HSA Summary

[ESRBob]

Yes, if you have self-employement income, your health insurance premiums are fully deductible.

Another reason (at least for now) to have a little self-employment company. Trick is that the darn thing actually has to make enough income to start deducting these expenses, and if you're not careful it might start to feel like 'work' again! The other nice one is being able to contribute to a Roth or other IRA -- in that case it has to come from income (profit) that you pay self-employment tax on.

 

[BigMoneyJim]

I guess I have some reading to do. I thought HSA's were the one-year, use-it-or-lose-it accounts like DCRA's but for medical expenses. Apparently not.

Does getting an HSA affect whether or not one might be approved for individual health insurance coverage?

 

[cute fuzzy bunny]

You're thinking of MSA's.

Usually the HSA and the high deductible health plan are linked.

 

[REWahoo]

Does getting an HSA affect whether or not one might be approved for individual health insurance coverage?

No. The two are not related.

 

[REWahoo]

Usually the HSA and the high deductible health plan are linked.

HSA's and high deductible health plans are always linked, and the amount of deductible must meet certain requirements for you to be eligible to set up an HSA. For 2006, a high deductible insurance plan is a health plan with a minimum deductible of $1050 for self-only coverage and $2,100 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,250 for self-only coverage and no more than $10,500 for family coverage.

Other restrictions apply, your mileage may vary, for entertainment purposes only, not to be taken internally, do not use near open flame, void where prohibited, etc....

 

[work4beer]

So things like over the counter cough medicine, which are not covered by most insurance plans, can't be paid for out of HSA funds either since they are non-qualified expenses under IRS rules.

The IRS is really murkey on this. Non-prescription meds are not medical expenses in pub. 502, but it has the note that "this does not limit reimbursements of employer-sponsered health plans that reimburse the cost of both prescription and non-prescription medicines". And according to HSA bank, many over-the-counter remedies ARE reimburseable:

http://www.hsabank.com/hsainfo/eligible_medical_expenses.asp

 

[eridanus]

FYI

http://www.irs.gov/irb/2003-38_IRB/ar08.html

"Self-insured medical reimbursement plans. This ruling holds that employer reimbursements of amounts paid by an employee to purchase nonprescription medicines and drugs are excludable from gross income under section 105(b) of the Code. However, amounts paid by an employee for dietary supplements that are merely beneficial to the general health of the employee or the employee's spouse or dependents are not reimbursable or excludable from gross income under section 105(b). Rev. Rul. 2003-58 distinquished."

 

[scrubradio]

I just want to make sure I understand correctly what I just read.

When I decide to retire I can plan on choosing an high-deductible health insurance policy combined with a HSA account to cover normal medical costs
that I would incur. This would replace my existing insurance now provided
by my employer as I would no longer be eligible for their insurance as they
do not offer Cobra.

If I were to become unemployed for any reason or re-employed by an
employer who doesn't offer insurance or become self-employed, I would
be able to start the HDHI and HSA at that time as well and have the
comfort of knowing that my normal medical costs incurred wouldn't kill
my retirement fund.

Am I understanding this? It sounds too easy.

 

[Martha]

I am not sure what sounds easy.

Are you sure you are not eligible for at least 18 months of COBRA?  Only fairly small employers are not required to provide COBRA coverage.  Also, even if they don't have to give it under federal law, state law sometimes requires a COBRA like benefit.

To get an HSA you have to get an HSA qualified plan. 

FSA qualified plan or not, individual health insurance can be expensive or impossible for some people to purchase if their health isn't about perfect. But, it can be a great deal if you are in good health. A chance to sock away money for future medical expenses.

 

[REWahoo]

Am I understanding this? It sounds too easy.

Yes.... and yes. As usual, the devil is in the details.

What Martha said.

Age, current health status and other esoteric fine points must be taken into consideration. Insurance rules vary by state and determine the premiums you will pay for your HDHI, assuming you can afford it or get it (not available in all states). Rule of thumb: if you have preexisting conditions, the policy will exclude them or, if the state requires no exclusions, the policy premiums will be very expensive.

You might want to take a look at healthinsuranceinfo.net which provides a very good consumer guide for the peculiarities of health insurance in each state.

Good luck.

 

[runnerr]

Is there an age at which you can not qualify for an HSA?

 

[REWahoo]

Is there an age at which you can not qualify for an HSA?

I don't think you are HSA eligible once you are 65 and qualify for Medicare.

 

[Martha]

Here is a good summary from the treasury department on HSAs:

http://www.ustreas.gov/offices/public-affairs/hsa/pdf/hsa-basics.pdf#search="HSA rules"

 

[neo]

I'll consider an HSA when one is offered by Vanguard or some other low-cost company (though I can't think of one at the moment ) that is not out to screw me on fees and/or low rate of return for the privilege of keeping my money tied up.

 

[scrubradio]

I began to research costs of plans in my area.  Fortunately we have the
lowest rates in the state.  I considered cost of HDHI & HSA max funding
for the ages 54-64 after which medicaid/meticare kicks in and here is what
I came up with.

Total cost for the 10 year period: $60,500 ($26,000 HSA, $34,500 HDHI)

Monthly cost for first 5 years: $475 ($216 HSA, $259 HDHI)

Monthly cost for 2nd 5 years: $532 ($216 HSA, $316 HDHI)

Plan deductable: $2600

The coverage of the plan doesn't look much different from my health
plan I have at work now.  Same basic coverage in most areas.

In order to pay the premium and fund the HSA account without reducing my
overall investment portfolio, I think I would need $60-100k earning a return
of 6-10%.  Otherwise it would eat away at my principal investment.

Even if my numbers at this point are not entirely accurate or do not include
some possible costs, I like the fact that it was possible to work up a base
figure to think about.  It helps with goal setting and modeling how much
Each extra year of early retirement will cost.

Bottom line seems to be that $100k of investments recieving a return of 6%
would cover the medical side of early retirement and would only be necessary
until medicare/medicaid begin.  At that point I would only have to worry about
the copays for them and I may still have investments left over in HSA if my health
doesn't go south.

Am I anywhere near close? 

 

[TromboneAl]

I would not include your HSA investments as a "cost."

I look at my premiums as a cost, and think of my HSA fund as an IRA.

My HSA money is in Vanguard with a .5% additional annual fee (plus there's an annual $35 fee).

 

[scrubradio]

I would not include your HSA investments as a "cost." 

I look at my premiums as a cost, and think of my HSA fund as an IRA.

My HSA money is in Vanguard with a .5% additional annual fee (plus there's an annual $35 fee).

I understand what your saying.  The reason I include them as
a "cost" is because I will have to have the money to fund them
even though they will behave like an IRA. 

At the point of needing them I am planning on not working so
I would have to fund them using investment returns.  Therefore
I associate them with the "costs" cateogory

Am I making sense? Is there a better way to look at this?

 

[TromboneAl]

I would look at it as reinvesting dividends, or moving money from one account to another. If you're funding it with taxable accounts, it's true that your money will be less accessible, but it's still your money.

 

[MooreBonds]

I understand what your saying. The reason I include them as
a "cost" is because I will have to have the money to fund them
even though they will behave like an IRA.

At the point of needing them I am planning on not working so
I would have to fund them using investment returns. Therefore
I associate them with the "costs" cateogory

Am I making sense? Is there a better way to look at this?

I agree with what you said above, scrubradio. Also, for those of you who are doing HSA comparison analysis, don't forget: if you have a 'traditional' health plan, you (currently) have small co-pays. You WILL undoubtedly have SOME expenses (annual physicals, blood work, etc.) that you WILL be paying more on compared to if you had your traditional insurance plan. Therefore, to be more accurate, I would suggest estimating the average annual healthcare expenses you will pay w/ an HSA that is above what you would pay with a traditional plan, and count that as an expense against your HSA assets, along with an assumption that at least one (probably two) of the years could see you incur 'substantial' expenses that would require you covering close to all of your deductible.

The rest of the HSA assets, however, I would include as a financial investment asset as TromboneAl suggests.

case in point: I am 29, very healthy. However, in July, I got into an argument w/ my father. I screamed at the top of my lungs for a total of 5 seconds for just the second time in my life. Later that night, when I went to work out, I felt a sharp stabbing pain in my upper left rear portion of my brain. It continued during my workout (and occurred to a lesser frequency later that night) so I ended it early. I went to my internist the next day. She didn't think it was a brain anurysm, but strongly suggested an MRI to be sure. I agreed (given that I don't want to mess around with anything related to my brain). The MRI bill was $2,970, plus $390 for the radiologist to read my print out. Thanks to my HDHP, they knocked the bill down to just $1,100 for the MRI and $150 for the radiologist. My point: I am an extremely healthy 29 year old, and random small things like the above can happen (which I never would have expected). I can only imagine what could happen when I (hopefully still as healthy) reach the 55-65 bracket. While you're healthy, you might think "Oh, I won't run to the doctor for anything unless it's serious"....but when you have questions about something that you feel/experience, you're more apt to run the tests than to just brush it off.

 

[TromboneAl]

Anything on the MRI? Pain gone?

 

[MooreBonds]

Anything on the MRI? Pain gone?

Thankfully, nothing showed up on the MRI (unforutnately, even though I shelled out $1,400 for it, I didn't get a copy of my brain to frame and look at). My doctor thinks it was probably just a nerve. The pain came and went over the first few days, albeit with an exponential decrease. After a few days, it pretty much went away. So, it was an interesting lesson on stress and stresses to your system and how it can effect your body in amazing ways.

 

[Mr._johngalt]

Thankfully, nothing showed up on the MRI (unforutnately, even though I shelled out $1,400 for it, I didn't get a copy of my brain to frame and look at). My doctor thinks it was probably just a nerve. The pain came and went over the first few days, albeit with an exponential decrease. After a few days, it pretty much went away. So, it was an interesting lesson on stress and stresses to your system and how it can effect your body in amazing ways.

I too have had some MRIs on my head. They never found anything.

JG

 

[Sheryl]

Thankfully, nothing showed up on the MRI (unforutnately, even though I shelled out $1,400 for it, I didn't get a copy of my brain to frame and look at).

If you really want it you are entitled to copies of your MRI's. I picked mine up the other day. Popped the CD in my computer and there it was - my brain. Interesting, but not very decorative.

 

[REWahoo]

My HSA money is in Vanguard with a .5% additional annual fee (plus there's an annual $35 fee).

Al, I'm getting close to setting up an HSA account and noticed the annual fee at Health Savings Administrators is now $39. Have there been any other fee increases this year? Are you still happy with them?

 

[retire@40]

...Total cost for the 10 year period: $60,500 ($26,000 HSA, $34,500 HDHI)

Monthly cost for first 5 years: $475 ($216 HSA, $259 HDHI)

Monthly cost for 2nd 5 years: $532 ($216 HSA, $316 HDHI)

...Bottom line seems to be that $100k of investments recieving a return of 6%
would cover the medical side of early retirement and would only be necessary
until medicare/medicaid begin. At that point I would only have to worry about
the copays for them and I may still have investments left over in HSA if my health
doesn't go south.

Am I anywhere near close?

I would think you need more like $150K to $200K of investments to pay your $500/month premiums. ($500/mo x 12 = $6,000 x 25 = $150K)

You will need $65K in investments just to pay for max yearly deductibles of $2600.