Considering HSA This Year - My Assumptions Right?

[bobandsherry]

This year my Bronze plan went up considerably. At the same time an HSA plan didn't change by much. In years past I never saw benefit of HSA as it was over $250/mo more than my Bronze plan. But this year seems to change things, the HSA plan is now $43 less. So I'm considering the HSA plan. But I wanted to confirm my understanding of the HSA benefits/costs with those who have been down that path.

Married Couple 59/58 - Will manage income to stay below the MAGI cliff.

Plan	1449 Bronze (Current)	1735 Bronze HSA
Premium (After Subsidy	$262.45	$219.51
Deductible (per person)	$8,500	$6,850
Max Out of Pocket (per person)	$8,550	$6,850
Primary Care Visit	$60 (first 3 visits $20)	$TBD (no charge after deductible)
Specialist Visit	$85	$TBD (no charge after deductible)
Lab	$30	$TBD (no charge after deductible)
Inpatient Facility	$400 Copay after Deductible	$TBD (no charge after deductible)

For HSA, I estimate I’d save the following per year:

Premium ($262.45 - $219.51) * 12	$515
Taxes ($8,200 HSA Max Contribution @ 12%)	$984
Increased Subsidy (Difference in subsidy amount from $68K to $62K)	$840
Total Savings	$2339 ($194/mo)

I know I’ll pay more for Doctor visits. If my understanding is correct, I’ll pay the same rate as FloridaBlue would have covered (discounted rated) under my current plan. Is that a fair/correct assumption?

If so….. Looking at claims this year, for my primary they paid $90, so instead of paying $60 Co-Pay I’ll now pay him directly $90 (he actually billed $191). Similar, for labs last visit to lab was $268 billed, FloridaBlue paid $27.71. So I estimate then that my out of pocket payment would be the same.
For my prescriptions, the coverage is the same, so I estimate no change to my prescription costs.

I see an upside in that if one of us were to go into the hospital for a procedure the bill would be so high that we would then reach a max out of pocket. So, with my current plan we’d end up paying $8,550 for the year (one person) plus a co-pay of $400, while with the HSA we’d pay $6,850 (one person), so we would actually pay less $1,700 for the stay in the hospital.

Is my basic understanding correct? Is there something I'm overlooking and I shouldn't get the HSA plan? Open to any constructive comments as it seems I should be making a leap this year to HSA plan.

 

[RunningBum]

Looks clear to me to go to the HSA plan, as long as your doctors are in that plan too.

 

[audreyh1]

Even though you pay more for doctor’s visits it counts against your lower deductible, so if it’s an expensive year you would come out ahead with the HSA plan.

 

[pb4uski]

+1 in that the HSA looks like the winner... but why so many TBDs? Are those that you don't know or that you would just pay the negotiated rate for those items and you don't know what the negotiated rate is?

 

[Aerides]

I'm in 1735. It's basically all OOP up to the deductible at the negotiated rate, except of course the standard preventative stuff that's 100% covered in all plans. Prescriptions you pay 100% also up to your deductible.

For example, I had knee surgery this year. I paid the negotiated rates (no copays or caps) for the inpatient facility, the anesthesiologist, and the surgeon. That can add up as my facility charge for the 3 hours was $1200. But still, that's one event. Overall it would probably be a wash on the year.

Given the tax advantages of the HSA it looks like a no brainer for you. DH and I use the same plan and max our HSA as it's helpful for managing MAGI as well as everything else.

 

[BrianB]

Taxes ($8,200 HSA Max Contribution @ 12%)

For 2021, you should be able to put $9,200 into your HSA's based on $7,200 family maximum + $1,000 Catch-up for you + $1,000 Catch-up for your spouse. That will increase your tax savings to $1,104

The $7,200 can be split between your HSA and spouse's HSA any way you want, as long as at least the Catch-up amount is put into each respective persons' HSA account.

If you reach 59.5 in 2021 you can then make an IRA distribution in the amount of your HSA contributions (adds to MAGI income) and contribute that money to your HSA's (reduces MAGI income). That's a way to convert some money each year from tax-deferred to tax-free.

If you pay smaller medical bills out of your own pocket and keep the receipts, you can reimburse yourself in the future with tax-free money. No time limit.

HSA's are an incredible financial tool. I would choose the HSA-compatible insurance and fully fund the HSA's for as long as I could.

BrianB

 

[HenryD]

If you pay smaller medical bills out of your own pocket and keep the receipts, you can reimburse yourself in the future with tax-free money. No time limit.

HSA's are an incredible financial tool. I would choose the HSA-compatible insurance and fully fund the HSA's for as long as I could.

BrianB

+1

I love our HSA! Our balance just clicked over $50k. A couple of years of medical receipts worth $15k to be used at some future date. Joy!

 

[bobandsherry]

+1 in that the HSA looks like the winner... but why so many TBDs? Are those that you don't know or that you would just pay the negotiated rate for those items and you don't know what the negotiated rate is?

Yes, exactly that - I didn't know. I thought it would be the negotiated rate (so same as what Dr has been paid based on claims this year) but wanted to be sure so that's one thing I wanted to confirm. Based on claim this year my primary was paid $90 by FloridaBlue. So should be roughly the same plus whatever the yearly % increase is. Thanks!

 

[bobandsherry]

For 2021, you should be able to put $9,200 into your HSA's based on $7,200 family maximum + $1,000 Catch-up for you + $1,000 Catch-up for your spouse. That will increase your tax savings to $1,104

Thanks for that info. I looked up a couple sources and each mentioned the $7,200 for family but then only $1,000 for catch up. A few extra dollars to put side which would then also increase my subsidy savings by lowering my MAGI to $61K, that's another $108 ($9/mo) savings), that's another $228 to the good!

The $7,200 can be split between your HSA and spouse's HSA any way you want, as long as at least the Catch-up amount is put into each respective persons' HSA account.

Got it - good to know.

If you reach 59.5 in 2021 you can then make an IRA distribution in the amount of your HSA contributions (adds to MAGI income) and contribute that money to your HSA's (reduces MAGI income). That's a way to convert some money each year from tax-deferred to tax-free.

Most of our investments are in 401K (which I can tap now due to rule of 55) as when we were working we never could make an IRA contribution except for one year, a long time ago. So my wife has a small IRA and like the tip to use that to fund, but until next year.

If you pay smaller medical bills out of your own pocket and keep the receipts, you can reimburse yourself in the future with tax-free money. No time limit.

HSA's are an incredible financial tool. I would choose the HSA-compatible insurance and fully fund the HSA's for as long as I could.

BrianB

Thanks for the tips!

 

[bobandsherry]

+1

I love our HSA! Our balance just clicked over $50k. A couple of years of medical receipts worth $15k to be used at some future date. Joy!

Nice! That's now part of my plan, put this away and be able to fund my Medicare supplemental in the future as well. Maybe you can find a Dr to write a note that you need a medical vacation - after this year we all may

 

[bobandsherry]

I appreciate the comments and tips. Looks like I'll be sticking my toe into the HSA well.

Now to find where to fund my account. I know Fidelity has one (and I have other accounts there), but any other places better?

 

[pb4uski]

Nice! That's now part of my plan, put this away and be able to fund my Medicare supplemental in the future as well. Maybe you can find a Dr to write a note that you need a medical vacation - after this year we all may

You can't pay Medicare Supplemental/Medigap from a HSA.... (well, you can but it woudl be a taxable withdrawal). But you can pay Part B and Part D premiums and dental and vision.... just not Medigap... doesn't make sense but that is the way it is.

 

[pb4uski]

I appreciate the comments and tips. Looks like I'll be sticking my toe into the HSA well.

Now to find where to fund my account. I know Fidelity has one (and I have other accounts there), but any other places better?

IMO, Fidelity is best, especially if you already have other accounts there.

 

[bobandsherry]

You can't pay Medicare Supplemental/Medigap from a HSA.... (well, you can but it woudl be a taxable withdrawal). But you can pay Part B and Part D premiums and dental and vision.... just not Medigap... doesn't make sense but that is the way it is.

LOL - gotta love the way government thinks. Still a few years before I'll cross that bridge, so who knows what they will or won't allow then. But good to know as I plan for the long term.

 

[Gotadimple]

I know I’ll pay more for Doctor visits. If my understanding is correct, I’ll pay the same rate as FloridaBlue would have covered (discounted rated) under my current plan. Is that a fair/correct assumption?

If so….. Looking at claims this year, for my primary they paid $90, so instead of paying $60 Co-Pay I’ll now pay him directly $90 (he actually billed $191).

Almost! You pay directly AFTER they submit the claims to your insurer and they bill you. The claim will be denied as under the deductible. You need the EOB from the insurer showing 'what you owe' and an invoice from the doctor.

Pay on the invoice with either your HSA debit card or directly from your checking account. The EOB and Invoice are your documentation showing why you are withdrawing from the HSA. Or if you pay directly, retain the documentation for a later withdrawal.

Regarding an HSA custodian make sure you understand the fees associated with setting up and maintaining the account. What you don't want is the custodian siphoning off $5 - 25 a month just for holding your funds. I don't have experiene with Fidelity, but I use HSA Bank. There are no fees if you maintain $5000 in the bank account, and any excess can be invested through TD Ameritrade. (Note: there are fees for investing, and this broker is being acquired by Charles Schwab which may lower the fees).

HTH,
-Rita

 

[PaunchyPirate]

I'm so envious of you who have access to HSAs. In my county, we only have 2 insurance providers who sell directly to consumers. They offer plans both off and on the ACA exchange. For some reason, neither of them offers their HSA plans on the exchange. I could buy them off the exchange, but then wouldn't be able to take advantage of ACA subsidies. I'm not smart enough to know their reasoning, but I'm sure it must be financial somewhere along the way.

 

[SecondCor521]

If you reach 59.5 in 2021 you can then make an IRA distribution in the amount of your HSA contributions (adds to MAGI income) and contribute that money to your HSA's (reduces MAGI income). That's a way to convert some money each year from tax-deferred to tax-free.

If you don't need the money and/or are under 59.5, you can also do a Roth conversion instead, which has the same MAGI effects but you end up with the money in a Roth instead of taxable. That's what I'm doing (I'm under 59.5).

OP, I'm using Fidelity for my HSA. I'm investing in VTI and BND, and there are zero fees of any kind as far as I can tell. (Fidelity may charge modest transaction fees for purchases of some investments, but not VTI and not BND.)

 

[bobandsherry]

Almost! You pay directly AFTER they submit the claims to your insurer and they bill you.

Oh yes, definitely. I don't make a payment today until they go through filing a claim and EOB. I keep my money as long as I can

Regarding an HSA custodian make sure you understand the fees associated with setting up and maintaining the account. What you don't want is the custodian siphoning off $5 - 25 a month just for holding your funds. I don't have experiene with Fidelity, but I use HSA Bank. There are no fees if you maintain $5000 in the bank account, and any excess can be invested through TD Ameritrade. (Note: there are fees for investing, and this broker is being acquired by Charles Schwab which may lower the fees).

HTH,
-Rita

In looking at Fidelity it looks like they have no fee HSA's, no set-up, maintenance, etc. Plus then an assortment of investing options.

 

[bobandsherry]

If you reach 59.5 in 2021 you can then make an IRA distribution in the amount of your HSA contributions (adds to MAGI income) and contribute that money to your HSA's (reduces MAGI income). That's a way to convert some money each year from tax-deferred to tax-free.

I did some research into funding the HSA and it appears, unless I am misunderstanding something, that I could fund my wife's HSA from her IRA (I don't have one) even though she is not 59.5. This is a "once in a lifetime" transfer (QHFD) up to the HSA funding limit (so $8,200 for her -- $7,200 plus $1,000 catch up").

https://www.starshiphsa.com/articles/why-an-ira-to-hsa-one-time-transfer-might-be-right-for-you

 

[audreyh1]

In looking at Fidelity it looks like they have no fee HSA's, no set-up, maintenance, etc. Plus then an assortment of investing options.

Yes, a bunch of us moved over there as soon as it became available to the general public. It's a full brokerage account in an HSA wrapper so tons of flexibility. No additional fees. We started using the billpay feature when DH started Medicare.

 

[bobandsherry]

If you don't need the money and/or are under 59.5, you can also do a Roth conversion instead, which has the same MAGI effects but you end up with the money in a Roth instead of taxable. That's what I'm doing (I'm under 59.5).

If you do a Roth conversion, doesn't the conversion create an increase in your MAGI (distribution from your IRA) without any offset (Roth IRA isn't a reduction)? Compare that to the IRA to HSA which would be a net zero effect to MAGI.

OP, I'm using Fidelity for my HSA. I'm investing in VTI and BND, and there are zero fees of any kind as far as I can tell. (Fidelity may charge modest transaction fees for purchases of some investments, but not VTI and not BND.)

Yep, there's a group of funds that Fidelity has no fees, will look at VTI and BND.

 

[audreyh1]

Fidelity has a large number of no fee ETFs and mutual funds. They dropped their stock trading commission to $0 over a year ago, and that meant no more commissions for trading ETFs as well. They have a good selection of very very low ER index funds. A few of them are zero ER.

 

[SecondCor521]

If you do a Roth conversion, doesn't the conversion create an increase in your MAGI (distribution from your IRA) without any offset (Roth IRA isn't a reduction)? Compare that to the IRA to HSA which would be a net zero effect to MAGI.

Yes and no. The Roth IRA isn't a reduction to MAGI, but the HSA contribution would be. See #2 below.

There are three things being discussed here:

1. IRA withdrawal and HSA contribution. IRA withdrawal adds to MAGI, HSA subtracts from MAGI. If IRA withdrawal amount equals HSA contribution amount, then no impact on MAGI and taxes. This was the idea of the person whom I quoted.

2. Roth conversion and offsetting HSA contribution. Roth conversion adds to MAGI, HSA subtracts from MAGI. If Roth conversion amount equals HSA contribution amount, then no impact on taxes. This is my idea, and has the same tax effect as #1 but can be done before age 59.5 and keeps the money in the Roth where it can continue to grow tax free.

3. QFHD. This is your idea, and you're correct, there apparently is no addition to MAGI for this. It's not clear whether you get a deduction for the HSA "contribution" using a QFHD. This idea differs from #2 that you won't be adding any new funds into your tax-free universe, but whether this is a bug or a feature depends on your circumstances.

 

[RunningBum]

I use the reduction in AGI from my HSA contribution to convert that much more to my Roth IRA. If you don't need an IRA distribution to fund your contribution, this makes more sense to me because I'd rather have that money in my Roth than my taxable account.

Edit: somehow I missed that 2Cor suggested the exact same thing. I agree with that, and the explanation in the post above mine.

 

[indiajust]

There is a national service that might interest folks. I came across the reference on mr money mustache which I also occasionally reference with regard to FIRE.

https://www.mrmoneymustache.com/2020/11/09/direct-primary-care/

direct primary care locations
https://mapper.dpcfrontier.com/

medical cost sharing, voluntary
https://sedera.com/sedera-faqs-2020/

The interesting part is Sedera. Its a voluntary cost sharing effort across all members. If you add together my DPC cost of 75-100, and the Sedera cost sharing at 300, for less than 5K per year you have coverage over all but the most gruesome expenses. Pharma would be an add on, but most of that is aided by competitive script discounters.

I'm 57, I would imagine this would be around150-200 for younger folks. Covers all but a tiny fraction of the risk. Compared to 21k/year for corporate subsidized HC cost, without deductibles and such and paying premium insurance prices, this is a great deal