VA medical and HSA

[exnavynuke]

I've been contributing to my HSA since I became eligible for it in the last quarter of 2015. I currently use my VA health care for 98% of all my health care issues (the exception being using my work plan for anything involving the urgent care clinic or tele-medicine as those are conveniences not offered by my VA medical care). The VA standard stuff (labs, annual checkup, and prescriptions) result in my out of pocket maximum being met for my work health plan before I have to fork out anything since they send the bill to my work insurance and they write the charges against my deductible/out of pocket maximum. I have more in my HSA currently than my yearly out of pocket maximum. Going forward, here are my thoughts on what is probably best assuming I'll stick with VA medical (free) for my care while I'm working, in ER, and after I'm eligible for medicare.

I think I should reduce HSA contributions to the minimum needed to get the full company contribution (if I put in $500, they put in the same and they add more when I get my physical each year, see the dentist, exercise on a regular basis etc). Then invest the rest of what I was putting the in the HSA into my brokerage account (other tax advantaged accounts already max out).

This will result in ~$1,600 or so put in my HSA each year. I don't expect to ever need any of this money for health related expenses (as my VA health care is quite good and 100% free for life), but it gets the "free money" added in with minimal cost to me. The rest of the money can then grow in my taxable account and help bolster my portfolio available for withdrawals without age-restriction etc rules.

I get the massive appeal of an HSA for people who have to concern themselves with medical expenses, but since my insurance and medical expenses are effectively free for life at this point, I'm not seeing much of an appeal in restricting the use of that invest-able money. Am I missing something?

 

[ivinsfan]

Well depending on where you are or where you travel to, VA care might not be readily available.

If you elect to take Part B coverage as a belt and suspenders type coverage, you can pay your Part B coverage with HSA money. My DH has VA care and Medicare B plus Senior Gold, but the way the price of Senior Gold has been rising. I think this might be the last year and we will go with VA and Part B coverage. Your VA coverage is indeed free for now, will it stay that way who knows, but you do give up flexibility when VA is the only option.

 

[bingybear]

I don't know much about this. But I was wondering if you could use VA benefits and fund an HSA. See this link

It looks somewhat questionable.

 

[ivinsfan]

I don't know much about this. But I was wondering if you could use VA benefits and fund an HSA. See this link

It looks somewhat questionable.

He's funding the HSA thru his work insurance...not thru his VA benefits..

 

[exnavynuke]

Well depending on where you are or where you travel to, VA care might not be readily available.

If you elect to take Part B coverage as a belt and suspenders type coverage, you can pay your Part B coverage with HSA money. My DH has VA care and Medicare B plus Senior Gold, but the way the price of Senior Gold has been rising. I think this might be the last year and we will go with VA and Part B coverage. Your VA coverage is indeed free for now, will it stay that way who knows, but you do give up flexibility when VA is the only option.

I agree there is some loss of flexibility with just VA benefits, but I don't think I'd find the cost of pre-medicare eligible insurance plans would justify abating the inconvenience of only having VA medical (I'm anticipating retiring in my mid-40's, so I expect I'll be very used to just having VA long before I'm eligible for Part B coverage).

I don't know much about this. But I was wondering if you could use VA benefits and fund an HSA. See this link

It looks somewhat questionable.

As of January 2016, the legal restrictions barring contributing to an otherwise eligible HSA while enrolled in VA medical were lifted. The article you linked is from 2012 when the law didn't allow for it. I can see why you might have a bit of confusion though since I mentioned starting in the last quarter of 2015, but our elections in the last quarter of 2015 didn't actually get implemented until 1st quarter 2016, so I was in compliance the whole time.

The change in the law allowing it was one of two factors that led to me switching to the HDHP plan with HSA actually

Good looking out though

 

[RetiredGypsy]

If you're investing with VA tax-free disability pay at all to go with that free healthcare, can those investments be taxed with long term capital gains and such, since that disability doesn't fall under your taxable income?

 

[JoeWras]

HSA is still a good deal. You can pay for LTC insurance. You can even convert it to an IRA later (after 65) if you want without penalty. But then it loses the triple advantage and just becomes like a traditional IRA. Still not bad.

 

[ivinsfan]

I agree there is some loss of flexibility with just VA benefits, but I don't think I'd find the cost of pre-medicare eligible insurance plans would justify abating the inconvenience of only having VA medical (I'm anticipating retiring in my mid-40's, so I expect I'll be very used to just having VA long before I'm eligible for Part B coverage).



As of January 2016, the legal restrictions barring contributing to an otherwise eligible HSA while enrolled in VA medical were lifted. The article you linked is from 2012 when the law didn't allow for it. I can see why you might have a bit of confusion though since I mentioned starting in the last quarter of 2015, but our elections in the last quarter of 2015 didn't actually get implemented until 1st quarter 2016, so I was in compliance the whole time.

The change in the law allowing it was one of two factors that led to me switching to the HDHP plan with HSA actually

Good looking out though

this...

 

[ivinsfan]

At your age then I would probably agree with not funding the HSA since who knows what the Medicare rules might be in 20 years.

 

[exnavynuke]

If you're investing with VA tax-free disability pay at all to go with that free healthcare, can those investments be taxed with long term capital gains and such, since that disability doesn't fall under your taxable income?

All the money put into the HSA comes from earned income or employer contributions to the HSA.

HSA is still a good deal. You can pay for LTC insurance. You can even convert it to an IRA later (after 65) if you want without penalty. But then it loses the triple advantage and just becomes like a traditional IRA. Still not bad.

I hadn't considered the ability to roll it over into an IRA. I'll have to crunch some numbers and see if that makes better sense for me than shoring up my taxable accounts to help minimize the need/chance to need to use tax advantaged accounts before age restrictions don't matter (I'd prefer not to use 72(t) withdrawals etc but they may be necessary to avoid too many OMY's).

 

[exnavynuke]

At your age then I would probably agree with not funding the HSA since who knows what the Medicare rules might be in 20 years.

Also a valid point.... if only I had a working crystal ball!

 

[MichaelB]

I get the massive appeal of an HSA for people who have to concern themselves with medical expenses, but since my insurance and medical expenses are effectively free for life at this point, I'm not seeing much of an appeal in restricting the use of that invest-able money. Am I missing something?

A few comments. If the HSA contribution is coming from earned income, it gives you a tax benefit now. Once past age 65 (as pointed out) you can withdraw and pay tax like an IRA. That's a reason to continue contributing.

You assume that all your HSA eligible medical expenses will be covered by the VA. Are you certain that is the case? Is it possible the HSA list of eligible expenses will be broader and include some things that your VA coverage will not. Examples might be home modifications needed to accommodate limited mobility, LTC, some dental procedures.

If the HSA contribution today is hard on the budget and causes a cutback elsewhere it makes sense to rethink, but if it is one kind of savings vs another, it seems like a good deal, as you have a way to get the money out (without penalty) if not used or needed.

 

[exnavynuke]

A few comments. If the HSA contribution is coming from earned income, it gives you a tax benefit now. Once past age 65 (as pointed out) you can withdraw and pay tax like an IRA. That's a reason to continue contributing.

You assume that all your HSA eligible medical expenses will be covered by the VA. Are you certain that is the case? Is it possible the HSA list of eligible expenses will be broader and include some things that your VA coverage will not. Examples might be home modifications needed to accommodate limited mobility, LTC, some dental procedures.

If the HSA contribution today is hard on the budget and causes a cutback elsewhere it makes sense to rethink, but if it is one kind of savings vs another, it seems like a good deal, as you have a way to get the money out (without penalty) if not used or needed.

Barring changes to the law, 100% of all of my reasonably anticipated medical expenses will be covered by the VA, including LTC, retirement home is already modified for handicap accessibility, all routine dental already covered with private insurance but all dental likely to be covered 100% by the VA within the next 10 years or so (one of the reasons I'm pushing to RE is chronic medical condition that usually gets worse, not better, but is covered by the VA including all complications from it).

The primary desire to not max out the HSA is that accessing that money in my 50's may be much more helpful for making FIRE reasonable relative to accessing it in my late 60's. By the time I hit 62, my mortgage will be long-paid off (14 years to go without any extra principal paid). That means my "pension" alone will cover all my expenses (and likely more) by that point, leaving social security and what's remaining of my investments to provide for my lifestyle from then on.

Getting from "stop working and finish paying off the house" to "I can collect social security" is the primary purpose of my investments, with having some extra money left over by then to help bolster my spending on top of SS (and to help out with the likely reduction in SS benefits by then) as a secondary purpose. That means being able to access them in the most efficient manner possible is one of my primary concerns right now.

Anticipating 14+ years from retirement until I can withdraw money from my 401k/Roth investments without penalties or restrictions is slowly giving me headaches trying to find the right way to move forward since until relatively recently my investments had been 90% in tax advantaged accounts only, with my brokerage account doubling as my savings for cars, home remodeling savings, etc, and thus being spent at about the same rate it was growing from contributions and market change combined.

So, if not bothering to put $1,500 or so into the HSA to save a bit on taxes now will make the transition years easier with minimal impact, it might be better to just put that money in my taxable account and grow it there is my thought.

 

[RetiredGypsy]

If you hit 100% disability, you may be able to withdraw from an IRA/HSA without penalty. Full dental coverage from the VA makes me think you might be getting there too at some point.

https://secure.ssa.gov/poms.nsf/lnx/0501120235

2. Additional tax for using HSA and MSA funds for non-qualified expenses

Individuals pay an additional 20 percent income tax on the amount not used on qualified medical expenses.

HSA and MSA additional tax waived

The IRS does not impose a 20 percent additional tax on distributions an individual receives after he or she becomes disabled, reaches age 65, or dies. Instead, individuals pay regular income tax on the amount they did not use for qualified medical expenses.

 

[kitesurfer2]

I would rather pay my insurance than depend on VA health care. Va doctors are like navy doctors...i don't expect Va care to get better...probably worse.

 

[ivinsfan]

You know I really think a lot of quality issues are location dependent. We've been very happy with the quality of VA care in MN.

 

[exnavynuke]

If you hit 100% disability, you may be able to withdraw from an IRA/HSA without penalty. Full dental coverage from the VA makes me think you might be getting there too at some point.

https://secure.ssa.gov/poms.nsf/lnx/0501120235

Thanks for the info

I would rather pay my insurance than depend on VA health care. Va doctors are like navy doctors...i don't expect Va care to get better...probably worse.

You know I really think a lot of quality issues are location dependent. We've been very happy with the quality of VA care in MN.

When I moved here in 2008, I elected to utilize my private health insurance because my initial attempts at VA care were bad enough I decided paying out of pocket for my copays/deductibles there were worth avoiding the headache. Since my out of pocket costs were to skyrocket a bit ago, I decided to give the VA another chance and have been very happy I did. The quality of care, timeliness of care, etc have all exceeded my expectations and even (in some cases) been better than I experienced with either of the two private practice doctors I had seen before that living here. That's been true both at the VA hospital and outpatient clinics. They've come a long way in a short period of time here from what I've experienced (my dad has had similar experiences as well).