HSA or HMO--strategy before Medicare?

[tmitchell]

I'd like some specific feedback on my options since I'm pretty new to all this and still confused about best practices between now and medicare.

In 2022 I made some consulting money and ran a Bronze HSA through the S-corp, but for 2023 I've no idea if I'll earn anything, so for now I'm planning for $0 earned income. I am also planning to do Roth conversations, which puts me over the subsidy cliff.

If I go through Covered CA and keep my doctor I have 2 options:

1. $820/mo $7k deductible, Bronze Blue Shield HSA
2. $655/mo $4750 deductible, Silver Molina HMO

Obviously the $165 monthly difference is something, but is there any good reason to funnel some of my dividends into the HSA? Seems like it helps with the Roth conversions, but I want to double check.

PS I'm 55 and so far in great health (knock on wood!).

 

[COcheesehead]

An HSA allows you to pay for dental and eye care as well and is tax deductible.

 

[zinger1457]

There is no subsidy cliff, just a roll off on the subsidy received as income increases. That benefit is set to expire in 2025 so it's possible the cliff could come back if they don't extend it.
It would be hard to justify the HSA plan just for the HSA deduction since the plan will end up costing you almost $2000 more a year, the contribution limit for 2023 for a single is $3850 plus $1000 if 55 or older.

 

[tmitchell]

An HSA allows you to pay for dental and eye care as well and is tax deductible.

Thanks, but does it make sense to have one when you're no longer earning income? In other words, when would a person stop contributing to the HSA? At age 65?

 

[Aerides]

I've fixed the title as I think you meant "...before Medicare" - if wrong lmk I'll put it back.

 

[tmitchell]

I've fixed the title as I think you meant "...before Medicare" - if wrong lmk I'll put it back.

That's right, thank you!

 

[COcheesehead]

Thanks, but does it make sense to have one when you're no longer earning income? In other words, when would a person stop contributing to the HSA? At age 65?

An HSA also acts like a deferred account that you can tap for anything after 65.
I just went through all this and we are going from a gold plan to a bronze with HSA. It just makes more sense for us. I can’t answer the question for you. Just posting other advantages of an HSA.

 

[Aerides]

I'm going with PPO/HSA for several reasons:

HSA all the way for me for income reduction, so your benefit is less on that, but not nothing. You have 10 years of out of pocket expenses, including dental and optical, which are both also barely covered after Medicare (i mean sure, you have them covered far better, but you aren't getting free implants!)

But it's not all about the price:
I don't like HMO's and avoid them if I can so I have some flexibility to go outside my network. Actual doc coverage is also an important factor and will likely differ between plans.

 

[RunningBum]

Thanks, but does it make sense to have one when you're no longer earning income? In other words, when would a person stop contributing to the HSA? At age 65?

You said you were doing Roth conversions, that's income.

I'm 10+ years retired and contribute every year I have an HSA eligible plan. I'm saving my receipts and my HSA is kind of an emergency account. I can withdraw tax-free from it to the extent of the receipts I have from when I started my HSA plan. If I need money but don't want to any more taxable income I can pull from the HSA.

At 65 Medicare starts, and they are not HSA eligible, so yes, I'll stop contributing at 65.

Look for other differences in the plan, like what happens if you are traveling and out of network, and what is the coinsurance once you've met the deductible. I was healthy at 55 too, but I've hit my deductible a couple of years since I retired.

 

[COcheesehead]

Usually emergency care is covered out of state/network, but check that. The coinsurance is a big deal. Your total costs are co pays + deductibles and coinsurance combined.

 

[tmitchell]

I'm going with PPO/HSA for several reasons:

HSA all the way for me for income reduction, so your benefit is less on that, but not nothing. You have 10 years of out of pocket expenses, including dental and optical, which are both also barely covered after Medicare (i mean sure, you have them covered far better, but you aren't getting free implants!)

But it's not all about the price:
I don't like HMO's and avoid them if I can so I have some flexibility to go outside my network. Actual doc coverage is also an important factor and will likely differ between plans.

Thanks I agree about PPOs. I hear you re: dental. Been watching my elderly mother go through it and it's rough!

 

[tmitchell]

You said you were doing Roth conversions, that's income.

I'm 10+ years retired and contribute every year I have an HSA eligible plan. I'm saving my receipts and my HSA is kind of an emergency account. I can withdraw tax-free from it to the extent of the receipts I have from when I started my HSA plan. If I need money but don't want to any more taxable income I can pull from the HSA.

At 65 Medicare starts, and they are not HSA eligible, so yes, I'll stop contributing at 65.

Look for other differences in the plan, like what happens if you are traveling and out of network, and what is the coinsurance once you've met the deductible. I was healthy at 55 too, but I've hit my deductible a couple of years since I retired.

So you're stacking up a fund to pay for extra care after 65?

 

[RunningBum]

So you're stacking up a fund to pay for extra care after 65?

Pretty much. Suppose I have $100K in my HSA, and receipts totaling $50k. I can withdraw up to $50K anytime I want to with no tax consequence. It does not have to be for any current medical care. I would be reimbursing myself for expenses I paid out of pocket in the past. The other $50K, I'm sure I'll have continuing medical expenses, and they can also be used for Medicare premiums (except for one part, can't remember which).

I just make sure I have those expenses documented in case I should need to prove it to the IRS. I keep a spreadsheet, one line per expense. I give each line a unique ID, like 2022-01 for my first expense of this year. I write that number on the receipt, and scan it, file it in my HSA Receipts folder on my laptop (which gets backed up regularly) and put the receipt in a shoe box. I only need one or the other, but I like to do both.

 

[audreyh1]

Can’t be used for Medigap premiums is the only one.

 

[tmitchell]

Pretty much. Suppose I have $100K in my HSA, and receipts totaling $50k. I can withdraw up to $50K anytime I want to with no tax consequence. It does not have to be for any current medical care. I would be reimbursing myself for expenses I paid out of pocket in the past. The other $50K, I'm sure I'll have continuing medical expenses, and they can also be used for Medicare premiums (except for one part, can't remember which).

I just make sure I have those expenses documented in case I should need to prove it to the IRS. I keep a spreadsheet, one line per expense. I give each line a unique ID, like 2022-01 for my first expense of this year. I write that number on the receipt, and scan it, file it in my HSA Receipts folder on my laptop (which gets backed up regularly) and put the receipt in a shoe box. I only need one or the other, but I like to do both.

Ok cool that sounds pretty good, thanks. Do you keep your HSA investments in line with your overall AA or something more conservative in case you really do need to use the money?

 

[zinger1457]

So you're stacking up a fund to pay for extra care after 65?

Your Roth can do the same thing at 65 but with a lot more flexibility, you can withdraw funds for any expense tax free with a ROTH, with an HSA you are limited to medical, dental, and vision care cost and some medicare premiums. Any other withdrawals from your HSA will be taxed as income.
Not sure if it's a trend or not but my first 10 years of ACA they always offered an HSA plan that was at or near the lowest cost plan option, it was the one I always took and was able to sock away a fair amount in my HSA. Then two years ago that seemed to change for me, the lowest cost HSA bronze plan was close to $200/mo more than the lowest cost bronze plan, the deductibles were lower but not enough to justify the additional monthly cost. In 12 years never even came close to paying the deductible limit. Seems like the insurers were using the HSA as a carrot to pay for a higher priced plan. Glad I'm on Medicare now.

 

[COcheesehead]

The lowest cost plan for us in 2023 is a bronze plus HSA and will save us about $60 a month over last year plus now getting the advantages of the HSA which we did not have last year.
I also have earned income so I can contribute to a Roth as well. Double bonus!

 

[audreyh1]

We had earmarked our HSAs to pay for Medicare premiums - mostly to bridge us to SS that we planned to take at 70. SS automatically deducts your part B premiums plus any IRMAA you owe. But also because we deliberately plan to spend them down for qualified expenses and close the accounts. Medicare premiums are handy because documentation is very easy to obtain. Fewer accounts to deal with and no inheritance downsides.

 

[RunningBum]

Ok cool that sounds pretty good, thanks. Do you keep your HSA investments in line with your overall AA or something more conservative in case you really do need to use the money?

Overall AA. But it happens to be pretty conservative because my tIRA is small, and my taxable account is mostly highly appreciated stock funds. So I need non-equity holdings somewhere else, and I do it here rather than me Roth since I'll use this sooner.

 

[teej1985]

Can’t be used for Medigap premiums is the only one.

This is why those with big HSAs are better off with HD G because what you spend towards the deductible can be reimbursed from your HSA.

 

[audreyh1]

This is why those with big HSAs are better off with HD G because what you spend towards the deductible can be reimbursed from your HSA.

Not for us. We’re subject to IRMAA and we’ll likely drain them in our 70s.

And I won’t touch HD plans once I start Medicare. Had enough of dealing with large deductibles and resulting tracking and paperwork. We also don’t have an option to switch plans later without underwriting.

Our HSAs didn’t get that huge - not to close 6 figures anyway.

I think folks with really large HSAs often plan to use them to reimburse long-term care expenses.

 

[TripleLindy]

so for now I'm planning for $0 earned income.

Be sure to plan for investment income, like dividends.

If I go through Covered CA and keep my doctor I have 2 options:

1. $820/mo $7k deductible, Bronze Blue Shield HSA
2. $655/mo $4750 deductible, Silver Molina HMO

Obviously the $165 monthly difference is something, but is there any good reason to funnel some of my dividends into the HSA? Seems like it helps with the Roth conversions, but I want to double check.

PS I'm 55 and so far in great health (knock on wood!).

I have to go through the same kind of evaluation each year. Since our health is good, I tend to go with the lowest premium. Why pay more for something you don’t think you’ll use? The HSA is a nice feature, but I wouldn’t pay ~$2k just to have one. Having said that, I have a knee issue and my wife has a shoulder issue, either of which may require surgery, so I’ve found a plan that has a $4k lower deductible/max out of pocket and it will only cost $1200 more annually. I’ll risk the $1200 for $4000 better coverage. And it is HSA eligible when the cheaper plan is not. Of course, I had to verify that there’s an in-network ortho surgeon available. Selecting healthcare coverage shouldn’t be so complicated.

One other consideration: HMO vs. non-HMO. The HMO plans usually make you go through your PCP for approval for anything needing a specialist. I had a shoulder injury that I wanted to see my orthopedic doc about, but my PCP wanted to try anti-inflammatory meds and PT first. Almost 3 months later, MRI revealed multiple ligament tears that needed surgery. I barely got in under the end of year wire, so the HMO process can be a pain, which I guess is their intent.

 

[TripleLindy]

One more point regarding HSA: prior to the elimination of the subsidy cliff, I was always right on the edge of that cliff. A couple of years, my income went over. A tax deductible HSA would have brought my income down enough to where I would not have had to repay my subsidy. If the subsidy cliff comes back, an HSA takes on additional importance.