Advantages of HSA?

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jplee3
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Advantages of HSA?

Post by jplee3 »

Hey guys,

I'm pretty new to the investment arena and read about how HSAs are a nice 'tax-free' way of saving and sheltering money. I haven't signed up for one but was always curious as to what the advantages and risks are, besides using it as a long-term investment vehicle.

Like, is it risky for someone with a pre-existing condition or who is prone to injury, to go into an HSA? I noticed you are required to have a high deductible health plan in conjunction. I've always opted for standard HMO plans with my wife and it seems the HDHPs can start getting really costly especially if there's an accident. Also, wouldn't we end up paying significantly more for doctor/dentist/optometrist visits? Or is the thought that, because you can grow an HSA, that should 'offset' the increased costs that are otherwise lower if you were to stick with an HMO or PPO?

I just wanted to get a better idea of the risks associated with committing to an HSA. I already missed the train since open enrollment with my company passed last week and we opted for the HMO as we usually do. But this is more for future reference.
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Drew31
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Re: Advantages of HSA?

Post by Drew31 »

My advice would be to read the information in the Wiki.

Bogleheads Wiki HSA

There are a lot of active threads going on right now on HSAs well with additional questions.
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grabiner
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Re: Advantages of HSA?

Post by grabiner »

The key issue is to work out your own estimated costs. The high-deductible plan will cost you more than a low-deductible plan if you have high medical expenses, and the tax advantage of the HSA may (or may not) make up for that.
Also, wouldn't we end up paying significantly more for doctor/dentist/optometrist visits?
Even if you haven't met your deductible, you pay the in-network rate. This is likely to be significantly more for doctor visits; an HMO might charge you $20 to see your primary-care physician, while a HDHP might charge $80 until you have met your deductible, then $8 if it provides 90% coverage after you have met the deductible.

If your HDHP provides dental and optical care, this is not usually subject to the deductible. (If you see an opthalmologist for medical care, rather than just for glasses/contacts, this would be a medical visit covered by the deductible.)
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jeffyscott
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Re: Advantages of HSA?

Post by jeffyscott »

jplee3 wrote:Also, wouldn't we end up paying significantly more for doctor/dentist/optometrist visits?
Well it's either that or pay more in premiums, instead. I had a choice to pay about $150 more per month for traditional coverage compared to HDHP with HSA. The HDHP has $3000 deductible or effectively $2650 after considering my employer contribution to the HSA, but then the traditional costs about $1800 more in premiums. The HDHP max out of pocket is $5000, while the traditional is $2000, but considering the premiums and the HSA contribution worst case differential is about $900.
Or is the thought that, because you can grow an HSA, that should 'offset' the increased costs that are otherwise lower if you were to stick with an HMO or PPO?
That is not much of a factor to me. Even if I were maxing out all other tax deferred savings opportunities, I don't think it would be.

The incremental extra tax savings is a factor. But it is complicated to determine what that really is. While there is no payroll or income tax on the HSA contributions, there is also no payroll tax or income tax on the insurance premiums. If you have an FSA then you can pay out of pocket costs pre-tax just like with the HSA. FSA is more complicated to plan, since it is use it or lose it, though.

OTOH, unlike tax deferred retirement accounts, the tax savings is permanent, if used for medical expenses. With a 401K, I'd save about 22% in taxes now but would still have to pay taxes later (at about the same rate in my case) when money is withdrawn. With the HSA I save nearly 30% in taxes and will not owe any taxes when money is withdrawn.

The range of possible outcomes for me was not that great, the net effect of the HDHP/HSA option ranged from saving about $1000 per year to spending about $1000 per year more, without considering taxes.

This was the first year my employer offered the HDHP/HSA option. In my case, the deciding factor was that I have just a few years until retirement. After retirement there will be no ability to use an FSA and, due to cost of premiums, we will most likely want a high deductible plan. Choosing the HDHP with HSA will allow me build up maybe $15 or $20K in tax free money to pay some of those future medical expenses.
BradMajors
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Re: Advantages of HSA?

Post by BradMajors »

An advantage of HSAs is that you can see any medical professional you desire, have any procedure you want done and the expense is tax deductible. You are no longer limited by what your health insurance allows.

For me, being able to do want I want and not what my insurance company wants is a huge advantage.

My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
555
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Re: Advantages of HSA?

Post by 555 »

jplee3 wrote:Hey guys,

I'm pretty new to the investment arena and read about how HSAs are a nice 'tax-free' way of saving and sheltering money. I haven't signed up for one but was always curious as to what the advantages and risks are, besides using it as a long-term investment vehicle.

Like, is it risky for someone with a pre-existing condition or who is prone to injury, to go into an HSA? I noticed you are required to have a high deductible health plan in conjunction. I've always opted for standard HMO plans with my wife and it seems the HDHPs can start getting really costly especially if there's an accident. Also, wouldn't we end up paying significantly more for doctor/dentist/optometrist visits? Or is the thought that, because you can grow an HSA, that should 'offset' the increased costs that are otherwise lower if you were to stick with an HMO or PPO?

I just wanted to get a better idea of the risks associated with committing to an HSA. I already missed the train since open enrollment with my company passed last week and we opted for the HMO as we usually do. But this is more for future reference.
HSA is not insurance. HDHP is insurance.

You need to figure whether HDHP insurance or non-HDHP insurance suits you better. The whole HSA question is a minor side issue.
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Re: Advantages of HSA?

Post by 555 »

BradMajors wrote:An advantage of HSAs is that you can see any medical professional you desire, have any procedure you want done and the expense is tax deductible. You are no longer limited by what your health insurance allows.

For me, being able to do want I want and not what my insurance company wants is a huge advantage.

My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
This makes absolutely no sense. If you really want to pay expenses out of pocket instead of claiming insurance, (i.e. cut off your nose to spite your face) then that's your choice. You don't need an HSA for that. You don't even need an HDHP.
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Re: Advantages of HSA?

Post by grabiner »

BradMajors wrote:My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
This is not correct, because in-network rates are limited; even if you haven't met your deductible, you pay only the in-network rate under a HDHP (or any other insurance).
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Re: Advantages of HSA?

Post by mathwhiz »

Most HSA's are paired with a high deductible health care plan. They work best for the type of person that rarely goes to the doctor and has no maintenance drugs. If you have any chronic conditions or need maintenance prescriptions they aren't such a great deal most of the time. Of course, it's a gamble from year to year that you don't break a leg or go to the ER with something serious. That can wipe out many years of savings. In the Obamacare exchange, I've most often seen HSA's paired with $12,700 deductibles/out of limit maximums with $0 coverage out of network. In employer plans, they might offer better values but deductibles still would be high.
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Re: Advantages of HSA?

Post by 555 »

grabiner wrote:
BradMajors wrote:My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
This is not correct, because in-network rates are limited; even if you haven't met your deductible, you pay only the in-network rate under a HDHP (or any other insurance).
Also, you want to submit claims to start using up the deductible, becuase there is always the chance of a large expense that uses up the rest of the deductible, (and if BradMajors didn't fear the possibly of a large expense, then it wouldn't make sense to have insurance at all).
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grabiner
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Re: Advantages of HSA?

Post by grabiner »

555 wrote:
grabiner wrote:
BradMajors wrote:My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
This is not correct, because in-network rates are limited; even if you haven't met your deductible, you pay only the in-network rate under a HDHP (or any other insurance).
Also, you want to submit claims to start using up the deductible, becuase there is always the chance of a large expense that uses up the rest of the deductible, (and if BradMajors didn't fear the possibly of a large expense, then it wouldn't make sense to have insurance at all).
And if your doctor is out-of-network, only the in-network allowance will count towards the deductible, so you might pay more than the deductible out of pocket before your insurance (conventional or HDHP) kicks in.

If you use an HMO, you may get no coverage at all for non-emergency care out of the network.
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jeffyscott
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Re: Advantages of HSA?

Post by jeffyscott »

mathwhiz wrote: In the Obamacare exchange, I've most often seen HSA's paired with $12,700 deductibles/out of limit maximums with $0 coverage out of network. In employer plans, they might offer better values but deductibles still would be high.
Depends on the meaning of high, my employer HDHP has $3000 deductible that's really not all that high these days. Also since the savings in premiums plus employer HSA contributions come to about $2200, that offsets most of the difference in the deductible.

On the exchanges it all depends on what you have to pay to lower the deductible. The thing I have noticed is higher premiums can get you a lower deductible, but often the OOP maximum is just as high. If both have $12,000 max OOP, what's worse, $12,000 deductible with $4000 per year premiums or $3000 deductible with $7000 per year premiums? It would take quite a bit of medical expenses (at least $6000) before the higher cost plan would potentially pay off. Then if your medical expenses are really high, the higher cost plan could still end up costing more in total premiums plus OOP, up to $19,000 vs. max of $16,000 for the lower cost plan.
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Re: Advantages of HSA?

Post by BradMajors »

grabiner wrote:
BradMajors wrote:My primary care doctor does not take any insurance. Since it is unlikely that my out of pocket expenses will exceed my deductible there is no financial penalty for me going to this doctor rather than an "in network" doctor.
This is not correct, because in-network rates are limited; even if you haven't met your deductible, you pay only the in-network rate under a HDHP (or any other insurance).
No. Cash prices for medical services are cheaper than in-network insurance rates. I tell medical providers I don't have insurance in order to get cash discounts and then submit the claims to my insurance. I have done this with thousands of expenses and saved a lot of money.
grabiner wrote: This makes absolutely no sense. If you really want to pay expenses out of pocket instead of claiming insurance, (i.e. cut off your nose to spite your face) then that's your choice. You don't need an HSA for that. You don't even need an HDHP.
Yes I do. I need an HSA and a HDHP in order for my expenses to be tax deductible. The way insurance works is that you are paying out of your pocket until your deductible is met. The doctor I see that does not take insurance charges me less than what I would pay I if went to an in-network doctor.

The original purpose of insurance was converge for catastrophic expenses, not for routine expenses.
Last edited by BradMajors on Sat Nov 15, 2014 5:56 pm, edited 4 times in total.
Ostentatious
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Re: Advantages of HSA?

Post by Ostentatious »

It all depends on your plan. I enrolled in one last year (for this year 2014) and for the first time I think I will benefit for all the years that I have paid premiums and not used it the fullest. For example, the balance of my HSA is over $5000 now. If I had chosen the regular PPO I wouldn't have this balance almost at the end of the year. The family deductible for my plan is only $4000 and for more than a decade our healthcare cost has never been more than that except for about 2 years out of 14 years where a family member had surgery. Talking about my specific plan, all preventive visits are free. No deductible or co-payment including lab work for preventive visits. Plus my employer gives each family $2000 towards the payment of copays deductibles depending on the HDHP plan you choose. So, in order to see the benefits, read your plan documents carefully. You will be able to know if there are any benefits to your specific situation or not.
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