Should I get an HSA (Health Savings Account)

In My Humble Opinion
1

Open Enrollment time is upon us again at my workplace, and once again I am mulling over whether I should sign up for the HSA Qualified high deductible health plan. I know that some people (Dave Ramsey is one prominent example) love HSAs, but I would appreciate some advice from those who have one, or at least who know something about them.

I work at a large public university. My health insurance covers both me and my wife. The interesting thing is, my current plan also has a fairly high deductible; it’s just not HSA qualified. The university stopped offering a true low-deductible plan years ago. So my choice is between my current plan, with a deductible of $2,600 ($1,300 for each of us) and premiums of $140.09 every paycheck, or the HSA qualified plan, with a deductible of $5,000 and premiums of $81.59 every paycheck (26 paychecks per year).

If I go with the HSA qualified plan, the university will contribute $1,320 to the HSA, on top of whatever I contribute to it. So the way I have it figured, the savings in premiums plus the university’s contribution to the HSA will more than make up for the difference in the deductible. I have always had an FSA, so I’m accustomed to having some money deducted from my paycheck for health expenses.

I’ve always heard that HSAs are best for people who are young and healthy. My wife and I are in our 50s, and both have some health issues (blood pressure, diabetes, cholesterol). Right now, those issues are pretty well controlled with medications. I think that one of the biggest differences between the two health plans is that under the HSA qualified plan, prescriptions are subject to the deductible. On the other hand, preventive medications are not, and most of our prescriptions seem to be on the list of preventive medications.

Obviously, the biggest attractions of the HSA are the contributions from the university, the lower premiums, and the fact that any unused money in the account will roll over each year (unlike the FSA, which is use-it-or-lose-it). The biggest risk, of course, is having a large medical bill before there’s enough money accumulated in the HSA to cover it. We’re reaching the age where that’s not a possibility to be ignored. On the other hand, even under my current plan, our deductible is fairly high, and the past couple of years we haven’t gotten close to meeting it.

Based on those facts, what do you think? Is there any glaring reason you can see that I shouldn’t switch over the HSA qualified plan? Thanks in advance for your advice.

2

A few thoughts, not necessairly an essay. FTR I’ve had either HDHPs w HSAs or more typical insurance with FSAs at various points in my life. I’m 62 and have gone around this same decision bush every year for the last 10-15.

Thought #1:
If you got hit with the full $5K deductible at once due to say hospitalization after a bad car crash, and you couldn’t work for a month or two, is coming up with the $5K no sweat, readily do-able, a mighty strain, or a financial back-breaker? Also, is that $5K deductible per family or per person which is really $10K for you both in the car crash scenario?

If you can’t afford the risk of paying the full deductible times 2 people, plus whatever co-insurance on top you don’t really have a decision to make. If that risk is un-withstandable it doesn’t matter how large the reward (premium savings) would be from taking that risk.


Thought #2:
Much of the value of an HSA is the compounding of interest or returns. You can put the whole thing in e.g. the S&P 500 Index and after enough years of growth and contributions, have a mongo pile of money. Assuming you avoid the big expenses at least at first.

As an older person the compounding opportunity is much less. You can only grow this savings plan until you’re 65 and start Medicare. After that you can spend some of it on medical each year, and leave what you don’t need to compound until next year. But with only a 5-15 year time horizon for compounding you won’t have nearly as much of the house’s money added to your own as someone younger would.

IOW, it’s an awesome deal for them. It’s a less awesome deal for you. Where less-awesome shades into just-OK into not-worth-it is a little nebulous, but you can run some spreadsheet simulations easily enough.


Thought #3:
The value of an HSA only comes in when you put money in it. That the Uni will make a contribution for you is rare, but wonderful. The HSA contribution limits for 2021 are $3600 for you or $7200 for you both including the Uni’s contribution.

Can you afford save that much, roughly $6,000/year? If so, which other savings are you shorting to free up that cash? 401K? IRA? A regular taxable brokerage account? Or maybe just plain old passbook savings?

If your income versus expenses is such that you’re already maxing out your (& her) 401K & IRA contribution limits then you can simply look at the HSA as another form of tax-advantaged retirement savings. Ka-Ching! Partly subsidized by the Uni’s contribution and by the monthly premium savings. Double Ka-Ching!!

But if you’re not already filling those others up, then in a real sense, every dollar you put into the HSA came out of money that you’d otherwise put into the 401K or IRA. Some HSAs have real good investment options. Others limit you to what amounts to passbook savings. You could lose more in investment returns than you save in taxes or reduced premiums.


Thought #4:
You say

That argues that you’ve been buying more insurance than you need for your average luck. And that the HDHP + HSA is the smarter move. Your incremental risk isn’t the full HDHP deductible, but only however much larger it is than the ordinary plan deductible. As with thought #1 though, you need to be able to withstand that incremental risk if you get unlucky.


Thought #5:
You didn’t ask, but what do I do and why? I’m healthy, but with 2 chronic conditions managed with cheap generics. I can swing the incremental HDHP deductible, I can spare the excess savings to fund the HSA, and if I got real unlucky the first year I could make up the shortfall from other savings without issue. So just for myself, I’d totally do the HDHP + HSA. I wouldn’t be getting rich off the incremental benefits, but they’re not zero either.

Sadly, my wife’s health is a wreck and we can’t live without some of the things the HDHP doesn’t cover. So we stick with the more conventional plan for her needs.

3

God yes, get it!

I made the mistake of not switching to the HSA plan for years. And all that time, doctors visits were a real hit to the pocket.

Then I switched to HSA. My employer throws $1200 at the first of every year. And THAT’s the money I use to pay my deductibles ever since.

I haven’t had to pay out of pocket for years. And to boot, my HSA is quit sizable now. Which I can use to invest in mutual funds, stocks, etc…

So pissed I didn’t switch sooner!

4

Thanks for these thoughts. Very thorough. I will say that the $5,000 deductible is inclusive of both of my wife and I. That’s another difference between the two plans. Under our current plan, once an individual hits their half of the deductible ($1,300 in this case), they’ve met it even if the other person has had no expenses yet. With the HDHP HSA plan, the deductible is $5,000 flat, regardless of which person in the family incurs the expenses.

If I want to get the employer contribution, I have to use HSA Bank, which has two self-directed investment options. One is T.D. Ameritrade, which I’ve heard of. The other is called Denevir, which I haven’t. If you don’t invest, and just let the money sit in the bank, the APY is only about 0.10%. I’ve never been especially savvy about investing, anyway–I rely on Vanguard target date funds for our IRAs. Being at a university, I have a 403b rather than a 401k (and sadly, no employer match).

I guess it really does come down to how much risk I’m willing to tolerate in terms of an unexpected medical expense. We have managed to get pretty much debt free, but our savings is not as high as I would like at this point.

Thanks for your thoughts.

5

An HSA is basically a semi-forced (definitions may vary) savings account that’s earmarked for medical expenses.

Assume you’ll save $200/month by switching to the high-deductible plan. The theory is that you’ll put every penny of that money into the HSA. Anything that your employer contributes is free money.

As always, only you can decide whether switching is the right move for your family.

6

My husband also works at a university and he got the HSA plan once we got married. Good thing, too. Six months into our wedded bliss he suffered a cardiac arrest (and died. And got better) He ultimately ended up getting an ICD implanted.

Two years later, I got cancer. (Thyroid. Didn’t die. Now cancer-free.)

The HSA covers our pills and our doctor visits once we hit our out of pocket expenses. We get paid for preventive healthcare visits and sometimes for doing online classes and tests.

I say go for it!

7

Sorry to hear about your medical issues, but I’m glad that you’re okay now. If it’s not too personal, could I ask roughly how much your husband was able to contribute to his HSA account at the beginning, and roughly what the bills for his cardiac arrest were (obviously you’re under no obligation to tell me). What you describe sounds like the thing I am most worried about with an HSA–a big, unexpected medical expense very soon after establishing the account, before it’s had time to accumulate enough money to cover that expense.

I should probably also mention that unlike what @Grrr describes, the contribution from my employer doesn’t go in all at once. It will total $1,320 per year, but it will go in a little at a time, on the same day as each paycheck. So I won’t be sitting on a nice pot of free money on day 1.

I think I am still leaning toward doing it, however. Thanks again to everyone for their advice.

8

I will get back to you on that later, possibly Sunday. We’ve got a full day ahead and I didn’t want you to think you’re being ignored. I know that we’re not in crippling medical debt, so much of that must have been covered. we did have to pay the ambulance out of pocket, though. I think they charge by the foot, not the mile.

9

Emphatically NO!

I’ve had a terrible experience with one.

They couldn’t identify a charge number, and demanded that I do.
I couldn’t.
None of my Health Care Providers could.
So they locked my account, & despite many attempts, I cannot retrieve hundreds of bucks.

One number wrong, & they get a license to keep your dough.

BTW–I am a State Of Tennessee Employee.

10

Oh, no hurry. Like I say, I know it’s a rather personal question. Open enrollment runs through November 12, so I’ve got a little time to decide.

11

I was on an HSA for a couple of years. Built up funds, had kids, used up the funds, depleted the HSA to nothing. Changed employers. HSA kept charging me bullshit fees for low balance. Finally I went to close out this haemmorhaging white elephant, and was charged $50 for the privilege.

In my experience it was just an elaborate way to dissuade employees from incurring health expenses.

Upside: since it’s your money, and the company can’t help themselves to your leftover funds (like a flex spending account) they gave me zero shit about documenting that expenses were “approved” with perfectly itemized receipts. This is helpful, given that many doctors offices will happily send you on your way with whatever useless scrap of thermal paper that shoots out the top of the credit card machine.

If I were young, childless, healthy, and getting a nice company match, and I had already maxed my 401k and IRA, then I’d sign on with an HSA. Things being what they are, it’s not much help to me now.

12

You’re equally at risk for these kinds of screwups with an FSA. Or with conventional insurance where the insurer refuses to pay their part of procedure X claiming (or “claiming”) that it’s coded wrong.

There is noting specific to HSAs that makes these administrative risks greater or lesser.

13

You might want to look very closely at the rest of the details between both plans.

e.g. both an HDHP and a regular plan will have a deductible up to which they pay zero. Then they’ll have another number up to which they’ll pay e.g. 80% and you pay 20%. Then there’s finally a number called out-of-pocket maximum above which they pick up 100%.

Your true worst case exposure is the OOP max. For each of you. Plus some co-pays. And that’s true for both HDHP and non-HDHP plans. Compare those numbers (net of premium savings and employer matching) to understand the worst case. Don’t just compare the deductibles.

For my employer, the deductibles are quite different while the OOP maxima are much closer than you’d expect.

14

Late add:

The bottom line being the true worst case isn’t that different between our plans. But for the medium-good case the HDHP may be the more expensive when your yearly total outlay ends up close to the deductible, either just over or just under. But that’s a smaller absolute number and may be easier to withstand if you have an unlucky year.

15

Sorry I took so long to respond. I asked my husband about his initial contributions but he doesn’t remember since it was seven years ago. He needs to look up all the numbers for accuracy.

16

This is what I do, treat it as a tax shelter. I’m 58 and already max my 401k so why not? And since I can pay for care with pre-tax money and I’m highly compensated, it’s basically maybe a 35% discount for healthcare if I reimburse myself. I put $100/week into my HSA and there’s $15k in there after a couple of years or so.

However, my deductible is $2800 on my HDHP because I cover my college age son’s health care. And prescriptions are not covered at all until I meet my deductible. So basically my HDHP affords me zero coverage in a regular year unless I need surgery and top the deductible that way or some other (which I did via cancer surgery in early 2018).

OTOH, my company donates $1700 a year to the HSA, so quite a lot of my deductible is covered, which sticks me with $1100 when I finally reach the doughnut hole when my company’s money runs dry and it’s all on me until the deductible is met. I just checked my Aetna, and I’ve spent $1994 on healthcare in 10 months of 2020, so my company paid for $1700 of that , I paid $294.

17

Which, if not for the HSA, you would have had to have earned ~$450 to cover. (Not news to you, I’m sure.)

18

Thanks again to everyone for all the advice! My biggest worry, I think, is prescriptions not being covered until after we meet the deductible. “Preventive” prescriptions are not subject to the deductible. CVS Caremark (which is our prescription coverage provider) has a list of preventive medications, and most of our meds are on it. But since these have been subscribed for conditions that we already have, my fear is that they won’t be considered truly “preventive.” But if not, at least the university’s contribution to the HSA would help defray that.

I may risk it at least for a year, to see how it goes, and hope that we have no major expenses this year. Our enrollment portal at work has a little tool where you can compare the two plans, using last year’s medical expenses as a baseline, and it tells me that an HSA would have saved us over $1,000.

Thanks again.

19

I got an HSA five years ago and between my own pre-tax deductions and the company contributions I have about $6,500 in it. While I have a chronic condition that need to be managed, each year I have contributed more to my HSA than I have taken out of it. (I am fortunate that most of my meds are dirt cheap.) After three years, I was in a position where I could cover my maximum out of pocket expenses with my HSA were I to suffer a catastrophic health problem.

20

Please don’t feel the need to do a bunch of research just for my sake. I appreciate the effort, but if it’s not something that you have readily to hand, I don’t want to make you and your husband search through a bunch of old records just to satisfy my curiosity.