Recently my work changed to high deductible health insurance. This means I am able to take advantage of a Health Savings Account (HSA). I have been thinking about this for a few months, but I have yet to figure out the best plan of attack on how to set my account up, and where to set it up. An HSA allows you to put away a certain amount of money each year. (Currently, the standard maximum is $3000) into an account. The money in this account can only be spent on health care expenses. Use for anything else incurs a %20 penalty. These contributions bring your taxable income down by the amount contributed.
At first I thought it was simple. The maximum HSA contribution just so happens to match my deductible almost exactly. Since the price of tests and whatnot are very high. I thought the simplest thing to do would be to contribute to my HSA the maximum amount. And, take the money out of the account to pay for the bills I incur.
After pondering it for a bit I realized that I didn’t have to drain the account as I received my medical bills. I could max out my contributions each year and keep that amount in there for emergency purposes for when I really need it, and just pay out of pocket the medical expenses I encounter. If during my working years I never needed to use the funds, I would have a little retirement health nest egg to sit alongside my IRA.
The interest rates on HSA accounts seems to be around 1 - 2 percent.
What are other people’s thoughts on how to use an HSA? Does the idea of keeping my hands off make any sense?
Does anyone have good experiences with banks that offer HSAs online?
You should always pay your medical bills with the HSA money - that money is “pre-tax” money and you are paying your bills with “post-tax” money. There is no reason to do that as you could either simply save the money you would have used out of pocket in a regular saving account/CD and be able to use it without penalty for anything you want, or you can save it in an IRA and reduce your taxes even more if you want to save retirement money.
Maxing out the HSA each year is the way to go though. I personally use a Credit union as that was the only fee-free option I could find, but I know there is a bank online that does nothing but HSAs that is like $40 a year if you are willing to pay.
I agree with jacobsta811. Spending the money now or later doesn’t make much difference when the interest rate is only 1-2%. The main benefit is getting the money pre-tax.
Mine expires at the end of each year. I either use up that money on something or I lose it, was how it was explained to me by the nice HR lady. Come December, I can expect to be buying a lot of Prilosec and stocking up. ymmv
FYI - They’ve closed the loophole w/ HSA’s that allowed you to buy OTC medicines with your HSA money. Just got a notice from our employer last week about this. It was part of the big health care reform bill.
I own my own business and take care of the health insurance stuff, so I put $3000 of the company’s money in the HSA in January (my company is so generous!) and pay every single medical expense out of it.
Interest rates on it are great. But like jsgoddess says, you don’t do yourself any favors by not using it and paying for medical expenses out of money that was already taxed.
Do try to max it out every year, just to keep up that nestegg. My medical bills are surprisingly cheap even though I have this high-deductible, low-coverage plan. They’re not as cheap as my dad’s crazy “everything is covered” normal plan, but a good percentage of the bills are taken care of by insurance.
One nice thing I’ve found about HSAs is that you don’t really need to worry when something is not covered. A person with a crap insurance plan would have to pay out-of-pocket with their post-tax money for, say, a visit to the dermatologist. If I go to a dermatologist, even though it’s not covered, I pay for it with my pre-tax HSA money. Score!
Make sure whatever bank you go with gives you a debit card and has nice online banking. My HSA was originally set up with National City, but they got bought out by PNC and I think PNC charges a fee for their accounts :-/ Luckilly, I was grandfathered in without a fee.
Thanks for all the advice. Sounds like maxing it out and then spending is the way to go. That’s the direction I will take things!
Here are a couple of more questions if anyone out there knows. I usually pay my medical bills with a credit card. It makes it easy at the doctors office just swipe and go, plus I earn some points. Would I be able to continue to do that. Just pay myself back for the portion I gave to the doctor?
More tricky. And, less likely to work. I have been on a High Deductible plan for a few months now. Could I pay myself back for charges I made the last few months? Or do I just have to forget that money now?
I think I found an adequate HSA at a bank called Cattle National. I think I will email them a few questions and then be ready to set things up. Thanks for the help everyone. And, any further help you can give.
You’ll have to discuss this with a program administrator, but typically you’ll *get *a debit card linked to your HSA that you use the same way.
You can just spend “normal” money and reimburse yourself from the HSA, but it’s slow and makes things needlessly complicated at tax time if your reimbursements haven’t caught up with your spending.
The HSA I have has a regular debit/ATM card with it, so I can use it wherever I want - it is up to me to keep track of whether something is eligible, not the bank. That is unlike most FSA debit cards which I believe only work with terminals that code the transaction FSA eligible.
You can reimburse yourself - just keep all receipts from the doctor. But it is far easier IMO to just write checks from your FSA straight to the doctor or pharmacy, and get duplicate checks - I just staple the duplicate check to the receipt and put it away to make record keeping easier.
As far as earlier expenses, as long as they were incurred while you were under the HSA plan and not prior to it’s start date you can pay for them from your HSA - and indeed some people run it that way, where they just put money in the HSA when they incur a medical expense and then immediately pay themselves back.
Edit: I should point out that we don’t want to get two things confused - FSAs vs HSAs - FSAs are established and managed by your employer and have to be used by 90 days from the end of the year or you lose it - so the correct strategy for those is to put slightly less than your average out of pocket medical expenses in them each year. HSAs are and account paired with a special high deductible health plan and are established and managed by you (in general- the employer can contribute but it is ultimately your account). HSAs just keep building money as you contribute and never are lost because you don’t use it - so the correct strategy for those is to put in the max the government allows each year, which is approx ~$3000 for individual policies and ~$6000/year for family policies.
To clarify, you can only reimburse yourself for expenses incurred after the HSA was established. You cannot reimburse yourself for expenses incurred before that date, even if your HDHP was already established.
You are correct, sir. (Madam?) One iota of ignorance fought. I forgot that there’s a difference. OP, you may ignore me, since apparently, I don’t know what the hell I’m talking about.