Should I buy a HDHP for HSA benefits?

[davidferrer31]

Hello,

My current health insurance plan will be ending on August 15, 2022. Starting on August 1st, I will be starting a one year backpacking travel of central and south america until August of 2023. I will not be working during this time period, so I won't have access to health care by an employer. My question is: should I buy a HDHP just to max out my HSA? While I won't use the HDHP at all, for I will not be in the United States if I potentially need healthcare. I am thinking that spending the monthly premiums for the HDHP for a year to max out my HSA (3600) will be worth it for me. Thoughts?


- davidferrer31

[Statistical]

Hello,

My current health insurance plan will be ending on August 15, 2022. Starting on August 1st, I will be starting a one year backpacking travel of central and south america until August of 2023. I will not be working during this time period, so I won't have access to health care by an employer. My question is: should I buy a HDHP just to max out my HSA? While I won't use the HDHP at all, for I will not be in the United States if I potentially need healthcare. I am thinking that spending the monthly premiums for the HDHP for a year to max out my HSA (3600) will be worth it for me. Thoughts?


- davidferrer31

No. Depending on your age and income you could be spending thousands as the price to tax shelter a tiny $3,750. The one exception would be if your income is so low in 2022 & 2023 (which is unlikely since you have partial work years) that you qualify for large ACA subsidies. You can use the ACA website to price plans and determine how much of a subsidy if any you would get.

[davidferrer31]

Hello,
True, I know that the 3750 is not that much money but the triple tax benefits are nice.

I will look into the ACA subsidies and see if that is a viable option

[yules]

Hello,

My current health insurance plan will be ending on August 15, 2022. Starting on August 1st, I will be starting a one year backpacking travel of central and south america until August of 2023. I will not be working during this time period, so I won't have access to health care by an employer. My question is: should I buy a HDHP just to max out my HSA? While I won't use the HDHP at all, for I will not be in the United States if I potentially need healthcare. I am thinking that spending the monthly premiums for the HDHP for a year to max out my HSA (3600) will be worth it for me. Thoughts?


- davidferrer31

Huh? How much would the annual premiums for a HDHP cost? Wouldn’t investing that money in a low cost index funds in a taxable account result in much more money that the $3750 in a triple tax free account?

I would like to see your math on this.

Yules

[FoundingFather]

Sorry if this is off topic, but will you have health insurance during this time? I don't mean to stoke any paranoia, but medical expenses are one of the few things that can abruptly financially destroy a person. A plan for how to handle medical expenses while abroad will likely save you more money that putting funds into a tax sheltered account.

While I worked for Mayo Clinic, my health insurance covered medical flights back to the United States for care that was beyond the expertise of local facilities. I am not sure if any other insurance coverage is so comprehensive, but it is worth considering.

Founding Father

[davidferrer31]

Sorry if this is off topic, but will you have health insurance during this time? I don't mean to stoke any paranoia, but medical expenses are one of the few things that can abruptly financially destroy a person. A plan for how to handle medical expenses while abroad will likely save you more money that putting funds into a tax sheltered account.

While I worked for Mayo Clinic, my health insurance covered medical flights back to the United States for care that was beyond the expertise of local facilities. I am not sure if any other insurance coverage is so comprehensive, but it is worth considering.

Founding Father

Yes, I will be purchasing health care coverage during my trip that will be sufficient during my time period and also valid in multiple countries.

[davidferrer31]

Hello,

My current health insurance plan will be ending on August 15, 2022. Starting on August 1st, I will be starting a one year backpacking travel of central and south america until August of 2023. I will not be working during this time period, so I won't have access to health care by an employer. My question is: should I buy a HDHP just to max out my HSA? While I won't use the HDHP at all, for I will not be in the United States if I potentially need healthcare. I am thinking that spending the monthly premiums for the HDHP for a year to max out my HSA (3600) will be worth it for me. Thoughts?


- davidferrer31

Huh? How much would the annual premiums for a HDHP cost? Wouldn’t investing that money in a low cost index funds in a taxable account result in much more money that the $3750 in a triple tax free account?

I would like to see your math on this.

Yules

Good point. I believe my plan is to pay for health insurance internationally and to use the remaning funds and put them towards a low cost index funds in a taxable account. Yes, I did the math and the benefits from the low cost index fund outweigh the tax benfits for the HSA.

[eosin]

I would first determine what the appropriate health insurance plan is for you. If it happens to be an HDHP, then definitely use the HSA.

[grabiner]

Yes, I will be purchasing health care coverage during my trip that will be sufficient during my time period and also valid in multiple countries.

That would probably make you ineligible for an HSA, since the insurance during your trip provides benefits beyond what is allowed for the HDHP.

[davidferrer31]

Yes, I will be purchasing health care coverage during my trip that will be sufficient during my time period and also valid in multiple countries.

That would probably make you ineligible for an HSA, since the insurance during your trip provides benefits beyond what is allowed for the HDHP.

Even if the benefits are outside the USA?

[MP123]

Yes, I will be purchasing health care coverage during my trip that will be sufficient during my time period and also valid in multiple countries.

That would probably make you ineligible for an HSA, since the insurance during your trip provides benefits beyond what is allowed for the HDHP.

Even if the benefits are outside the USA?

Like almost all of tax code, Section 223 doesn't distinguish between US/ex-US:

https://www.law.cornell.edu/uscode/text/26/223

(c)Definitions and special rules
For purposes of this section—
(1)Eligible individual
(A)In general
The term “eligible individual” means, with respect to any month, any individual if—
(i)such individual is covered under a high deductible health plan as of the 1st day of such month, and
(ii)such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I)which is not a high deductible health plan, and
(II)which provides coverage for any benefit which is covered under the high deductible health plan.

[davidferrer31]

Yes, I will be purchasing health care coverage during my trip that will be sufficient during my time period and also valid in multiple countries.

That would probably make you ineligible for an HSA, since the insurance during your trip provides benefits beyond what is allowed for the HDHP.

Even if the benefits are outside the USA?

Like almost all of tax code, Section 223 doesn't distinguish between US/ex-US:

https://www.law.cornell.edu/uscode/text/26/223

(c)Definitions and special rules
For purposes of this section—
(1)Eligible individual
(A)In general
The term “eligible individual” means, with respect to any month, any individual if—
(i)such individual is covered under a high deductible health plan as of the 1st day of such month, and
(ii)such individual is not, while covered under a high deductible health plan, covered under any health plan—
(I)which is not a high deductible health plan, and
(II)which provides coverage for any benefit which is covered under the high deductible health plan.

Got it, thanks

[ryman554]

Not to hijack this thread, but....

Does this mean that things like purchasing any travel medical insurance means I invalidate my ability to contribute to HSA? Yikes.

[MP123]

Not to hijack this thread, but....

Does this mean that things like purchasing any travel medical insurance means I invalidate my ability to contribute to HSA? Yikes.

Maybe, but it would depend on how the insurance was structured.

Here's Pub 969:

https://www.irs.gov/publications/p969#e ... 1000204039

You can have additional insurance that provides benefits only for the following items.

Liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.
A specific disease or illness.
A fixed amount per day (or other period) of hospitalization.
You can also have coverage (whether provided through insurance or otherwise) for the following items.

Accidents.
Disability.
Dental care.
Vision care.
Long-term care.
Telehealth and other remote care (for plan years beginning before 2022).
.
Plans in which substantially all of the coverage is through the items listed earlier aren’t HDHPs. For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan isn’t an HDHP for purposes of establishing an HSA.

So, if it only covered accidents out of the US it might be ok. But if it was general health care coverage then probably not.

And to further complicate things, HSA eligibility is determined on the first of each month. So, if the travel insurance only covered a trip during the middle of the month I'm really not sure if it would make one an ineligible individual for that entire month.

[aristotelian]

You will be in a lower tax bracket than usual and will not be paying FICA taxes, so all things equal you would be getting worse insurance without two of the primary tax benefits of the HSA. You would still get tax free growth but that benefit is difficult to quantify since capital gains taxes can be very low if you retire in the 0% bracket and invest tax-efficiently.