HSA or not?

[SoReady]

Hi,

We have never had an HSA, but are considering it this time around. I'm trying to determine the pro's and con's for us.

The two ACA Bronze options are $200/mo difference. The one that is NOT HSA eligible is $200/mo less than the HSA eligible one. We plan on trying to hit the $60k mark for income to get the subsidy. So tax deduction wise an HSA as a deduction does not come in to play.

But I did come across something called Qualified HSA Funding Distribution (QHFD) with this associated article https://www.irahelp.com/slottreport/want-fund-your-hsa-your-ira-heres-how. Essentially it is a once in a lifetime seeding of HSA with a direct transfer of funds from IRA to HSA. No taxes involved in the transfer. Seems like a good way to start one.

Has anyone done this and think it is a great idea, even though we would be spending an extra $2400/yr for the HSA eligible plan?

Bob D

 

[rodi]

I don't know about the seeding of the HSA with IRA.

What I like about HSA is that it reduces the MAGI off the top - so it is helpful in managing income for the ACA premium tax credits.

 

[audreyh1]

I have a similar issue. We will be paying $1700 more each a year for the HSA bronze, which now exceeds our tax savings by several hundred dollars.

But there are other, less tangible, differences between the two plans. It's hard to value the much lower deductible, lower OOP and out-of-network coverage of the HSA plan.

 

[audreyh1]

I don't know about the seeding of the HSA with IRA.

What I like about HSA is that it reduces the MAGI off the top - so it is helpful in managing income for the ACA premium tax credits.

Yes, you can initially (one time for a year's worth of contribution) but in doing so you are giving up your taxable income reduction for that year. So I don't know why someone would do it unless they had no money to cover medical bills other than their IRA.

I suppose it would reduce your future RMD. But by a small amount it seems.

 

[zinger1457]

The two ACA Bronze options are $200/mo difference. The one that is NOT HSA eligible is $200/mo less than the HSA eligible one. We plan on trying to hit the $60k mark for income to get the subsidy. So tax deduction wise an HSA as a deduction does not come in to play.

I would think if you were trying to get your income to a certain level to get a subsidy the HSA deduction would be a useful tool to help you get there. Why would the HSA deduction not come into play?

 

[SoReady]

I guess I may not be well versed in determining MAGI. I didn't think you could do any deductions to determine that. I thought MAGI was only calculated before deductions.

Edit: I just went back to the 1040 calculator and see how HSA can reduce MAGI.

@Audrey... yes, all/most of my income next year will come from IRA and I need to take just enough to hit the $60k mark.

I guess I need to do some scenarios to see which works out best.

 

[zinger1457]

I guess I may not be well versed in determining MAGI. I didn't think you could do any deductions to determine that. I thought MAGI was only calculated before deductions.

For many MAGI is the same as AGI (line 37 on 1040) but there can be some differences. This article seems pretty good at showing what you would have to add to your AGI to get your MAGI.

https://www.thebalance.com/how-to-calculate-your-modified-adjusted-gross-income-4047216

 

[bobandsherry]

Are the co-pays, deduction and OOP the same between both bronze plans? Asking as mine were lower for non HSA plan. For example non HSA plan had $35 co-pays for doctor, first 3 visits at no cost. Much lower health costs with non HSA plan. HSA tax benefits would never have offset the lower expected costs from non HSA plan.

 

[explanade]

I'm facing a similar choice, $140-150 month a more for HSA plan.

HSA plan has a lower deductible and OOP and a better network for some specialities that I may need.

I've been in HSA plans for the last 3 years and in the past, the difference in premiums between HSA and non-HSA wasn't this great.

Main good thing about HSA is that my HSA account, which I never withdraw from, has appreciated over my contributions, since the market has been going up the last 3 years.

I'm leaning towards staying with my HSA plan, which has gone up 31% this year.

 

[audreyh1]

I guess I may not be well versed in determining MAGI. I didn't think you could do any deductions to determine that. I thought MAGI was only calculated before deductions.

Edit: I just went back to the 1040 calculator and see how HSA can reduce MAGI.

@Audrey... yes, all/most of my income next year will come from IRA and I need to take just enough to hit the $60k mark.

I guess I need to do some scenarios to see which works out best.

The HSA tax deduction occurs ahead of the AGI calculation so it comes right off the top of your income, reducing your taxable income by the HSA contribution before MAGI is calculated. It is not buried in Schedule A like any deductions.

 

[4legsgood]

Hi,

As an early retired person and so far in good health with no prescriptions, I really like HSA qualified insurance. I can contribute to an HSA without earned income and deduct from MAGI for better ACA subsidy and lower taxes in general. I hope to contribute enough to my HSA account to accumulate for higher health care costs when I'm older (no LTCI). So far, HSA qualified insurance works for me.

 

[NoMoreJob]

This is a handy sheet showing what is included and excluded from ACA MAGI....

https://docs.google.com/viewer?url=http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

You'll notice that 'Health saving account deduction' is included in the 'AGI Deduct' box.

It definitely helps keep income under the subsidy maximum and can allow you to withdraw additional taxable income and still stay below that level.

 

[pb4uski]

I would not pay $2,400 a year in additional health insurance premium to be able to contribute $8,750 or whatever it is to a HSA... no way the tax savings would make it worthwhile.

I was a big proponent of HSAs due to the triple tax benefits... less enthusiastic now but it is ok. Have yet to use them but I do keep a file of our medical cost incurred since we have owned them so I can access some of that money tax free someday.

 

[UnrealizedPotential]

I went with an HSA because I am healthy, needed something to lower my income, and the monthly premium was low. I have the cash to pay the max OOP in the unlikely event I need to, but plan on contributing to an HSA starting in January to help with the deductible and max OOP which is the same and any medical costs that contribute toward it.

In the future I will reevaluate. I think it makes sense for me to have an HSA now. Next year or after who knows? Things change.

 

[bingybear]

I chose the HSA route. I really did not look closely at the one lower cost plan that covers our doctors (same company). The lower cost plan had higher MOOP and deductibles. I fund the HSA and invest much of it. I use the reduction in income of the HSA contribution to provide more space for roth conversions. In this way the hsa provides about twice the benefits as the HSA contributions + the same amount in roth conversions.

I see the hsa as a fund for later in life health coverage and LTC funding.

 

[easysurfer]

Article on if you are a Great, Good or not Good HSA candidate:

People eligible for health savings accounts fall into three categories: good candidates, great candidates and those who’d be better off staying away.
Money in an HSA isn’t taxed when you deposit, invest or withdraw it for approved, IRS-designated medical expenses. Once you’re 65, you can withdraw the cash for any reason, medical or not. Some financial experts call an HSA a better savings vehicle than a 401(k).
There’s one giant string attached: You must have a high-deductible health plan to open or contribute to an HSA, making your medical bills a key factor in whether to create one.

https://www.marketwatch.com/story/find-out-if-a-health-savings-account-is-right-for-you-2017-11-17

 

[RunningBum]

Unless the HSA income deduction keeps you from going over the subsidy cliff, $2400 seems like too steep of a price to pay for the tax benefit. Figure a 10-15% benefit to your HSA contribution--depends on your case and I haven't studied the exact value too closely even for myself. The rest would have to be made by other aspects to the plan such as lower deductible or max out of pocket costs, or better rates on dr/specialist visits in the HSA policy vs. the cheaper one. An HSA is a great benefit, but don't overpay for it.

 

[Gotadimple]

Just to add to the mix. Your health plan and your HSA are two separate entities. So you can select a bank/credit union that offers an HSA plan choosing the best options for you (i.e., low/no annual administration fee, minimum amount to earn interest, ability to invest part of your savings through a companion brokerage firm, etc.).

You choose an HSA qualified health plan from a health insurance company. Choose for premiums, co-pays, out of pocket maximums, etc. The HSA does not have to have a relationship with the health insurer.

If the Health Exchanges are no longer offering good competing options (unfortunately some don't anymore), then choose the best health plan you can get for the $$, and stop funding the HSA. Leave your HSA intact to grow for when you are on Medicare. You have tax-free growth in this account like a Roth IRA, if you follow the rules for withdrawing to pay for expenses or premiums.

- Rita

 

[NoMoreJob]

I you are early retired and need to control your income in order to receive a subsidy another nice thing about having an HSA is that if you should have unexpected OOP medical medical expenses you can cover them out of your HSA without having to withdraw from taxable and increase income (jeopardizing the subsidy).

 

[dvalley]

Only two years of HSA so far and find it totally worthwhile. As a single high-ish earner my goal is always to minimize my current income taxes while squirreling away money for later use. The triple tax savings is awesome and I really wish I had been offered HSA in the past. We'll all need money for health care eventually...and the way things are going loads of it.

 

[RunningBum]

HSAs are wonderful. But not at just any price. The issue is, how much extra would you pay for one?


Say there are two identical policies, except that one is HSA, one is not. If they were the same price, it's a no-brainer to go with the HSA one. If the HSA one costs $20,000 year more (after any subsidy), I can't imagine anyone thinking the HSA one is worth it.


So there is some number >0 but less than infinity where an HSA policy has equal value to you. It will be probably be different for each person based on your marginal tax rate, how much you can contribute (marrieds and over 55 can contribute more), and probably other factors. You need to know your number, at least approximately, to make an HSA or not decision. And then you can compare other policy differences to determine what those mean to you too.


You can't just blindly say the HSA policy is the one to go with.

 

[dvalley]

^ true. In my case the company only offers two policies, HSA Std and HSA Premium. I go with Std which has a higher deductible but otherwise cheaper. I hardly ever go to the doc. 2017 zero visits so far, knock on wood and that's been the case for the last 30yrs. However, I'm over the hill (40) so who knows when my visits will become more frequent.

 

[brucethebroker]

I'm facing a similar choice, $140-150 month a more for HSA plan.

HSA plan has a lower deductible and OOP and a better network for some specialities that I may need.

I've been in HSA plans for the last 3 years and in the past, the difference in premiums between HSA and non-HSA wasn't this great.

Main good thing about HSA is that my HSA account, which I never withdraw from, has appreciated over my contributions, since the market has been going up the last 3 years.

I'm leaning towards staying with my HSA plan, which has gone up 31% this year.

We have also had an HSA Bronze plan for 3 years. This year, it is about the same premium as a Silver plan ($30 a month extra), plus the Silver has a much lower deductible & out-of-pocket and pays much, much more towards office visits, Rx and tests. Well worth giving up HSA and paying an extra $360 a year in premiums.

 

[bobandsherry]

I had heard good about HSA policies for taxes, but with ACA plans offered this year in could get a non-HSA plan for $0 premium. A HSA plan was over $4,000 for the year and had higher deduction, OOP and co-pays. There is no case to be made that HSA was better option for me even with the triple tax benefit.

 

[Surewhitey]

I had heard good about HSA policies for taxes, but with ACA plans offered this year in could get a non-HSA plan for $0 premium. A HSA plan was over $4,000 for the year and had higher deduction, OOP and co-pays. There is no case to be made that HSA was better option for me even with the triple tax benefit.

Found the same scenario when not w*rking; we opted for the non-HSA policy. While w*rking, employer offered a lower premium that "standard, non-HSA coverage with a slightly higher deductible. Was a no-brainer for us to max out ($6,700-ish for family) the HSA.

We're still spending DW's HSA from her 2011 departure from corporate. It's another leg of our retirement plan while lowering our MAGI and you never pay taxes on the monies if you use for healthcare unlike your IRA / 401k...