Are HSA's Really So Good?

[tangomonster]

I admit it. I didn't do my homework. I was convinced that I wanted/"had" to have a HSA. Now that I'm eligible for one, I doubt I'll even do it!

My extremely high deductible health insurance policy of $10,000 would not allow me to have a HSA. I just switched to a $2600 deductible policy, in part so I can reduce my potential costs by $7500 while just doubling my premium. But it was also so I could start a HSA. I'm not one to covet material things like clothes, cars, jewelry, electronics, or big homes, but a HSA just seemed like something good for someone who is FIREd---or anyone, really.

In exploring my options, it seems like I can put $2600 in an account. The money could grow tax free and roll over to the next year if not needed. So far so good! But it would grow by only 2%. And the administrative fees of $50 a year would make the 2% growth a wash!

Am I looking at this the wrong way?

 

[travelover]

I have an HSA with Patelco Credit Union. I just put money into the account as I need it to reimburse myself for any out of pocket medical expenses. This includes not only traditional medical costs but also OTC drugs, dental and eye care expenses. The earnings on the money are small, but since I'm in the 25% tax bracket, it is like getting that much of a discount on all my qualifying expenses. Oh, and the first year is free, after that I think it is $1 a month.

Unlike a Flexible Spending Account, you don't have to put all the money in at once and use it or lose it - you can add it throughout the year as needed.

To me it seems like a pretty sweet deal.

 

[REWahoo]

Questions:

1. Why only 2% earnings? Some HSA custodians allow you to invest in Vanguard or other funds and have a lower administrative fee - these guys for example.

2. Couldn't you find an HSA eligible policy with a higher deductible or you have to go with a $2,600 deductible policy and pay the associated higher premium? For example, I have a HSA eligible $5,000 BC/BS policy and could have gone with a higher deductible had I wished to do so.

3. Have you considered the long-term value of using your HSA funds for (tax free) medical costs any time in the future - even after you go on Medicare? Depending on your tax bracket, you are "earning" 15% or more on your HSA funds by not having to pay income tax. I'm roughly 3 years away from Medicare and plan on using my HSA savings to pay premiums on a supplemental insurance policy - tax free.

 

[jIMOh]

2% is the interest on the cash account.
What other investment options does your HSA provide?

I layer my HSA.

I keep 2 years medical expenses in cash
the third years expenses will be in bonds
the rest will be in equities.

There are fees in my HSA to sell equities to raise cash, my plan is to have enough in cash that every second year could probably be invested into equities while the years opposite that replenish the cash account.

 

[Urchina]

I don't know if this applies to you, but I'd also look for a HSA that had a minimum of paperwork. We had a FSA last year and getting reimbursed was such a colossal PITA that we decided not to do it this year, despite the money we would have saved.

 

[tangomonster]

Thanks, everyone, for your replies. Wish I had a credit union, but I don't! Urchina, good point about the paperwork. What gets me are the fees. As you accumulate more, a $4 a month charge doesn't mean so much, but at the beginning, it can eat up any growth.

REW, the BCBS in Georgia doesn't offer plans that can have a HSA with a deductible over $2600. Don't ask me why. There are a lot of strange laws here.

I do understand that I could put my money into an account with more potential for growth, like a Vanguard fund. And I do have many assets in mutual funds. But if this is supposed to be $2600 that you will have access to in order to pay bills, I don't think I would want to put in a fund that could have gone down so much in just a day or two!

And I can't believe all the fees, like for the checks.

So I guess I will be HSA-less, at least until I become envious of people with HSAs once again!

 

[travelover]

I don't know if this applies to you, but I'd also look for a HSA that had a minimum of paperwork. We had a FSA last year and getting reimbursed was such a colossal PITA that we decided not to do it this year, despite the money we would have saved.

Agree. I was with a company called Wageworks and it was a PITA. With Patelco, I do all the record keeping, which for me is just a spreadsheet and a folder for the receipts.

 

[travelover]

.......... Wish I had a credit union, but I don't! .............

Anyone can join Patelco - I live in Michigan and it is located in California. I set it up and make transactions online. I'm sure there are other good options, but I'm happy with this.

 

[omni550]

I have an HSA with Patelco Credit Union. I just put money into the account as I need it to reimburse myself for any out of pocket medical expenses. This includes not only traditional medical costs but also OTC drugs, dental and eye care expenses. The earnings on the money are small, but since I'm in the 25% tax bracket, it is like getting that much of a discount on all my qualifying expenses. Oh, and the first year is free, after that I think it is $1 a month.

Unlike a Flexible Spending Account, you don't have to put all the money in at once and use it or lose it - you can add it throughout the year as needed.

To me it seems like a pretty sweet deal.

Is there any requiremetn to having a an HSA -- like needing to have earned income? Or can anyone (like a retiree, for example) set up an HSA?

omni

 

[REWahoo]

Is there any requiremetn to having a an HSA -- like needing to have earned income? Or can anyone (like a retiree, for example) set up an HSA?

omni

No earned income is required to set up a HSA but you do have to buy a qualifying health insurance policy. See this information Martha put together for us: http://www.early-retirement.org/forums/f47/health-savings-accounts-hsa-30762.html

 

[Jeb-NY]

This is the first year I have been eligible for a HSA and plan to open up a no checking account with https://www.hsaadministrators.com/ and invest it in Vanguard funds (forms are on my desktop). I look at it as a way to stash tax free money for later medical expenses. We have the money to pay the bills now, but latter on it would be nice to have an account to draw from and we will open a checking account side then.

I keep hoping Vanguard will get in the business and eliminate one of the middle men. Talked to them a couple of weeks ago and all they would say is they are still looking into it.

Opening an HSA will also be buying into a low market right now, just have to decide when it is low enough.

Jeb

 

[Gotadimple]

And I can't believe all the fees, like for the checks.

So I guess I will be HSA-less, at least until I become envious of people with HSAs once again!

What Tango said! I'd rather fund from my taxable account and pay taxes, in the short-term, I think I come out ahead.

-- Rita

 

[travelover]

What Tango said! I'd rather fund from my taxable account and pay taxes, in the short-term, I think I come out ahead.

-- Rita

I don't understand this. I'm paying $12 a year to save 25% on all my medical and dental expenses. What am I missing?

 

[Gotadimple]

So, it depends on what you can get in the HSA. Most have them through their employer and they're pretty tightly tied together. The one offered to me when working has a $5 pm administrative fees (went to $0 when you had $10k invested), bundled with some pretty lousy mutual funds that included high OER and 12b charges.

-- Rita

 

[travelover]

So, it depends on what you can get in the HSA. Most have them through their employer and they're pretty tightly tied together. The one offered to me when working has a $5 pm administrative fees (went to $0 when you had $10k invested), bundled with some pretty lousy mutual funds that included high OER and 12b charges.

-- Rita

Good point. Are you sure you cannot use another HSA of your choice?

 

[ziggy29]

So, it depends on what you can get in the HSA. Most have them through their employer and they're pretty tightly tied together. The one offered to me when working has a $5 pm administrative fees (went to $0 when you had $10k invested), bundled with some pretty lousy mutual funds that included high OER and 12b charges.

Wow. Our plan, first offered to us this year, was a pretty good one.

The out of pocket family maximum was only $1700 higher than for the PPO plan. Plus, we save $1000 in payroll deductions with the HDHP/HSA option AND my employer has kicked in $700 to the HSA this year. That makes it a wash right there -- in nearly the worst case.

Our HSA administrator is Chase, and my employer currently pays all account maintenance fees. We have either a regular bank account (currently paying 1.5%) or a handful of JP Morgan funds -- some of them fairly decent -- with the load waived (I won't do any investing in the HSA until I have two full years of out of pocket maximums in cash). I've managed to put $3,800 in there this year, between what I've contributed and what Megacorp has added on my behalf.

Still, I've seen what other people have been offered, and it seems like their employers only made half-hearted efforts to encourage HSA elections because their terms weren't nearly as compelling as mine were.

 

[easysurfer]

2% is the interest on the cash account.
What other investment options does your HSA provide?

I layer my HSA.

I keep 2 years medical expenses in cash
the third years expenses will be in bonds
the rest will be in equities.

There are fees in my HSA to sell equities to raise cash, my plan is to have enough in cash that every second year could probably be invested into equities while the years opposite that replenish the cash account.

Looks like a good approach about layering your HSA investments.

I'm rethinking how I'm going to invest my HSA. I was putting it all in Vanguard's Total Stock Market (was planning on letting it grow untouched for about 20 years).

But now I'm moving towards using the investment to pay for medical services during the year.

In the future, I'm thinking of moving my investment out the total stock market and chucking it all into Vanguard Wellington.

 

[eridanus]

I layer my HSA funds as well.

1. Savings account (no annual fee)
2. Vanguard funds w/ hsaadministrators.com

 

[Bimmerbill]

I almost went for one of these since my work has a couple available. I liked the premium pass thru feature. But with a 3yo DD we make too many trips to the docs to make it worthwhile.

 

[lucija]

I almost went for one of these since my work has a couple available. I liked the premium pass thru feature. But with a 3yo DD we make too many trips to the docs to make it worthwhile.

It all depends on plan details... in our case, we will never be worse off with the HSA plan.

Among other options we can choose between 2 flavors of the same plan. The traditional plan has no deductible, but higher premiums and out of pocket cost. The HSA version has a deductible, but once it is met the two plans are the same. The employer is committed to fund the HSA at ~90% of the deductible. So,
+ if I never go to the doctor, the employer HSA contribution offsets 3/4 of my premiums (which are lower than ones associated with the traditional plan)
+ if I require lots and lots of care, my out-of-pocket max is lower for HSA compared to traditional plan (plus lower monthly premiums)
+ if I fall somewhere in the middle and in the worst possible scenario we're still ahead at least about $40/mo due to lower premiums

Edit - forgot to mention that Rx counts toward the deductible and once it is met the Rx co-pays are much lower for the HSA compatible plan compared to the traditional one... again, one more plus!