Bogleheads

user · Joined: 26 Feb 2007 Posts: 104

What are people's opinions on HSAs?

My employer just got acquired and the company that is acquiring us offers the choice of either a PPO plan or a high deductible plan with an HSA.

I am 29 yrs old male single, no kids, and in good health, so I am leaning towards going with the HSA option and using the account as another tax-deferred retirement vehicle.

My thinking is to fully fund the HSA, and then pay for medical expenses from my paycheck, leaving the account alone (in my case expenses are mainly things like non-prescription drugs such as Claritin, Tylenol, etc). My understanding is that as long as I keep a record of these expenses I can always reimburse myself in later years from this account without paying any taxes.

Anyone with an HSA here and if so are you happy with your plan and are you doing something similar to what I am planning to do?

mvm · Joined: 31 Jan 2008 Posts: 264

I have an HSA and it is fantastic - the greatest story never told, when it comes to healthcare.

Currently have over $25,000 tax sheltered in the HSA account.

You can even take a lower deductible, if you want: say $1500 or $2500, but still get to put $5800 every year into the tax deferred account. And, you don't have to spend the money in the account to pay for the deductible items.

And - the $5800 comes right off your taxes, above the line, like an IRA.

If the country goes to some sort of national healthcare, this plan may be in jeopardy, and that would be a shame.

CoHillbilly · Joined: 22 Jan 2008 Posts: 37

HSA's appear to be a good way to go. Insurance premiums are a lot cheaper. If you are in good health and don't have any medical issues, it probably makes more sense than a PPO.

I just switched over to a high deductable health plan. The biggest problem I am having is finding a good place to have the HSA (low fees, decent low-cost investment choices). OptumHealth seems to be a decent choice with their fee structure and Vanguard investment options, so I am leaning toward going with them. I would like to hear other peoples opinions on OptumHealth or other HSA options.

"My thinking is to fully fund the HSA, and then pay for medical expenses from my paycheck, leaving the account alone (in my case expenses are mainly things like non-prescription drugs such as Claritin, Tylenol, etc). My understanding is that as long as I keep a record of these expenses I can always reimburse myself in later years from this account without paying any taxes."

I don't think asprin is a qualified expense. Make sure you can cover the full deductable just in case something does happen to you.

TheEthicalAdvisor · Joined: 24 Mar 2008 Posts: 221 Location: Round Rock, TX

While I agree that an HSA is a great way for a young, healthy, single person to take advantage of, make sure that you run an equal comparison to the PPO plan. I have found that it is slightly cheaper for me, someone that is almost the same as the author, 29, healthy, to have a PPO plan with a $2500 deductible as it would be to have a HSA plan IF I use the preventative included physical once a year in the PPO plan. If you have to have a one time prescription or have to go to the doctor even once in a while the PPO seems to come out way ahead depending on the carrier and negotiated rates that you get through your company. Of course, you must factor in the fact of not having a tax advantaged way of paying for the items you listed also throughout the year in a PPO to make for equal comparison. Of course, if your company offers an FSA in combination with the PPO that might be the best of both worlds.

Ted Valentine · Joined: 10 Jul 2007 Posts: 1125 Location: Music City USA

mvm · Joined: 31 Jan 2008 Posts: 264

A word about PPO/traditional plans versus HSA: people say that the HSA is only better if you are young and healthy.

WRONG.

It only appears to be so, if your employer pays for the plans.

When you have to buy the plans yourself, and you see the real costs, the HSA wins every time, no matter what your situation.

I ran spreadsheets to compare full plans with HSAs. How it works out is that a full-meal deal costs $1000 per month but with a $500 deductible....meaning you pay $12,500 per year even if you never make a claim.

The HSA with similar coverage costs $500 per month with a $3500 deductible....meaning you pay $9500 per year even if you make no claims.

The HSA costs less, with the added advantage that if you make no claims, you pocket the difference. All the upside is yours.

If you make claims, the HSA costs only a little less. Sometimes the same...depending on the insurer and rates.

BUT IN NO INSTANCE could I find that HSAs cost more. HSAs simply make you pay first, before the insurance kicks in.

What you don't see is that your employer is paying the cost of a traditional plan...even if you never make a claim.

When the burden of a traditional plan shifts to you, instead of your employer, you will wonder why you are paying $12,000 per year for nothing (if you make few or no claims).

Your employer is giving you a benefit, in exchange for getting a tax deduction for giving it to you.

THAT is why we need to give tax deductions to the PEOPLE who are buying health plans. Then everyone would buy an HSA.

allancoleman · Joined: 11 Sep 2007 Posts: 302 Location: Alaska & Hawaii

I have a Aetna HSA , user , offered through my employer's retiree medical plans offered and agree with mvm that they are great . Also have a similar amount , $25k , available for medical expenses if I so choose now or later . After I reach Medicare age of 65 next year and can no longer contribute , I'll open a seperate individual HSA for my wife until she reaches 65 . By that time we'll have close to $30k available for our medical expenses going forward .

I think important to note that a individual has to have a full understanding of how health care plans work before opening and depositing money into a HSA . It's definitely not your average $20 co - pay type of health care plan . But for those willing to take the time to understand them and their own HSA qualfied health care plan , I think they are wonderful . Smile

TheEthicalAdvisor · Joined: 24 Mar 2008 Posts: 221 Location: Round Rock, TX

mvm · Joined: 31 Jan 2008 Posts: 264

I can't go into all the details for you - I have a lot of experience with health plans.

Your analysis is missing many things.

Rest assured though, that the two plans offered by the same insurer are IDENTICAL. When an insurer offers a traditional plan and an HSA, the plans are IDENTICAL, they just shift the money around. But total cost to you, and total cost to the insurer are the SAME. It's just a matter of who takes th risk on the FIRST DOLLARS SPENT.

In a traditional plan, the insurer shakes you down for premiums first, then pays. IN an HSA, you pay first, then they pay.

BUT TOTAL OUT OF POCKET COSTS ARE IDENTICAL.

Now, here are some things your analysis misses:

1. You must do a spreadsheet that shows cost comparisons to FIRST PAYMENT.

2. Then, do the comparison to TOTAL COST PER YEAR given no claims.

3. Then do the comparison assuming huge claims, so you can see OUT OF POCKET MAXIMUM comparison.

4. You must adjust your payments for the monthly fee and claims based on your tax deductions - in other words, the money you can put into the account $5800 per year - if used to pay your $300 deductible is actually a discount. If you are in the $20% tax bracket, your physical just got 20% cheaper.

(Even without step 4, the model works. Step 4 is a bonus to you)

mvm · Joined: 31 Jan 2008 Posts: 264

not to mention: my HSA offers prescription drugs and physicals and many other preventive items. look around.

oh another complication: your prescription drug benefit has a maximum, probably $5000 per year.

You have to take all of these limits and put them into a worst case scenario, and you will see that the two plans are the same. they have to be - the only thing the insurer did was change who takes the upfront risk: you pay up front and have no claims, or you pay less up front and keep the difference.

It was all done with a present value calculation, by the way.

TheEthicalAdvisor · Joined: 24 Mar 2008 Posts: 221 Location: Round Rock, TX

OptionAl · Joined: 26 Mar 2008 Posts: 391

They're a great substitute for insurance if (1) you and your family never has a serious illness and (2) you're rich.
If you don't have a catastrophic illness, you probably come out ahead.
For a young healthy single person, it's still a crap shoot but with better odds of course.

CoHillbilly · Joined: 22 Jan 2008 Posts: 37

You can also pay, from your HSA, for things your insurance may not cover, such as braces, dental, etc. If you are in the 20% tax bracket, these item are 20% cheaper. In my case, 2 kids needing braces x $5000 each minus 20% equals money bag

.

slh1947 · Joined: 19 Nov 2007 Posts: 30

I agree with TheEthicalAdvisor. My company offered HSA (not FSA) for the first time during our enrollment period at the end of 2007. There was a lot of information provided to employees to assist them with making the right choice. Our employees have been provided a website with a health decision tool kit which guides us through the process of choosing the most beneficial plan.

After entering my information, I discovered it is more cost efficient for me keep my reqular PPO than enrolling in the HSA. I would have benefitted more from an FSA but it is not offered at my company.

OptionAl · Joined: 26 Mar 2008 Posts: 391

I am biased against them since I think they tend to take the most healthy people out of insurance pools, thus leading to higher rates for the rest of us. Of course, that's irrelevant, you need to do what best suits your situation.

MossySF · Joined: 19 Apr 2007 Posts: 908

kramer · Posted: Wed Apr 02, 2008 2:14 pm Post subject:

My HSA health insurance includes a yearly physical.

Remember that you do not have to pull out the money yearly for your out of pocket expenses as you go -- save your receipts and the money can be pulled out in any subsequent year or many years later. Thus, your money can grow tax free giving benefit of traditional IRA plus ROTH IRA.

Kramer

Rookie · Joined: 15 Feb 2008 Posts: 129

Lucija · Joined: 28 Feb 2007 Posts: 78

Based on thoughts put forward in this thread, the consensus seems to be that HSA plans are the best type of plan for young & healthy individuals, while the traditional PPO plans are better for folks with health demands of some type.

I would like to point out that there are 2 types of people who ALWAYS come ahead with an HSA (unless a PPO plan is very heavily subsidized through an employer):
+ people with no claims (tax free investment + low premiums)
+ people with huge amount of claims (on-going chronic treatments, etc)

The later group benefits as well, since the HSA premium + deductible tents to be lower than overall max out of pocket costs associated with a PPO.

mvm · Joined: 31 Jan 2008 Posts: 264

AGAIN...that conclusion is just plain WRONG.

The plans are often the same - age and health has no bearing on it. In my state, they are EXACTLY the same.

Blue Cross/Blue Shield, Regence, and LifeWise in my state all offer an HSA plan and a tradition PPO that offer the EXACT SAME COVERAGE.

The only difference is who pays first.

In the traditional plan, you pay a high monthly fee...YOU take the risk that you can make payments all year and never use the service..essentially, your $12,000 is GONE.

In the HSA, you pay a small amount every month, but your deductible is large. So, if you use no service, you paid little. But...if you use the service, you run right up to the $12,000 yearly fee...and the two plans are the same.

That is how many HSA plans work. They just shift the burden of the risk for the FIRST DOLLARS PAID OUT to you. In exchange for that risk, you save.

(THE ONLY THING THAT MAKES THIS ANALYSIS WRONG IS WHEN EMPLOYERS SUBSIDIZE THE COSTS OF THE PLANS.)

Ted Valentine · Joined: 10 Jul 2007 Posts: 1125 Location: Music City USA

CoHillbilly · Joined: 22 Jan 2008 Posts: 37

MossySF · Joined: 19 Apr 2007 Posts: 908

Midpack · Joined: 14 Mar 2008 Posts: 279 Location: Chicagoland

Rookie · Joined: 15 Feb 2008 Posts: 129

Ted Valentine · Joined: 10 Jul 2007 Posts: 1125 Location: Music City USA

OptionAl · Joined: 26 Mar 2008 Posts: 391

"Personally, I think PPO or HMO are wasteful because I spend the money on something that I do not need now."
Me too. I want to buy health insurance or an HSA when I get sick. Though I am invincible, so I'll never get sick or injured. Also, car insurance when I get into an accident. Though I'm such a great driver, that'll never happen.

Zman0730 · Joined: 04 Feb 2008 Posts: 3

I'm self employed so I'm pretty much forced into a hsa hmo since thats the only option living near nyc

$340 a month for a 2k deductable for a oxford hmo which starts in may

Man living on long island is expensive

So if I do need to max my deductable its equal to paying 500 a month for insurance yikes

Whats the best thing to invest in a hsa?

grabiner · Joined: 21 Feb 2007 Posts: 3879 Location: Columbia, MD

jeremiahr · Joined: 06 Jan 2008 Posts: 31

I use American Chartered Bank for my HSA and have been satisfied so far.

Pros: After you pay $14 for the checks, there are no monthly fees and no minimum balance.

Cons: They only pay 1% interest and their only non-cash options are CDs.

I carry a small balance in this account and use my other tax-deferred accounts as savings vehicles. Once you have your annual maximum out of pocket balance in the account, an account that offers non-cash investments would be better.