How our HSAs saved us over $10,000

[zinger1457]

Does anyone have the exact definition of what a "HSA qualified HDHP" is ? the best I can find is this

I believe another requirement for HSA plans is that there can be no payments made by the insurance company (except for certain things like preventive care) until the deductibles are paid. I was also was curious as to why one of my low cost Bronze plans was not HSA eligible since it seemed to meet all of the HSA requirements. When I looked at the plans details on the healthcare providers web site there was a note (not mentioned on ACA) that the deductible is waived for the first primary care office visit. This was the only thing that I could find that might explain why it is listed as not HSA eligible.

 

[Mulligan]

Right before Obamacare whenI retired I had a chance to stay on group plan of $500 premium with $1k deductible and prescription co pays. I declined and went on my own with an individual plan of $5500 with HSA and $72 monthly premium. Four years later, still with no health issues or prescriptions, I have saved almost $25,000 by forgoing the group plan. Obamacare premium costs have thrown a wrench into this, but as long as I stay healthy until 65, with the HSA deduction I will still come out ahead. If the health issues ever kick in before Medicare, I may live to regret my decision.

 

[rbmrtn]

I believe this is the original IRS document on this. HSA came in as part of the 2003 medicare changes http://www.irs.gov/pub/irs-drop/n-04-2.pdf . It mentions the "first-dollar coverage" term for HDHPs. Also pub 969 adds more info http://www.irs.gov/pub/irs-pdf/p969.pdf. The 8889 instructions refer to 969 for HDHP details.

The plan I was looking at states on page 1 of the brochure that deductible must be met before any benefits are paid; but then on the last page in breaks out generic prescriptions as having copay but doesn't mention "after deductible".... confusing. It would suck to lose HSA because of a $25 copay I'll never use ( well never say never ).

 

[audreyh1]

I believe another requirement for HSA plans is that there can be no payments made by the insurance company (except for certain things like preventive care) until the deductibles are paid. I was also was curious as to why one of my low cost Bronze plans was not HSA eligible since it seemed to meet all of the HSA requirements. When I looked at the plans details on the healthcare providers web site there was a note (not mentioned on ACA) that the deductible is waived for the first primary care office visit. This was the only thing that I could find that might explain why it is listed as not HSA eligible.

Right - free visits or any type of reduced copay nulls it as an high deductible plan.

ACA changed language so that the free (i.e. included) preventative services covered by ACA plans do not violate HD requirements for an HSA. But if they throw in any extra "freebies", that screws things up.

 

[audreyh1]

I believe this is the original IRS document on this. HSA came in as part of the 2003 medicare changes http://www.irs.gov/pub/irs-drop/n-04-2.pdf . It mentions the "first-dollar coverage" term for HDHPs. Also pub 969 adds more info http://www.irs.gov/pub/irs-pdf/p969.pdf. The 8889 instructions refer to 969 for HDHP details.

The plan I was looking at states on page 1 of the brochure that deductible must be met before any benefits are paid; but then on the last page in breaks out generic prescriptions as having copay but doesn't mention "after deductible".... confusing. It would suck to lose HSA because of a $25 copay I'll never use ( well never say never ).

Right - those are the gotchas you have to look out for.

 

[sengsational]

My husband and I (both age 62) have High Deductible HI policies. We established HSAs several years ago. We have funded the HSAs to the max. Last year, using Turbotax, I estimated our Federal and state income tax savings due to the HSAs was around $1,200.

We have just applied for the subsidy on the HealthCare.gov and qualified for subsidies of approx $9,000. The only reason we qualify for the subsidy is that we can deduct our HSA contribution in determining our Modified Adjusted Gross Income.

Between the income tax deduction and the subsidy we figure our HSAs will save us around $10,200 next year. And in addition we have over $50,000 (invested in Vanguard mutual funds) in our HSAs growing tax free that we can draw on if we need it.

I highly recommend you look into an HSA if you are under 65.

Jo Ann

Sort of a big-picture question about HSA's and the savings available...

As one component of savings, you get a marginal tax rate "discount" on your health care spending. If you run your $100 doctor visit through an HSA, you save about $15 (if you're in the 15% tax bracket). That's because you didn't have to pay income tax on the $100.

The other component is, because you ran your healthcare expenditures through the HSA, your O-MAGI is lower and could qualify you for ACA subsidies/more subsidies.

The HSA angle is what's primarily driving me toward Bronze and away from Silver and catatrophic when I FIRE in a few months at 55. I want to make sure I've "got this" and it will work for someone going for subsidies, with no W2 income, but plenty of possible Roth conversions.

 

[Mulligan]

Sort of a big-picture question about HSA's and the savings available... As one component of savings, you get a marginal tax rate "discount" on your health care spending. If you run your $100 doctor visit through an HSA, you save about $15 (if you're in the 15% tax bracket). That's because you didn't have to pay income tax on the $100. The other component is, because you ran your healthcare expenditures through the HSA, your O-MAGI is lower and could qualify you for ACA subsidies/more subsidies. The HSA angle is what's primarily driving me toward Bronze and away from Silver and catatrophic when I FIRE in a few months at 55. I want to make sure I've "got this" and it will work for someone going for subsidies, with no W2 income, but plenty of possible Roth conversions.

Being a single retiree with a state income tax also, I save 31 cents on the dollar with the HSA, so it is a no brainer for me to get the high deductible HSA.

 

[zinger1457]

ACA changed language so that the free (i.e. included) preventative services covered by ACA plans do not violate HD requirements for an HSA. But if they throw in any extra "freebies", that screws things up.

Free 'preventative services' have been allowed in HD/HSA plans for as long as I can remember. I've had it in my HD/HSA plan for as long as I've had one, about 6 years. I believe the ACA change is that free preventive care is now required in all HD/HSA plans.

 

[ziggy29]

Free 'preventative services' have been allowed in HD/HSA plans for as long as I can remember. I've had it in my HD/HSA plan for as long as I've had one, about 6 years. I believe the ACA change is that free preventive care is now required in all HD/HSA plans.

When HSAs first started, not even preventative care was allowed to be covered before the deductible was met. A few years ago they changed that and allowed first-dollar preventative care, and the ACA actually makes that a requirement for all compliant plans.

 

[Texas Proud]

Well, I have been reading the rules and there are a lot of 'gotchas' if you are not careful....

If you fail to remain an eligible individual during the test-
ing period, other than because of death or becoming disa-
bled, you will have to include in income the total contribu-
tions made to your HSA that would not have been made
except for the last-month rule. You include this amount in
your income in the year in which you fail to be an eligible
individual. This amount is also subject to a 10% additional
tax.


I was hoping that I could make a payment for December, but that means if I do go back to work and get insurance (most likely), then it would be a bad decision to make that contribution....

I guess I will go back to my original plan to get a short term plan until I get an Obama plan or a job...

 

[audreyh1]

I believe this is the original IRS document on this. HSA came in as part of the 2003 medicare changes http://www.irs.gov/pub/irs-drop/n-04-2.pdf . It mentions the "first-dollar coverage" term for HDHPs. Also pub 969 adds more info http://www.irs.gov/pub/irs-pdf/p969.pdf. The 8889 instructions refer to 969 for HDHP details.

The plan I was looking at states on page 1 of the brochure that deductible must be met before any benefits are paid; but then on the last page in breaks out generic prescriptions as having copay but doesn't mention "after deductible".... confusing. It would suck to lose HSA because of a $25 copay I'll never use ( well never say never ).

When I signed up for my plan, I was assigned a pediatric dental plan at no cost to me because all ACA plans are required to ensure pediatric dental is provided even if there is no-one under 19 on the plan.

The $0 pediatric dental plan I was automatically assigned (and which does not in fact cover me) has a $75 deductible. It took me a while to realize this.

I called and asked about this affecting HSA eligibility. The health insurance agents at BCBS swear this will not affect my HSA eligibility as that plan does not apply to me and my coverage. It was required to met the ACA regulation unless I provided evidence of another plan I had that did, even though there are no children on my (individual adult) plan.

This really bugs me, but I am not comfortable resubmitting an application either, since BCBS has already withdrawn my initial payment.

 

[bamsphd]

I called and asked about this affecting HSA eligibility.

From Publication 969 (2012), Health Savings Accounts and Other Tax-Favored Health Plans

Other health coverage. You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. You can have additional insurance that provides benefits only for the following items.

• Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property.
• A specific disease or illness.
• A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

• Accidents.
• Disability.
• Dental care.
• Vision care.
• Long-term care.

 

[audreyh1]

From Publication 969 (2012), Health Savings Accounts and Other Tax-Favored Health Plans

Other health coverage. You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. You can have additional insurance that provides benefits only for the following items.

• Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property.
• A specific disease or illness.
• A fixed amount per day (or other period) of hospitalization.

You can also have coverage (whether provided through insurance or otherwise) for the following items.

• Accidents.
• Disability.
• Dental care.
• Vision care.
• Long-term care.

Thanks very much bampshd! - that really spells it out.

1. dental plans don't disqualify one's HSA eligibility

and

2. I am not covered by that pediatric dental plan anyway.

 

[Elbata]

and qualified for subsidies of approx $9,000

JoAnn, what did you mean by $9000 in subsidies? I don't know what that means.

 

[audreyh1]

When do you contribute to your HSA?:

• Monthly - for each month that I am eligible.
• In December for the current year.
• In April (or when I file my taxes) for the prior year.
• In January for the full (current) year as I am confident my insurance situation won't change.

Just curious.

I don't expect our insurance to change during the year, but just to be safe we may contribute monthly which would give us the advantage of averaging in assuming some of it is directed to long-term investments. There may be account minimums we have to meet that would delay this approach.

OR we could wait until Dec (or the next April) for a year we know we are eligible for the entire year and contribute the full annual amount then. This is simpler.

I don't think I'm comfortable contributing in Jan for the current year because who knows what could happen during the year?

 

[zinger1457]

When do you contribute to your HSA?:

I have it set up so a monthly auto transfer is made between my checking and HSA account. Just set it up once and don't have to worry about it other than changing the amount if the contribution limit increases.

 

[golftrek]

We usually contribute to our HSA either at the end of the calendar year or by 4/15 of the next year, whenever we can come up with the money.


Regarding the question of the $9000 in subsidies, this is the amount we qualified for on HealthCare.gov to subsidize our health insurance premium. The reason we qualify for the subsidies is that we can get our adjusted income below the cut off for subsidies by deducting our HSA contribution. The Affordable Care Act rules allow a deduction for HSA contributions in determining adjusted gross income.

After the subsidy, our insurance premium for our HSA policy will be $163 each per month, we had been paying around $500 each for basically the same health insurance policy.

 

[Lakedog]

When do you contribute to your HSA?:

• Monthly - for each month that I am eligible.
• In December for the current year.
• In April (or when I file my taxes) for the prior year.
• In January for the full (current) year as I am confident my insurance situation won't change.

Just curious.

I don't expect our insurance to change during the year, but just to be safe we may contribute monthly which would give us the advantage of averaging in assuming some of it is directed to long-term investments. There may be account minimums we have to meet that would delay this approach.

OR we could wait until Dec (or the next April) for a year we know we are eligible for the entire year and contribute the full annual amount then. This is simpler.

I don't think I'm comfortable contributing in Jan for the current year because who knows what could happen during the year?

I contribute the allowable amount in early January so I can get the cash invested asap. I guess if you are not sure whether your situation will change during the year, it makes sense to go monthly or end of year. I use HSA Bank and move the funds to a linked TD Ameritrade account as soon as possible.

 

[audreyh1]

Thanks for the answers!

 

[audreyh1]

Should have done this a month ago!!!! but am going to set up an account with HSA Administrators tomorrow as I have some "eligible expenses" coming up next week.

Not that I intend to pay for them from the HSA this year, but I want the flexibility in the future to pay for any expenses incurred from now on.

 

[Sue J]

This is our first year with an HDHP with an HSA. I opened the HSA account in early January and I'm sending money to it in chunks. So far I've contributed $4000 toward our allowed $7550 (family plan over age 50).

I picked HSA Administrators and it's all in VTSAX (Vanguard Total Stock Market). I had some fun researching other available funds and may spread it around.

We've had about $800 in expenses and just cash flowed those instead of using the HSA. So far I'm finding the HDHP with a very low premium is working well for us.

 

[Mulligan]

I finally convinced myself a couple months ago that my HSA money isn't medical money, but part of my investments, so I used half of it to buy Chevron stock. Well it immediately jumped 10% in a little over a month, so I sold it because I told myself you just captured 10 years worth of interest in 1 month. Ok... Now what am I going to do? I am going to have to buy some mutual funds so I don't do this buying and selling impulse thing.


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[audreyh1]

I had to think a while of how to count the HSA money, since putting money into an account isn't an "expense" even though it's being pulled out of short-term funds. I finally realized that the HSA accounts also count as short-term funds, since the money is available, whenever we need it, to pay any medical bills incurred in the future. So they are really just part of our extra "padded" pile of short-term monies.

Haven't put money away in "savings" in so long I forgot how to count it! LOL!

 

[pb4uski]

I view contributions to our HSA the same as contributions to a Roth IRA while I was working - just a transfer of funds from taxable accounts to a tax-free account.

 

[Mulligan]

I view contributions to our HSA the same as contributions to a Roth IRA while I was working - just a transfer of funds from taxable accounts to a tax-free account.

I read a post from Bogleheads that really rang true with me concerning HSA's. He said did you get one for your health, or did you get it for the tax deduction. If you got it as a tax deduction then treat it like it is part of your portfolio. I just need to keep having no medical expenses to make this process a no brainer.


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