Should I get an HSA?

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Topic Author
durazno

Should I get an HSA?

Post by durazno »

I've always had an FSA with my employer-provided insurance package but in my new job I have a high deductible health insurance plan ($2k per year) and no FSA. I am part of my employer's Health Reimbursement Account, which provides up to $1000 per year for eligible health care expenses that apply towards the deductible (ie. out of pocket excluding copays).

Does it make sense for me to open an HSA? I've read the pros and cons and given my situation it seems like I should do this.

I currently max my Roth and 401ks each year and have some additional savings put into my taxable account (at Vanguard). From what I've read, it seems I'm better off taking the money and routing it to max the HSA instead of putting it into taxable. Additionally, seems I'd be better off paying qualified expenses out of pocket so as to keep my HSA balance higher.

Just making sure this is sensible before I make any moves.

Thanks,
Iced Tea
davidlukewilcox
Posts: 117
Joined: Sat Dec 24, 2011 1:44 am

Re: Should I get an HSA?

Post by davidlukewilcox »

IcedTea,

I plan on doing that exact same plan when I get an HSA. The money is not taxed at any point as long as you save receipts and take it out in retirement for health needs. Even in retirement, though, after age 65 or so, it's treated just like an IRA (no penalties, but taxes for withdrawals for non-medical needs).
schoolboyguy
Posts: 61
Joined: Fri Feb 14, 2014 5:13 pm

Re: Should I get an HSA?

Post by schoolboyguy »

I am signing up for my HSA next week. It is tax advantaged and my employer matches the first $500 I contribute annually, so I see it as an opportunity to lower my taxable income and get a free $500 every year.

Also, I am pretty young (27), so I don't really expect any major medical expenses in the next few years. If I did, I probably wouldn't have chosen the high deductible plan.

Most HSA's allow you to invest once you have a large enough balance. I think an HSA is a good thing.
Topic Author
durazno

Re: Should I get an HSA?

Post by durazno »

OP here. Thanks for the posts.

I'm going to open the HSA. I was going to do this a couple months ago but found out my company offered an HRA, not an HSA. At that time I had no idea you could open an HSA privately. I'd accrued about $300 in eligible expenses in the last couple months -- ugh dentist -- but apparently if I open the HSA now those expenses won't qualify. Ah well. Better late than never.

What to invest in?
How does one go about deciding whether to invest in equity mutual funds in the HSA vs. a combo of equity and fixed? I have my emergency fund of course but you never quite know if it would be enough for a major health emergency. Surely this is a personal decision but do Bogleheads have any guidelines I should consider?

I'm going to ask my employer if they allow me to contribute to the HSA pre-tax via paychecks. I read on the wiki that this is better, if your gross income is under the SSWB.

My HDHP has a connection with Optum Bank for an HSA. I'm going to look into their funds and fees, along with some alternatives.

Iced Tea
furwut
Posts: 2123
Joined: Tue Jun 05, 2012 8:54 pm

Re: Should I get an HSA?

Post by furwut »

icedtea wrote: What to invest in?
How does one go about deciding whether to invest in equity mutual funds in the HSA vs. a combo of equity and fixed? I have my emergency fund of course but you never quite know if it would be enough for a major health emergency. Surely this is a personal decision but do Bogleheads have any guidelines I should consider?
You could keep your up-front deductible in cash then invest the rest for growth.

On the other hand - a properly sized emergency fund should be more than enough to cover your deductible in the event of a large medical expense. Specifically setting aside money for every conceivable emergency might be overly conservative and limit growth.
Last edited by furwut on Fri Sep 26, 2014 9:34 am, edited 2 times in total.
DFrank
Posts: 474
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Location: North Idaho

Re: Should I get an HSA?

Post by DFrank »

I'm a fan of HSA's. I think it's a particularly good tool if you can start them when you are young and unlikely to have a lot of unexpected medical costs. That should allow you to build a good balance for later in life when you are more likely to encounter significant medical expenses. In the ideal case you should be able to save a significant percentage of the ~$225k that the average retiree will need for medical costs over the course of their retirement. As others have noted, it's all tax free.

As with 401k's there are questions about the investment choices, costs, etc. that should be considered.
Dave
kazper
Posts: 628
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Re: Should I get an HSA?

Post by kazper »

It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
Topic Author
durazno

Re: Should I get an HSA?

Post by durazno »

kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
Thanks, in my case I only have one choice for a health insurance plan at my new job and it's a high deductible.
kazper
Posts: 628
Joined: Fri Aug 01, 2014 7:45 pm

Re: Should I get an HSA?

Post by kazper »

icedtea wrote:
kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
Thanks, in my case I only have one choice for a health insurance plan at my new job and it's a high deductible.
Gotcha! In that case, it would make more sense to go with the HSA than the HRA, which is lost after the year is over. You probably already know this, but you cannot have an FSA with an HSA (except maybe children/dependent care, although that depends). For us (govt), we would be thrown in an HRA if we had an active FSA.
GDBryan
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Re: Should I get an HSA?

Post by GDBryan »

I hear that HSA's are a good thing, but this makes me wonder:

When you get medical care, say a blood test, the "retail" cost might be $300, but the insurance company only pays maybe $40-$50. If you pay out of pocket, don't you have to pay the full $300?

That will eat any HSA savings in a hurry.
Topic Author
durazno

Re: Should I get an HSA?

Post by durazno »

kazper wrote:
icedtea wrote:
kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
Thanks, in my case I only have one choice for a health insurance plan at my new job and it's a high deductible.
Gotcha! In that case, it would make more sense to go with the HSA than the HRA, which is lost after the year is over. You probably already know this, but you cannot have an FSA with an HSA (except maybe children/dependent care, although that depends). For us (govt), we would be thrown in an HRA if we had an active FSA.
When you say HRA, do you mean FSA? My company offers an HRA. I thought I was able to open up an HSA privately in addition to the HRA?
DFrank
Posts: 474
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Location: North Idaho

Re: Should I get an HSA?

Post by DFrank »

GDBryan wrote:I hear that HSA's are a good thing, but this makes me wonder:

When you get medical care, say a blood test, the "retail" cost might be $300, but the insurance company only pays maybe $40-$50. If you pay out of pocket, don't you have to pay the full $300?

That will eat any HSA savings in a hurry.
I think many people will use HSA accounts to pay for co-pays, deductibles and prescriptions which are bought through their medical plan and have the benefits of the discounts they have negotiated with providers.
Dave
kazper
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Joined: Fri Aug 01, 2014 7:45 pm

Re: Should I get an HSA?

Post by kazper »

icedtea wrote:
kazper wrote:
icedtea wrote:
kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
Thanks, in my case I only have one choice for a health insurance plan at my new job and it's a high deductible.
Gotcha! In that case, it would make more sense to go with the HSA than the HRA, which is lost after the year is over. You probably already know this, but you cannot have an FSA with an HSA (except maybe children/dependent care, although that depends). For us (govt), we would be thrown in an HRA if we had an active FSA.
When you say HRA, do you mean FSA? My company offers an HRA. I thought I was able to open up an HSA privately in addition to the HRA?
You probably need to check with the plan administrator. For our plans, you had one or the other. They started you out with an HSA. However, if you had an active FSA, they put you in an HRA because you cannot have an HSA and FSA at the same time.
DFrank
Posts: 474
Joined: Thu Mar 20, 2014 10:44 pm
Location: North Idaho

Re: Should I get an HSA?

Post by DFrank »

kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
From my experience, your situation is quite unusual. Typically high deductible plans with an HSA have lower premiums compared to a traditional plan with a lower deductible. Strange ....

That said, I think one should evaluate the tradeoff keeping in mind that you are not likely to face the maximum deductible or out-of-pocket expenses every year (unless you have a known health issue already). As I mentioned earlier, I started an HSA when I was about 50, so not so young. Even in my case I figured that after the first year I had the deductible covered, and in a little over 2 years I had my max out-of-pocket expenses covered. I'm reasonably healthy, so that seemed like a fair bet. As it happens I've not spent any money out of my HSA in the past 10 years or so, and barring major unexpected expenses I'll continue to do that until after I'm retired.
Dave
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N1CKV
Posts: 864
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Re: Should I get an HSA?

Post by N1CKV »

GDBryan wrote:I hear that HSA's are a good thing, but this makes me wonder:

When you get medical care, say a blood test, the "retail" cost might be $300, but the insurance company only pays maybe $40-$50. If you pay out of pocket, don't you have to pay the full $300?

That will eat any HSA savings in a hurry.
You pay the insurance company's negotiated rate. Most doctor's will bill the insurance company, then get a response telling them how much they can collect from you.
kazper
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Re: Should I get an HSA?

Post by kazper »

DFrank wrote:
kazper wrote:It sounds like you've already made up your mind, but wanted to make sure you saw this thread:

http://www.bogleheads.org/forum/viewtop ... 1&t=147513

As I posted there, it doesn't always make sense to go the HSA route. In my case, it would mean higher premiums (about $10 per pay period), higher deductibles (from 750 to 3k), and higher max expenses (5,000 to 10,000). If it reduced my premiums enough I would consider it, but having all three go up is simply not helpful. As someone here told me, having a decent retirement vehicle (HSA) in a crappy plan doesn't equal out...
From my experience, your situation is quite unusual. Typically high deductible plans with an HSA have lower premiums compared to a traditional plan with a lower deductible. Strange ....

That said, I think one should evaluate the tradeoff keeping in mind that you are not likely to face the maximum deductible or out-of-pocket expenses every year (unless you have a known health issue already). As I mentioned earlier, I started an HSA when I was about 50, so not so young. Even in my case I figured that after the first year I had the deductible covered, and in a little over 2 years I had my max out-of-pocket expenses covered. I'm reasonably healthy, so that seemed like a fair bet. As it happens I've not spent any money out of my HSA in the past 10 years or so, and barring major unexpected expenses I'll continue to do that until after I'm retired.
I know, right? I REALLY wanted to go the HSA route, but with a wife and 3 year old, I'm sure the expenses would pile up. For someone young, single, and in good health, it could be a great thing!
Topic Author
durazno

Re: Should I get an HSA?

Post by durazno »

OP again. I was wrong. I'm not eligible for an HSA apparently. Our administrator said one of the requirements is that all of the high deductible plan's charges must be subject to the deductible. Our insurance plan has copays for office visits and prescriptions that don't count towards the deductible, so I can't get an HSA.

D'oh!
kazper
Posts: 628
Joined: Fri Aug 01, 2014 7:45 pm

Re: Should I get an HSA?

Post by kazper »

icedtea wrote:OP again. I was wrong. I'm not eligible for an HSA apparently. Our administrator said one of the requirements is that all of the high deductible plan's charges must be subject to the deductible. Our insurance plan has copays for office visits and prescriptions that don't count towards the deductible, so I can't get an HSA.

D'oh!
At least you found that out now! Sorry :(
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