ACA and HSAs

[duckcalldan]

I will be ERing next February and will be going on the exchange for myself and my family (we're 53 & 50, girls 19 and 16). We are all in good health and are eyeing a bronze plan. We will be under 400% FPL but too high for a cost saving silver plan. Here's my question: all things being equal, should I put a HDHP with HSA at the top of my list above a non-HSA compliant bronze plan? Premiums are about the same (about $600 monthly after tax credit) but the deductibility feature of an HSA would give us a bigger credit. Or it would enable a larger Roth conversion without losing the existing credit. There is only one carrier out of 3 offering HSA-compliant plans, but we're ok with their network choices.

 

[bingybear]

I will be ERing next February and will be going on the exchange for myself and my family (we're 53 & 50, girls 19 and 16). We are all in good health and are eyeing a bronze plan. We will be under 400% FPL but too high for a cost saving silver plan. Here's my question: all things being equal, should I put a HDHP with ACA at the top of my list above a non-HCA compliant bronze plan? Premiums are about the same (about $600 monthly after tax credit) but the deductibility feature of an HCA would give us a bigger credit. Or it would enable a larger Roth conversion without losing the existing credit. There is only one carrier out of 3 offering HCA-compliant plans, but we're ok with their network choices.

I think all that I made bold should be HSA, correct?

I can't tell you what is right for you. But I'm funding our HSA and increasing roth conversion. But I invest the HSA to be a buffer for later health needs like LTC.

Eventually you will have kids falling off your plan. You will need to consider how you adapt at that point. For us it is just me and DW.

 

[duckcalldan]

Oops, darn acronyms! Yes, HSA. Post fixed, thanks.

 

[MooreBonds]

I will be ERing next February and will be going on the exchange for myself and my family (we're 53 & 50, girls 19 and 16). We are all in good health and are eyeing a bronze plan. We will be under 400% FPL but too high for a cost saving silver plan. Here's my question: all things being equal, should I put a HDHP with HSA at the top of my list above a non-HSA compliant bronze plan? Premiums are about the same (about $600 monthly after tax credit) but the deductibility feature of an HSA would give us a bigger credit. Or it would enable a larger Roth conversion without losing the existing credit. There is only one carrier out of 3 offering HSA-compliant plans, but we're ok with their network choices.

You have a few years to utilize an HSA - are you planning on maxing out HSA contributions until your 60s? (don't forget the "over 50" additional contribution limit). If your plan is to max out contributions and invest it and let it grow, then just look at your net cost of insurance, after the tax benefit, and after anticipated medical costs, of the 2 plans.

I've been maxing out my HSA since the first year they came out, and have been letting it grow...so it can be a sensible plan.

 

[bingybear]

You have a few years to utilize an HSA - are you planning on maxing out HSA contributions until your 60s? (don't forget the "over 50" additional contribution limit). If your plan is to max out contributions and invest it and let it grow, then just look at your net cost of insurance, after the tax benefit, and after anticipated medical costs, of the 2 plans.

I've been maxing out my HSA since the first year they came out, and have been letting it grow...so it can be a sensible plan.

not over 50 additional. Catch up contributions start at 55, not 50. If two spouses are doing catch up, each catch up must be contributed into each persons HSA account. They can not be combined into one account. Also, both must be covered by an HSA compatible health insurance.

you can't contribute to hsa's after you become eligible for Medicare. The rules for withdraw also change at that time.

 

[HadEnuff]

not over 50 additional. Catch up contributions start at 55, not 50. If two spouses are doing catch up, each catch up must be contributed into each persons HSA account. They can not be combined into one account. Also, both must be covered by an HSA compatible health insurance.

you can't contribute to hsa's after you become eligible for Medicare. The rules for withdraw also change at that time.

I was unaware that the rules for HSA withdrawals change when eligible for Medicare.
Can you elaborate? How do they change?

 

[audreyh1]

I was unaware that the rules for HSA withdrawals change when eligible for Medicare.
Can you elaborate? How do they change?

After you are eligible for Medicare, you have the additional option of withdrawing funds for non-medical reasons, and you pay taxes on the withdrawal as if it were an IRA.

https://www.hsaresources.com/pdf/Turning_65.pdf

 

[HadEnuff]

After you are eligible for Medicare, you have the additional option of withdrawing funds for non-medical reasons, and you pay taxes on the withdrawal as if it were an IRA.

I did not know that. No restrictions at all?

 

[wmc1000]

Yep, that is why they call it a stealth IRA! If your HSA lets you invest during the accumulation years that is so you can grow that money!

 

[bingybear]

you can use the hsa to pay for medicare or LTC as a medical expense. I don't think you can do it to pay for an advantage plan.

when on medicare you can use it for medical expenses with out an HSA plan if I recall correctly.
One other thing to note.. for medical expenses that are after you set up an HSA and had an HSA plan and did not use the hsa to pay for it, you can claim them in later years... even post retirement.

I see this as a small part of my LTC stratigy

 

[sengsational]

If the older girl will be in college, consider the coverage from the school; it's not like employer coverage... there's zero cost savings when you have multiple people on the same ACA plan.

 

[MBSC]

you can use the hsa to pay for medicare or LTC as a medical expense. I don't think you can do it to pay for an advantage plan.

An HSA account can be used to pay Medicare Part B premiums, Medicare Advantage premiums (Part C), and Part D drug plan premiums. The HSA cannot be used for Medicare supplement (Medigap).

Once enrolled in Medicare, an individual can no longer contribute to a Health Savings Account (HSA). However, a Medicare beneficiary can use HSA distributions to pay for qualified medical expenses, such as premiums for Part B, a Medicare Advantage plan (Part C), a prescription drug plan (Part D), and long-term care insurance, and Medicare expenses, such as copayments and deductibles.

These funds cannot pay premiums for Medicare supplemental policies, also known as Medigap policies.

Reference: https://www.65incorporated.com/topi...ings-account-distributions-medicare-premiums/

 

[rodi]

I can argue both sides of this question - especially after yesterday.
I retired at age 53 with 2 teenagers. I'm now 55 and in my second year with a HDHP w/HSA. Last year we had a series of sports injuries and events that included a brief hospitalization for older son, followed immediately by younger son breaking his elbow playing basketball. Then older son took a baseball to the face breaking his orbital socket (fortunately, no eye damage or facial surgery needed)....around the time younger son got his elbow cast off. 2 weeks later younger son broke the wrist on his other arm. Late in the year I had a small cyst removed from my breast.

We just hit the deductible... barely. Fortunately, even with a high deductible - we benefited GREATLY from the negotiated rates. But our out of pocket was around $9k for the year.

This year started out great. 2 doctor visits for younger son (probably faking stuff to get out of school)... Then 2 weeks ago the dentist noticed a soft spot that might be a cyst on my older son's jawline. We saw an oral surgeon yesterday - found out it will require surgery (vs just a wisdom tooth complication not covered by insurance)... We see the maxillofacial surgeon that our insurance covers next week. I assume we'll hit the individual deductible for him by the time the surgery is done.

That said - for us the tax benefits of HSA, the premiums being less (in our case the premiums were less by enough to make a difference vs a regular bronze) I'm still sticking with the HDHP.... but this is definitely a risky proposition... We've lost the HDHP lottery 2 years in a row.

 

[pb4uski]

From what you described I think it is a no brainer to go with the HSA eligible policy. Roughly the same cost and benefits but more flexibility... I would put more money into the HSA and either take the increased subsidies or increase Roth conversions depending on what you think your marginal tax rate will be in your 70s.

 

[HadEnuff]

I can argue both sides of this question - especially after yesterday.
I retired at age 53 with 2 teenagers. I'm now 55 and in my second year with a HDHP w/HSA. Last year we had a series of sports injuries and events that included a brief hospitalization for older son, followed immediately by younger son breaking his elbow playing basketball. Then older son took a baseball to the face breaking his orbital socket (fortunately, no eye damage or facial surgery needed)....around the time younger son got his elbow cast off. 2 weeks later younger son broke the wrist on his other arm. Late in the year I had a small cyst removed from my breast.

We just hit the deductible... barely. Fortunately, even with a high deductible - we benefited GREATLY from the negotiated rates. But our out of pocket was around $9k for the year.

This year started out great. 2 doctor visits for younger son (probably faking stuff to get out of school)... Then 2 weeks ago the dentist noticed a soft spot that might be a cyst on my older son's jawline. We saw an oral surgeon yesterday - found out it will require surgery (vs just a wisdom tooth complication not covered by insurance)... We see the maxillofacial surgeon that our insurance covers next week. I assume we'll hit the individual deductible for him by the time the surgery is done.

That said - for us the tax benefits of HSA, the premiums being less (in our case the premiums were less by enough to make a difference vs a regular bronze) I'm still sticking with the HDHP.... but this is definitely a risky proposition... We've lost the HDHP lottery 2 years in a row.

How much do you think you "lost" compared to what your out of pocket expenses would have been, considering the higher premiums? Would you have still been able to fund an HSA with the lower deductible plan?

 

[Animorph]

Back when I used to have a few plans to choose from, the HSA Bronze plan was pretty close to the minimum total cost (premiums plus out of pocket) no matter how much you ended up spending out of pocket, $0 or the full deductible. Plus a tax deduction for the HSA contributions. I didn't get any subsidy, which might make a difference.

This year, I may not be able to find an HSA plan.

 

[NW-Bound]

HSA and PPO plans are going the way of the dodo bird. And every plan is now HDHP.

HDHP meant High-Deductible Health Plan, but it now means High Deductible High Premium. Why don't they call it HDHPLC (+Low Coverage) ?

Where I am, here are the choices for two pre-Medicare geezers. And there are no off-exchange health plans. All past insurers ran away screaming. The sole insurer is new for 2017. Maybe he does not know what he's getting into.

Bronze plan - HMO, $1,892/month, $13,600 deductible
Silver plan - HMO, $2,017/month, $14,100 deductible
Gold plan - HMO, $2,806/month, $2,800 deductible.

 

[audreyh1]

I did not know that. No restrictions at all?

No restrictions. It's just like having an IRA. And is taxed like an IRA.

Of course it would be smarter to use HSA withdrawals for medical expenses so you don't have to pay income taxes on the withdrawal. Especially since you can use it to pay Part B, Part C and/or Part D Medicare premiums. (Or to reimburse yourself for those premiums coming out of your SS).

We expect to use our HSAs to bridge the gap between when each of us starts on Medicare and later when we start drawing SS at 70 as planned - to pay Part B and Part D premiums until the Part B is drawn from our SS check. Our HSA accounts will probably be drawn to zero by the time we each start drawing SS. I have longer to pay into an HSA than DH - I expect I'll be paying for his Medicare premiums for a while from my HSA account once his account runs out.

But if for some reason someone had too much money accumulated in their HSA, they might need to withdraw some for non medical expenses.

 

[gauss]

Anyone can take a distribution from an HSA at any time for non-qualified (ie non-medical expenses) and pay ordinary income tax on the distribution.

An additional 20% tax will also be due unless:

1. you are age 65 or older
2. you are disabled
3. you are dead

ref: instructions for line 17 IRS Form 8889.


-gauss

 

[rodi]

How much do you think you "lost" compared to what your out of pocket expenses would have been, considering the higher premiums? Would you have still been able to fund an HSA with the lower deductible plan?

All of the HDHP that qualify for HSA have the same HIGH deductibles... So there is no choice to choose a lower deductible HDHP in my area. You can only do an HSA with these HSA qualified HDHPs.

It probably comes out slightly ahead comparing the plan we had, maxed out OOP/deductible vs the same insurer's bronze plan with coinsurance and a lower deductible - but higher premiums and no HSA allowed... That's if I consider the tax savings and the fact that the my MAGI was reduced allowing us to qualify for premium tax credits.

Reading NWBound's post - I'm glad I don't live in Arizona... My part of California seems to have plenty of insurers... so we're not seeing the same massive price increase and deductible increases.

 

[ziggy29]

All of the HDHP that qualify for HSA have the same HIGH deductibles... So there is no choice to choose a lower deductible HDHP in my area. You can only do an HSA with these HSA qualified HDHPs.

Of course, one "gotcha" increasingly occurring now is that OOP maximums are now increasing faster than the upper limit on them in HSA-compliant plans. The net result is that more and more of the "bronze" plans (and perhaps some silver plans) are not HSA-compatible because their "high deductible" is TOO high.

 

[travelover]

Of course, one "gotcha" increasingly occurring now is that OOP maximums are now increasing faster than the upper limit on them in HSA-compliant plans. The net result is that more and more of the "bronze" plans (and perhaps some silver plans) are not HSA-compatible because their "high deductible" is TOO high.

I've noticed this, too. Something tells me that the IRS has no way of routinely checking this unless you got ratted out or ran into some other special scrutiny.

 

[NW-Bound]

Something tells me that the IRS has no way of routinely checking this unless you got ratted out or ran into some other special scrutiny.

Ah, another "back-door" IRA?

 

[ziggy29]

I've noticed this, too. Something tells me that the IRS has no way of routinely checking this unless you got ratted out or ran into some other special scrutiny.

You go first.

 

[audreyh1]

I've noticed this, too. Something tells me that the IRS has no way of routinely checking this unless you got ratted out or ran into some other special scrutiny.

It wouldn't take much digging. Plans are up front about their HSA compatibility.

But having a routine check - no.