Bogleheads

[rene]

I have a PPO health insurance though my work. Deductible is $250 and the plan is just fine with me.

Now my work is offering to get into a HSA

Deductible is $1250 BUT my work will fork over $1000 into the HSA to cover the difference. I work for nice people

Does this make joining the HSA a no-brainer? The way I read it this is basically another way for me to increase my tax deferred savings and to top it off work pays for the $1000 difference between deductibles.

I don't go to the doctor that often and the only stuff I end up paying for is soccer related accidents etcetera. I like the idea of free annuals checkups because I am getting close to 40 years

Also can I basically treat this as a tax deferred savings account? If I incur a medical bill in 2008 and choose to pay for it out of pocket...can I then just hold on the receipt and get that amount out of my HSA account say 20 years later?

It looks liek such a no brainer to me that I fear that I am missing something

[CoHillbilly]

I just recently switched over to a HSA eligible health plan. The monthly premiums are a lot less.

It can be another way to save money in a tax-deferred account. Plus, if you so desire, you can pay for qualified health items from the HSA account that your insurance may not cover and you benefit from the tax savings. I have heard of people paying their deductables out of pocket and basically using the HSA as an ira. Once you turn 65, you can withdraw funds from the HSA for anything with no penalties, and pay taxes on your withdrawals then.

HSA's may not make sense for people who have existing conditions that would require them to pay the high deductables every year.

One drawback I am finding is that there does not seem to be very many good places to hold your HSA. Trying to find a good balance of low fees, decent paying interest, and decent low cost investments has been challenging. Hopefully, other posters can offer up some advice on good places to have an HSA.

[superlight]

I surfed Kaiser's site, checking out what a plan-change would mean to me ... it bothered me that there didn't seem to be (???) a stated price list for the standard stuff (doctor visits, lab tests, x-rays).

If they don't say that, they kind of have the option how much they want to ding you (esp. over time).

(I tend to worry about *something* and have them check it out once a year.)
_________________
"Simplicity is the ultimate sophistication."

[rpike]

One of my former employers offered an HSA option in addition to HMO and PPO options. One of our concerns was that the HMO and in-network PPO charges are at low rates pre-negotiated by the insurance company. The HSA and out-of-network PPO coverage was based on "reasonable & customary" rates like the indemnity plans we used to be on. These R & C rates always seemed to be lower than any of my providers actually charged and we ended up paying the difference.

Another Rick

Edit: I should clarify that the only HDHP offered in conjunction with that HSA was an indemnity plan whose employee cost was only slightly lower than that of the HMO alternative. Had it been an HMO or PPO with the same low pre-negotiated fees as the HMO or PPO alternatives and at a much lower premium than those low deductible alternatives, we would have given it serious consideration.

[shelanman]

I have had an HSA and a High-Deductible PPO plan for the last several years. I am extremely satisfied, and very excited about this type of insurance.

Typical (HMO, for example) health insurance is not insurance in the normal sense. In a normal situation, you buy insurance to protect you from unaffordable loss, recognizing that on average insurance buyers must pay in more in premiums than they receive in benefits -- but choosing to do so because it spreads the risk around. Better for a 100% chance to lose $1005 than a 1% chance to lose $100000, even though you're blowing $5.

Typical health coverage, on the other hand, covers everything -- including spectacularly mundane "loss" -- such as the $50-$150 that your doctor charges for a regular visit. In fact, these HMO-type plans are three products rolled in to one very complex (and expensive) package. You are buying three things: (1) protection from catastrophic financial loss due to illness or injury. (2) "collective bargaining" / group discount program for doctors (you see our doctors, follow these rules, you get this low rate for your visit), and (3) a routine health care payment plan (pay a monthly fee plus a small per-visit amount, get all-you-can-eat routine medical services)

(1) is insurance. (2) is a discount club, and (3) is basically financing.

The PPO/HSA combination separates these three items to some degree, and gives you a bit more control over your own health care. (Details vary widely by plan... I'm describing mine, yours might be different)

(1) PPO. The actual insurance plan is designed to cover catastrophic loss. Each plan's deductible is different -- mine is $2,400 indiv/$4,800 family, but they vary from $1,200 or so individual to $5,000 individual. If you need more that $2,400 (in my case) of medical care over the course of the year, then this part of the plan kicks in. My PPO will cover 80% of the charges for any covered treatment at a facility that they approve, or 50% of the "customary charges" for any covered treatment at any legally-operated facility in the US. (I don't know about abroad.) Once "my share" (that is, my 20% or 50%, depending on the facility) reaches an additional $2,400 for the year, then the plan will cover 100% of the cost for covered treatment.

The idea is that in a normal year, I'll need far far less than $2,400 of routine medical care. (In general HSA/high deductible plans work best, and are most economical if you pick a deductible that is slightly higher (say 10-20%) than your routine annual medical expenses.) But if I were to get run over by a car, or get cancer, I might need many many times that -- enough to bankrupt me if I had to pay it -- and the insurance company guarantees that if I only buy healthcare from facilities that they've approved, and only buy healthcare that they believe to be necessary, then they will guarantee that no matter how sick or hurt I get over the course of the year, I won't lose more than $4,800.

Of course, they can raise the premiums come renewal time, as you'd expect them to; They aren't in the business of providing cheap healthcare -- they're in the business of pooling risk.

(2) Discount Club -- The PPO maintains a network of approved providers. That's the list of doctors at which they pay 80% (once I hit the deductible). One of the rules for doctors to join this network is that they must agree never to charge more than the amount on the PPO provider's schedule of customary charges for any procedure, when seeing any member of the plan.

So, my doctor typically charged me $100 for a regular visit. He gave me a small discount for paying upfront, rather than waiting to be billed. Now, as a member of my HSA/PPO insurance plan, he would charge me only $68 (plus or minus a few cents), because that's the amount on the schedule of customary charges for that visit (or it was the last time I went to him, anyway). Even if I'm paying out of pocket for the treatment, because I haven't met my deductible, I never have to pay more than the "customary" amount if I go to a doctor that's a member of "the club" -- that is, my provider's network.

(3) Payment plan. The HSA provides (a tax-advantaged) way to smooth out the cost of routine medical treatment. You put money in the HSA every month on a regular basis, and then withdraw as much as you need to cover any medical expense that's not paid for by your PPO (such as a doctor's visit before you've met your deductible). If your employer contributes to your HSA, they can do so with pre-tax dollars (check your state tax law, not every state grants HSAs the same privileges that the feds do)

This helps you spread the cost of health care over the course of the year if you need it. As a bonus, it's massively tax advantaged (but most HSAs charge monthly fees, so check carefully before you contribute extra just because you have more tax-deferred "space". I pay $2.50 a month, which doesn't sound like much until you think about the fact that I'm only putting at most $2,400 into the account. That's a high ER.).

--

On a related note, this plan gives me a great deal of control over my healthcare. If I want any medical services/need any treatments/whatever, I can go to any doctor approved by my provider, and I know what I'm going to pay for the treatment. I will pay the "customary" amount, it will come out of my HSA, and apply towards my deductible.

If I would rather go to another doctor, because I trust him more for a particular treatment, that's fine too. I take the money from my HSA, I'll pay whatever the doctor charges, and the insurance company will give me "partial credit" towards my deductible (they will apply the customary amount to my deductible).

If I need a treatment that the insurance company doesn't cover at all (or doesn't believe I need), I can still have the treatment -- and I can get it from any doctor I want. I'll pay for it out of my HSA (if I have enough in there), and the insurance company won't give me any "credit" towards my deductible. If I feel they should cover the treatment, I can fight with them later. After I'm no longer in need of medical attention.

When I choose to go to the specialist that my doctor recommended instead of one of the specialists in my "network," I know exactly how much more I'm paying for that, and I can decide for myself whether or not the procedure is so delicate that I really need this particular specialist.

Usually, I go where I want and pay the extra -- but if that was too expensive, I could always go to an "in network" doc and get the procedure for the cheaper price.

I feel like I'm the one in control of my health care decisions. I have complete control over what doctor I see, and I have a great deal of control over how much my medical care costs. So far, I have also been rather cheap for the insurance company, since I rarely meet my deductible. Though it has happened, and it works basically like I've described.

Do be aware that as rpike pointed out (and I mentioned above), when you go to an "out of network" doctor (or pharmacy, for that matter), the doctor charges you whatever they charge (ask for a discount if you think it's too much), and the insurance company will only reimburse you based on what it would have cost had you gone "in network."

I think that the HSA/PPO plan requires you to be more aware of the health care decisions that you make, requires you to pay more attention to your relationship with various health care providers, but overall is an excellent way to obtain good health care while providing proper insurance against disaster.

And I know I've gone monstrously long, but as you can tell, this is something I've researched pretty carefully, and care a lot about.

[Sphinx]

Hi, rene,

Everyone's situation is different. In your situation, an HSA could work out because the employer pays both the premiums and a nice chunk of the HSA.

-+-

Me, I currently pay for HDHP health insurance and HSA deposits out-of-pocket. I'm disappointed in investment options available right now for HSAs.

So, here's my plan for this year:

1) Drop current HDHP coverage and switch both myself and my husband to "regular" health insurance through husband's employer when husband becomes eligible in June.

2) Rollover my miniscule ~$4000 HSA from HSABank to a credit union that pays a higher interest rate for HSAs.

3) Invest the $564/month savings in a Vanguard index fund to supplement my retirement savings.

4) Maintain health through diet and exercise, so that I never, ever have to use health insurance.

[rene]

thats one long answer... thanks so much

Anybody else out here that basically uses their HSA as a pseudo IRA?

Are the fllowing correct ?

1) I put $2K in my HSA in 2008... I never touch this and let it ride the market until I turn 65 in the year 2035.... at this point I can take out the money from my HSA for NON medical uses and pay tax on it... so in other words I had the benefit if taxdeferred growth and will likely be in a lower tax bracket

2) Same as above but now in 2035 I use the money for a qualified medical procedure that I have in 2035. In other words I het this money tax free and I have the growth/gains of that money in my account?

3) I put $2K in my HSA in 2008... I have a medical bill/receipt in 2008 for $1000 which I pay out of pocket. I never touch the $2K in my HSA. Twenty years later in 2028 I pay for the $1000 receipt with my HSA funds... I benefit due to the tax deferred gains on the $1000 which remain in my account

[allancoleman]

While it's true , rene , that you can use HSA money later after Medicare age of 65 for any medical expenses including premiums or extended health care , I wouldn't try to use an HSA as a " pseudo IRA " and attempt to take the earnings out taxfree at a later date . Not sure but I think the IRS would frown on your raiding your HSA account to use the earnings taxfree for expenses other than medical or other specificly approved use .

I've had a HSA for years now and enjoy the tax deduction every year and now have in excess of over $20k for the use of my wife and I both in the event of emergency medical expenses that we might not be able to afford later in retirement . And when I go on Medicare next year , we'll open a seperate individual HSA for my wife in her name to set aside another $3k to $6k for us to use too later in retirement .

[grabiner]

[Angst]

[mvm]

Total no-brainer. You can deposit $5,800 per year into a tax-deferred account (like an IRA), PLUS take a $5,800 off-the-top tax deduction every year!

[bottlecap]

[mvm]

You can deposit the following amounts into an HSA - and take a tax deduction, too:

INDIVIDUALS: $2900/year

FAMILIES: $5800/year

This is regardless of the deductible you choose!

[Ted Valentine]

[rene]

Thank you all for the answers. It is all clear to me now.

2900 in extra tax deferred space sounds good to me.

Thank you grabiner for the clear explanation

[sfleisch]

I think this may be redundant at this point.
I have had a HDHP for a while now. Initially they were MSA's then expanded and now are HSA-eligible plans.
I use it exactly as you state. This is an extra tax-deferred plan for me. I am saving all my medical receipts and allowing the HSA money to grow. I pay all current medical expenses with after-tax dollars for now. There is currently no time-frame for which you need to withdraw money to reimburse the medical expenses.
All of our "routine" preventative care is free with no co-pays or deductibles.
Our current HDHP insurer is Aetna, was Oxford. I do not use their recommended HSA provider because of the poor investment options and expenses.
I use HSA Bank as they allow all money to be invested through TD Ameritrade. Not the best, but of all HSA banks that I have looked at, allows the most investment options.
I have invested the money I deposit yearly into Vanguard ETFs. We try to place the family $5800 at once to avoid mutliple trading costs.
So far we have only gone through our deductible once (we had a baby).
Interestingly, for those with high annual healthcare costs, the HDHP is not always bad. We had an employee who prior to the HSA plan used to spend between 5,000 and 6,000 annually for her and her husband due to co-pays and deductibles for procedures. Now she easily blows through her deductible and has less out of pocket costs because 1-the first $5800 is tax free and 2-once she hits her max out of pocket she is done.
Good luck.
Steve

[psteinx]

I have 4 main doubts about HSAs:

1) One more investment account to manage - complexity

2) No Vanguard HSA (I think). Alternative providers are presumably more expensive

3) Documentation complexity when withdrawing from HSA

4) If I am correct, HSAs came to be a few years ago, under Bush, correct? If political control of our nation changes, be it in the coming election, or in some election down the line, would the other party make HSAs less attractive? If I want to use an HSA for long term investment for my likely medical needs 2-4 decades from now, but we get nationalized health care at some point in the interim (which seems reasonably plausible to me), then what becomes of money in HSAs? Basically, from my relatively uninformed perspective, I suspect there is political risk with these things. But I'm interested in the opinions of those who follow these things more closely. (Note, I'm not trying to take the thread in an explicitly political direction, but I think it's quite reasonable to discuss these issues in light of a program in which I might try to invest for multiple decades, but which might reasonably be deemed to be subject to political whims in the interim...)

[sfleisch]

True it is one more account to manage - technically, I make one deposit per year and once invested, it is left alone.

True - no Vanguard HSA - I use HSA Bank which uses TD Ameritrade for the investment services - I buy Vanguard ETFs in the account

Withdrawal complexity - IF you use at point of service, no documentation needed. Just give the physician office/eyeglass store etc the debit card and that is it. IF you paid for something, keep receipts and then submit for reimbursement at a later date, currently, you fill out a form with name, address, account number. Fill in the amount you want reimbursed and then sign the form that it is for "qualified expenses". No other documentation needed, for now. The fourth point on the politics may change the administrative burden.

Politics - I think this is the most interesting post. The good news is I think most candidates see that the HDHP's do offer some rate stability and will likely leave them in the future healthcare mix of offerings. Regardless, in general, it would be very unlikely they would ever "dissolve" these accounts. If in the future they were deemed a bad idea and the concept was abandoned, you would likely not be able to make future contributions but just be stuck with what you have at the time. No matter what, there would be a timeframe till they became obsolete allowing for a "drawdown".

Steve

[AlloKate]

Rene, the question I'd ask is what, if anything, you have to give up with your PPO to get the HSA deal. Your benefits administrator should be able to sit down with you on that.

When my partner took his current job, which includes an HSA, we developed different scenarios then tested them against the rules of both the HSA and the multiple HMO/PPO options we had. His benefits administrator considers us family from the amount of time we spend going over financial scenarios with her.

The thing I want to add to this discussion is that we're not big health care consumers, and in most years we've had to overconsume by our standards to spend what was in the annual HSA cache.

In my partner's state service job, the funds don't roll over year to year, and are deposited into a state instrument. So the state is getting whatever returns on this money, not us (outside of having the income be nontaxable). This isn't necessarily bad, considering we don't pay state income tax, and our state is one of the few of its size not facing huge shortfalls and cutbacks through preparing for lean times in fat ones.

We figure that HSAs are at least in part intended as a way to encourage people to consume health care services and bolster that industry. We found in the private sector that the jobs that paid us 25-40 percent more than our present ones required us to live far more expensively. And unhealthfully. Moving to a less-stress lifestyle saved us over $600 per month in "bodywork" alone, for example, as well as additional costs for the chronic health problems caused by living for our work, rather than the other way around. Moderation is not tax-deductible or -deferrable, but robust health is strong in any market.

Last year I faced a major acute health problem...and treating it was covered by our HMO for all but a relatively small deductible for five days in hospital ($500 total). This only tapped 1/4 of the HSA. We had to scramble, as usual, to spend the rest. Never thought I could get sick of massages, but I did.

But we maxed out the HSA again this year because our financial and savings plan involves staying in the 15% bracket (0% state) at least till 2011. My partner received several raises and one promotion in his job, so the HSA lets us defer a few more K per year, after we've maxed out all other options. We're still living on our 2000 budget.

I'm not sure how I feel about the HSA overall, other than how it fits financially. Normally we wouldn't be spending this much on "health care," though I must say I have much nicer (designer frames, etc.) glasses and swankier dental care than ever before. But I can tell you that with any other option for deferring the income off the top, we'd take that instead of the HSA.

That's why I recommend the "scenarios" approach. Even if your employer does let you invest the HSA tax-deferred, compare that to whether you won't be consuming more goods and services you don't really need, for a relatively small gain. The real wild card I see is your PPO, what it covers, what it doesn't, and what of that you will or won't need. If you aren't a big health care consumer, and haven't yet maxed out your other options for deferring income, I'd say that's worth looking at first.

Sorry for the length here, but I felt I was laying out a sort of minority view on all this, and wanted to do so carefully and responsibly.


Kate

[rene]

I am signing up for that HSA plan. I can save a good chunk of money tax deferred.. and it is pre-tax to boot. Besides my company pays $1000 into the plan to cover the differential between my PPO deductible and the HSA deductible. I got nothing to loose here and can only gain

I'll use as much of my taxable money to pay for expenses and will pay myself with those receipts later in life to treat myself to a nice vacation

I plan on maxing thistax sheltered account as much as possible. And in the (hopefully likely) scenario that I don't need any of my HSA money I will reap the benefits later on.

It truly seems like a no brainer.... thank you all for the replies

[sfleisch]

Kate,
I think you may be confusing HRA and HSA. A health reimbursement account can be a "use it or lose it". Generally HRA's are the companies assets. HSA by law are the individual's asset. It may under no circumstances be "taken back" by an employer be it a state/government agency or private business.
I agree that sitting down with HR is a good idea to review your individual situation, but HSA's roll over year to year and grow tax deferred. The money does not need to be used up. Also, keep in mind, once you have a year or two of money in the account without utilization, you generally have a huge reduction in risk as the deductibles are generally lower than the max contribution.
Prior to 2007, you could only contribute up to about 80% of your plan's deductible, now you can contribute max regardless of your plan's deductible.
Steve
PS I assure you I am not an insurance person, just been using HSA's and before that MSA's for a while.

[tadamsmar]

[Ricola]

Wonder if anyone has tried the Wells Fargo HSA account and if there are any advantages?

[mvm]

Vanguard does not administer HSA funds...HOWEVER, YOU CAN INVEST HAS FUNDS IN VANGUARD FUNDS.

This company, HSA Administrators, claims to offer 22 Vanguard funds.

I don't use them - I use HSA Bank - but the claim is there.


http://www.hsaadministrators.com/

[Angst]

[mvm]

HSAs seem to be gaining in popularity, according to an article in the Wall Street Journal recently. But, still, the number of HSAs is small.

John McCain announced a health care plan today that seems to be "pro-HSA."

Obama and Hillary seem to be neutral to anti-HSA.

So there is a risk.

[Self Directed]

I don't think the choice of the HSA bank is always yours....
My experience is that the health insurance carrier selects the HSA bank. I tried to switch to one of the banks which offer VGD funds, but it can't be done. In my case, Anthem Blue Cross has partnered with Chase, and that's that. Unfortunately, Chase investments offer only load funds with high ERS...even their index funds have ERs higher than 1%. So, I keep the HSA money in low interest bearing cash, and have to pay Chase a flat fee monthly charge. No wonder I am loathe to keep putting money into the HSA bank, as opposed to my SEP IRA. Plus, any funds you withdraw from the HSA bank to pay medical/dental/vision expenses is taxable income.

Self Directed
CT

[rene]

Anybody use Sterling HSA?

That seems to be the plan that my work has... no clue yet if they offer good investment options

[grabiner]

[rene]

[Jungle Cat]

I think the HSA is great if you are generally healthy without any pre-existing conditions. Like others mentioned I use it as a pseudo-IRA. The hardest thing for me was finding a custodian who offers good investments and not just a savings account. Fidelity, Vanguard, Schwab, T. Rowe Price do not offer these plans. The best I could find was from my Full Service Broker who charges 40. USD per year custodial fee, But for that I could invest it whatever I liked.

[Self Directed]

I want to respond to 2 earlier posts above, regarding switching the HSA admnistrator and the taxable income on withdrawals from the HSA bank, but for some reason, I'm not able to use the "quotes" feature. Here are my responses:

What I have found is that some insurance companies have contracted with one custodian/administrator, and HSA plans are complicated enough (be sure to check the free preventative care coverage) that I'm reluctant to switch insurers because of dissatisfaction with their chosen administrators. I'm self employed in CT, and I've found my "best" HSA cover plans, Anthem Blue Cross/Lumenos, and Aetna thru the AARP have both contracted exclusively with JP Morgan Chase. So, it's a great deal for Chase, since they collect monthly fees, plus their investment choices are solely their proprietary funds, which are load funds with high ERs. Even if I try to enlist another administrator, such as one that offers VGD funds, my insurance company "group number" is not one that these administrators "recognize" (I've tried the HSA banks listed on the VGD homepage)....

As for the taxable nature of the withdrawals from the HSA bank account, these are reported on line 21 of your Form 1040, and a Form 8889 is attached to your tax return. You can claim an above the line deduction for your contributions to the HSA. If you are self employed, you can claim a further deduction for the HSA coverage premiums.

Self Directed
CT

[allancoleman]

Self Directed CT is correct that some HSAs have an exclusive arrangement with a bank that may or may not suit every HSA participant . In my own case with my Aetna HSA their bank is JP Morgan Chase too , however I don't mind that because I have no desire to invest my HSA funds in seculative investments that may lose money . A money market account is fine for my purposes because when I need those HSA funds for medical expenses in the future I want that money to absolutely be there and available to write checks against . And after careful consideration of their monthly fixed fees that allow my HSA account to continue to grow taxfree going forward forever I'm happy with that too .

And after careful consideration of other HSA custodians that I might or might not be able to transfer my HSA account to , after frequent visits and a lot of surfing on this HSA web site discussion board :

http://benefitslink.com/boards....owforum=96

I have figured out that some of these HSA issues can be complicated and the last thing I need to do is to transfer my HSA account to a different custodian that may or may not be authorized for HSAs and mess up my federal HSA account .


Self Directed CT is also correct that the HSA deposit is a full deduction on my tax return . Being retired and not employed , I fund my HSA deposit fully every January for that tax year and the wife and I now have over $20k in our HSA to cover any medical expenses going forward . And when I go on Medicare next tax year of 2009 and we fully fund my wife's individual HSA account for tax years 2009 , 2010 , and a partial 2011 when she herself goes on Medicare too , we should have a combined $30k and more available for emergency expenses after that .

As for whether HSA distributions for medical expenses are taxable when I begin to use them in the future , I definitely do not expect that to be the situation with the nature of HSAs and I'll deal with that problem if it develops in the future .

For me and my wife , HSAs are truely a no brainer .

[tadamsmar]

If I understand correctly, both Self Directed and alancoleman have stated that HSA withdrawals for medical expenses are (or might be) taxable.

HSA withdrawals for qualified expenses incurred after you set up your HDHP are not taxable.[/u]

[tadamsmar]

My wife and I have had HSAs at HSA Bank. We are covered by the HDHP of my wife's employer.

The employer makes monthly deposits in HSA Bank, so my wife must have an HSA there. As far as I know, that is the only situation that ties you to a particular HSA provider.

But I could have set up my HSA at a different place. (I had one to make catch-up contributions.) And, my wife could have had two and transferred funds from HSA Bank. But she would need a minimum balance at HSA Bank to avoid fees.

[allancoleman]

To clear up a possible misunderstanding on my prior post , I definitely agree with tadamsmar that medical expenses paid for with a qualified HSA are NOT taxable . And my understanding of the HSA is that not only medical expenses but also health care premiums and extended health care even into Medicare age later . And with the priority going forward to put healthcare expenses out of the government budget and more into individual's hands , I look for HSAs to get better and better and more flexible and less and less restrictive in the future .

[Angst]

[Sphinx]