ACA plans for 2015

[Mulligan]

What are the HSA tax savings for a retiree?



I can understand people with earned income, who can contribute pre-tax dollars to their HSAs.



But wouldn't retirees self-fund their HSAs with post-tax dollars anyways?

Earned income is not required. I save 31 cents on the dollar in retirement contributing to mine, so it is very beneficial to me anyways.


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[explanade]

How, is there a deduction or tax credit for using HSAs? So some portion of your contribution can be deducted?

Then you spend the HSA funds to pay for medical expenses, both before and after the deductible?

What are the annual contribution limits?

Also see that some plans have flat copay fees after meeting the deductible while others pay percentages of the bills after meeting the deductible but I'm not sure if the difference between flat copayments and percentage of expenses is associated with HSA vs. non HSA plans.

 

[Mulligan]

How, is there a deduction or tax credit for using HSAs? So some portion of your contribution can be deducted?

Then you spend the HSA funds to pay for medical expenses, both before and after the deductible?

What are the annual contribution limits?

Also see that some plans have flat copay fees after meeting the deductible while others pay percentages of the bills after meeting the deductible but I'm not sure if the difference between flat copayments and percentage of expenses is associated with HSA vs. non HSA plans.

I think an individual can contribute around $3200-$3300 and marrieds around double that. It is a tax deduction, not credit. I am investing all my HSA money and will pay out of pocket due to the triple tax break it provides. Any policy you are looking at should tell you if it is an HSA eligible policy or not.


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[Fermion]

Checking out the Blue Cross Blue Choice plans in Texas I find something interesting.

At a MAGI of $40,000 for 44 y.o. and 46 y.o. non smoker couple the monthly plan cost is $460 for a PPO silver plan with $3000 per person deductible and max $6350 out of pocket per person. The out of network is $6000 per person deductible and $12,700 max out of pocket.

At a MAGI of $30,000 for the same people with the same plan, the monthly cost drops to $337 and the deductible drops to $500 per person with max out of pocket of $1500 per person. The out of network is $1000 deductible and $3000 max out of pocket.

For a $10,000 increase in income, you may have to pay $1476 + $9700 + $9700 = $20876 (out of network out of pocket limits are separate from in network)

So let me get this straight. You make $10,000 more and you pay $20876 more for healthcare in the worst case.

What is the effective tax rate on that $10k? over 200%?

 

[photoguy]

Yeah there are additional subsidy cliffs at lower threholds for the enhanced silver plans which have reduced max OOP.


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[audreyh1]

Thanks, my DD called me and said her bronze BCBS TX plan went up 20% and has copays. We have not looked into it yet with her, but it sounds like the same deal. We will research this after Thanksgiving when she is around.

I meant to say that one bronze plan is the only HSA plan they offer - one word dropped!

 

[audreyh1]

How, is there a deduction or tax credit for using HSAs? So some portion of your contribution can be deducted?

Then you spend the HSA funds to pay for medical expenses, both before and after the deductible?

What are the annual contribution limits?

Also see that some plans have flat copay fees after meeting the deductible while others pay percentages of the bills after meeting the deductible but I'm not sure if the difference between flat copayments and percentage of expenses is associated with HSA vs. non HSA plans.

It gets taken off the top of your adjusted gross income before calculating taxes, just as if you were making an IRA contribution. You can deduct up to about 4000 per person on an HSA plan, depending on age. It's independent of what you actually pay for premiums.

 

[Sue J]

What are the HSA tax savings for a retiree?

I can understand people with earned income, who can contribute pre-tax dollars to their HSAs.

But wouldn't retirees self-fund their HSAs with post-tax dollars anyways?

The HSA contribution becomes a deduction on the front page of the Federal 1040, so it's still a benefit for retirees. Another benefit is that it lowers your taxable income and therefore your MAGI for your ACA subsidy if you are getting one. Your MAGI goes down and your ACA subsidy goes up.

 

[MichaelB]

HSA contribution limits for 2015 are $3350 individual and $6650 family, with and additional $1000 catch up for over age 55.

Sorry to hear about the Texas BCBC price increase and HSA policy withdrawal. Their Florida pricing was also very aggressive, my BlueCard / national network policy was withdrawn, the replacement has $3k higher deductible and 28% higher price. My price increase was greater than the costliest BCBS Medigap policy (F), those prices rose 2%.

 

[sengsational]

The HSA contribution becomes a deduction on the front page of the Federal 1040, so it's still a benefit for retirees. Another benefit is that it lowers your taxable income and therefore your MAGI for your ACA subsidy if you are getting one. Your MAGI goes down and your ACA subsidy goes up.

The way I look at it, if I put $7500 into an HSA account and convert $7500 from tIRA to IRA, my federal taxes will be exactly the same, but I'll have $15,000 to spend tax-free, and that's before compounding. Yes, there is a restriction on spending half of it on medical, but still. Awesome deal for the small potatoes guy I am.

 

[explanade]

So if you put in $3350 next year, invest it in any fund (or ETF or whatever), then spend $100 out of it in eligible medical expenses, the remaining balance rolls including any investment gains rolls over to next year, tax-free?

 

[MichaelB]

So if you put in $3350 next year, invest it in any fund (or ETF or whatever), then spend $100 out of it in eligible medical expenses, the remaining balance rolls including any investment gains rolls over to next year, tax-free?

Withdrawals are tax free as long as they are used to pay for eligible medical expenses.

 

[Accidental Retiree]

Withdrawals are tax free as long as they are used to pay for eligible medical expenses.

And once you are on Medicare, you can use your HSA funds to pay premiums, also tax free, which you can't do before age 65.

 

[sengsational]

So if you put in $3350 next year, invest it in any fund (or ETF or whatever), then spend $100 out of it in eligible medical expenses, the remaining balance rolls including any investment gains rolls over to next year, tax-free?

You can think of it as a Roth account (don't pay taxes on principle or gains when money comes out). The "catch", as Michael points out, is that the money must be spent on eligible medical products or services.

It took me a while to get my head around this, but you get the tax savings "now", when you put money in (as long as you have a little income to subtract from your contribution). If you decide to spend out of your HSA now, that's fine, you got to pay for medical with after-tax dollars. But if you decide to wait for compounding (presuming that happens), then you'll not only pay for medical with after-tax principle dollars, you'll also be able to spend money you earned in the account without paying income taxes on it.

 

[explanade]

Yeah I guess that's the other thing, if you've accumulated a sizable balance, you may not be able to use it until you're on Medicare?

But you can use it to pay Medicare Advantage premiums?

 

[sengsational]

Insurance premiums are in BOTH lists: HSAcenter - Health Savings Accounts - Health Care and Savings for You and Your Family

Edit: This page says "yes": http://www.hsaconnect.com/hsa-health-savings-accounts/hsa-qualified-medical-expenses.php

 

[MichaelB]

Yeah I guess that's the other thing, if you've accumulated a sizable balance, you may not be able to use it until you're on Medicare?

But you can use it to pay Medicare Advantage premiums?

IIRC HSA funds can be used to pay Medicare premiums: A, B, C (Advantage) and D, but not supplemental (Medicap).

 

[ERhoosier]

Checking out the Blue Cross Blue Choice plans in Texas I find something interesting.

At a MAGI of $40,000 for 44 y.o. and 46 y.o. non smoker couple the monthly plan cost is $460 for a PPO silver plan with $3000 per person deductible and max $6350 out of pocket per person. The out of network is $6000 per person deductible and $12,700 max out of pocket.

At a MAGI of $30,000 for the same people with the same plan, the monthly cost drops to $337 and the deductible drops to $500 per person with max out of pocket of $1500 per person. The out of network is $1000 deductible and $3000 max out of pocket.

For a $10,000 increase in income, you may have to pay $1476 + $9700 + $9700 = $20876 (out of network out of pocket limits are separate from in network)

So let me get this straight. You make $10,000 more and you pay $20876 more for healthcare in the worst case.

What is the effective tax rate on that $10k? over 200%?

This is the so-called "cliff" feature of ACA. Never understood why law was written this way, or why there has been so little talk of fixing it. IMHO- subsidies should be more linearly related to MAGI, and reconciled via income tax process as under current provisions.

But at least for 2014 you are quite right. For some, VERY small increases in MAGI lead to HUGE, even punitive financial losses.
In my region, a 63yo couple (nonsmokers) with MAGI of $62,920 get HI subsidy of $12,223. Just a $10 increase in MAGI and the subsidy drops to ZERO.
IOW, earn $10 more and lose $12,223. How is that justifiable

Not sure all 2015 figures have been entered yet, but here's an ACA subsidy calculator you can amuse yourself with
Health Insurance Marketplace Calculator | The Henry J. Kaiser Family Foundation

 

[Accidental Retiree]

Insurance premiums are in BOTH lists: HSAcenter - Health Savings Accounts - Health Care and Savings for You and Your Family

Edit: This page says "yes": HSA Qualified Medical and Health Expenses - HSAConnect

• Qualified long-term care services and long-term care insurance
• Medicare Part A and B premiums, Medicare HMO or Medicare Advantage premiums
• Retiree health expenses for those 65 and older
• COBRA premiums and health insurance for those on unemployment compensation

Yes, you can use your HSA in these special circumstances, as you could use IRA funds without the penalty (but I seem to recall you pay taxes on your withdrawals from the IRA in that special situation. It's been a while.)

But if you're not in these special circumstances, you cannot use your HSA for medical insurance premiums until you hit Medicare. So, our HSA funds are staying put -- we hope -- until age 65.

 

[Accidental Retiree]

From the Health Savings Administrators website:

IMPORTANT: As of 2011, your Health Savings Account (HSA) may no longer be used for over-the-counter drugs, unless they are prescribed by your doctor.

Insurance premiums are generally not considered qualified medical expenses.
However, the following types of insurance premiums generally qualify:
Continuation coverage under federal law (i.e., COBRA)
Qualified long-term care insurance premiums
Any health plan maintained while an individual is receiving unemployment compensation under federal or state law
For accountholders age 65 and over (i.e., those eligible for Medicare), premiums for any health insurance (including Medicare Parts B & D premiums).

Premiums for a Medicare supplemental (Medigap) policy are not qualified medical expenses.

Prior to age 65, funds used to pay for non-eligible medical expenses are subject to normal income tax and a 20% penalty. After age 65, HSA funds may be withdrawn for non-eligible expenses with no penalty (regular income tax will apply).

 

[rbmrtn]

Insurance premiums are in BOTH lists: HSAcenter - Health Savings Accounts - Health Care and Savings for You and Your Family

Edit: This page says "yes": HSA Qualified Medical and Health Expenses - HSAConnect

IRS pub 502 states that premiums are a qualified expense but then you have to go to pub 969 which restrict what premiums can be paid by HSA distributions

Insurance premiums.
You cannot treat insurance
premiums as qualified medical expenses unless the pre-
miums are for:
1.
Long-term care insurance.
2.
Health care continuation coverage (such as coverage
under COBRA).
3.
Health care coverage while receiving unemployment
compensation under federal or state law.
4.
Medicare and other health care coverage if you were
65 or older (other than premiums for a Medicare sup-
plemental policy, such as Medigap)

 

[explanade]

I noticed glasses are covered.

I may get some prescription sunglasses, which are several hundred.

So in that case, you withdraw from your HSA account or write a check?

How about charging to a credit card but paying that credit card with the HSA funds?

Can you withdraw directly out of an HSA with an ACH transfer to your credit card account?

EDIT: I guess it could apply to any medical expense, like paying for a doctor's visit, prescription drugs, etc. What are the mechanics, can you charge with credit card and is it easy to draw funds out of the HSA to pay for expenses which range from say $20 to a couple of hundred dollars?

 

[rbmrtn]

So in that case, you withdraw from your HSA account or write a check?

Check with the institution you open the HSA with. Debit cards are common, online bill pay, and check reimbursement are also available.

 

[pb4uski]

You can also leave the money in the HSA to compound tax-free and keep a file of all your qualifying medical expenses since you had the HSA and withdraw that amount tax-free at any time. Just make sure to have/keep good documentation in case you get audited.

 

[Mulligan]

You can also leave the money in the HSA to compound tax-free and keep a file of all your qualifying medical expenses since you had the HSA and withdraw that amount tax-free at any time. Just make sure to have/keep good documentation in case you get audited.

That is exactly what I do. The past 4 years I have accumulated about $1k in just dental cleanings and a couple doc visits. Only birthday important to me now is 55, when I get to add another $1k yearly to my regular deductions. If I am lucky in 30 years or so hopefully the account will have done so well, my daughter will have to figure out how you pay taxes from a big inherited HSA account.


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