their health care.

Understanding this is important to someone with an already large HSA, because what they should do is different if they think they will be able to keep their high deductible policy for many years, versus being forced into a high cost low deductible policy.

Kramer