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  • Health Savings Account

    Curious to know if anyone out there has a Health Savings Account? I was thinking of getting an individual high deductible health plan with HMSA that is compatible with an HSA and wanted to hear from someone who actually is doing what I am planning.

  • #2
    Re: Health Savings Account

    I do, mainly 'cause that's what my work was offering for health insurance. By putting those two together I came out about $100/month ahead in premiums, which can go into the account. It's nice 'cause you can spend it on immediate family members as well as things your insurance doesn't cover (like dental, say). All the money you put in gets knocked straight off your AGI (assuming you don't pull it back out for a non-medical reason), and interest you earn on the money in there is tax-free as well. Some accounts let you take part of your savings and invest it in mutual funds, and the proceeds on that are also tax free. You get to keep your account from job to job (it's personal). The only real caveat is that you can't take the money out before you're retirement age w/o a penalty, unless it's for a list of approved medical uses.

    That's all fun and games until you end up going to the doctor. Bit of sticker shock the first time I got a bill for a regular family medicine office visit. But if I look back at all the insurance premiums I didn't have to pay, it still comes out ahead for me.

    YMMV, that isn't real tax advice, yadda yadda

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    • #3
      Re: Health Savings Account

      A high deductible plan with HSA can save you lots of money, provided you don't have any chronic illnesses that require medications. These plans only count your doctor visits, lab tests and dental visits (if you get the corresponding dental plan) and stuff like eyeglasses toward your maximum deductible before you start paying smaller amounts. But the plan I have ($1,500 annual deductible) has no ceiling on the cost of medications, so those will always be full retail price.

      If it's an individual plan, you kinda have to calculate whether spending more to go with low deductible coverage would be cheaper because your copay for your drugs is way less than paying full price for the meds, or going the high deductible route if you're healthy and don't need prescription drugs. If you are currently on medications, find out from the pharmacy what the retail price of your prescription is vs. the copay you pay out of pocket for that same prescription now and that will give you a good idea whether you'll save money or not. Doctors around here charge around $160 for a 15-minute visit, and a specialist will cost something like $250/visit (I use an HMO). Lab tests at list price are very expensive too. A simple CBC costs almost $50.

      If it's a company sponsored TSA, it's a much better deal because any money that gets put into your health account is tax-free.

      But an individual high-deductible HSA (especially one that's got a stop loss limit of > $1,500) is more of a catastrophic health insurance policy (i.e., to take care of your expenses if you are ever hospitalized) than a more expensive plan that provides discounted services. The plus side is at tax time, most of your medical expenses paid out of an HSA could be deducted if you reach the IRS threshhold.

      The best thing to do before you sign up for that high deductible HSA is to find out what a doctor's visit will cost in your area (the billed rate, not the discounted rate) and if you're currently on prescription medications, what the full retail cost of those prescriptions will be. Then figure out how many times you think you'll see the doctor in one year and how much you think you'll need to spend on drugs. And then ask the company that's offering the HSA to show you their certificate of coverage so you can be 100% sure you know what you're going to be buying.

      If you decide to go the route of the high deductible HSA, also put any money you save into some sort of savings account, just in case you end up having to see the doctor more often than you thought you would. Having a high deductible HSA also turns you into a more aware medical consumer, too, when you see those prices that are being charged. The reason why the nation as a whole is so complacent about the high cost of healthcare is because most people have insurance through their employers. If they all had to pay 100% of their own bills, they wouldn't be demanding that their doctors prescribe them the most expensive drugs, or they would question why certain lab tests are being ordered.

      Miulang
      Last edited by Miulang; April 26, 2007, 09:09 AM.
      "Americans believe in three freedoms. Freedom of speech; freedom of religion; and the freedom to deny the other two to folks they don`t like.” --Mark Twain

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      • #4
        Re: Health Savings Account

        Bard, Thanks for the feedback! But if you don't mind I have a few more questions. Did your employer already have a list of insurance providers for you to choose from? Which provider do you have your policy with? So far I only see HMSA as the only option for me. Just wanted to know if they're other options.

        Yes, I was thinking it would be a plus to invest the savings in premiums. And the ability to invest in mutual funds and/or stocks are very appealing. I'm thinking earning an investment rate of return of 10% annually is quite realistic and probably higher than the assumed rate of return the insurance company uses, so by investing on my own instead of paying more premium to the insurance company to do it, i'll make out in the long run.

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        • #5
          Re: Health Savings Account

          Originally posted by Miulang View Post
          AIf you decide to go the route of the high deductible HSA, also put any money you save into some sort of savings account, just in case you end up having to see the doctor more often than you thought you would. Having a high deductible HSA also turns you into a more aware medical consumer, too, when you see those prices that are being charged. The reason why the nation as a whole is so complacent about the high cost of healthcare is because most people have insurance through their employers. If they all had to pay 100% of their own bills, they wouldn't be demanding that their doctors prescribe them the most expensive drugs, or they would question why certain lab tests are being ordered.
          That's some good advice there Muilang! I have COBRA with my group plan with my former employer right now. I see more problems in the future with group plan health care and want to try the individual route. I don't mind having to pay my fair share of my medical costs and maybe when I do, I'll have an big incentive to make healthier choices.

          Too bad you still need an insurance provider to get the pricing agreements they have with doctors and hospitals. I saw a 60 minutes report where those who did not have insurance got charged a higher rate for hospital care. The bill was in the hundreds of thousands.

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          • #6
            Re: Health Savings Account

            Originally posted by GnosticWarrior View Post
            That's some good advice there Muilang! I have COBRA with my group plan with my former employer right now. I see more problems in the future with group plan health care and want to try the individual route. I don't mind having to pay my fair share of my medical costs and maybe when I do, I'll have an big incentive to make healthier choices.

            Too bad you still need an insurance provider to get the pricing agreements they have with doctors and hospitals. I saw a 60 minutes report where those who did not have insurance got charged a higher rate for hospital care. The bill was in the hundreds of thousands.
            I went from COBRA to the high deductible individual HSA plan. My monthly COBRA premiums were about $430, if I had chosen to go the low deductible route when COBRA ran out, I would have had to pay almost $480. My HSA (with dental) is only about $234. But I also have some prescription drugs, so the cost is almost a wash. And through the whole thing, I've stayed with the same HMO, because I like my docs, and it would have been a major hassle to go out and find new docs.

            Call Kaiser and see if they have a comparable plan to HMSAs so you can compare your options. There's also another national PPO health plan that just got introduced in Hawai'i (can't remember the name off the top of my head right now). Also traditional insurance companies like Aetna, Cigna and United Health may also be getting into the act.

            Miulang

            P.S. Here is a nifty little calculator to plug in some numbers to help you determine whether a high deductible HSA makes sense for you.
            Last edited by Miulang; April 26, 2007, 10:28 AM.
            "Americans believe in three freedoms. Freedom of speech; freedom of religion; and the freedom to deny the other two to folks they don`t like.” --Mark Twain

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            • #7
              Re: Health Savings Account

              Originally posted by Miulang View Post
              I went from COBRA to the high deductible individual HSA plan. My monthly COBRA premiums were about $430, if I had chosen to go the low deductible route when COBRA ran out, I would have had to pay almost $480. My HSA (with dental) is only about $234. But I also have some prescription drugs, so the cost is almost a wash. And through the whole thing, I've stayed with the same HMO, because I like my docs, and it would have been a major hassle to go out and find new docs.

              P.S. Here is a nifty little calculator to plug in some numbers to help you determine whether a high deductible HSA makes sense for you.
              No one wants to include the return on investment factor of the benefits of the a high deductible HSA. It too variable! What do you have your contributions invested in? May I suggest these mutual funds: Third Avenue Value - TAVFX and Muhlenkamp - MUHLX are two of the best funds over a 15 yr. time span. However, Management is getting old! Fairholme - FAIRX and Oakmark Select I - OAKLX are two funds run by younger guys and they show potential, but don't have the 15+ yr. track records to back themselves up.

              I was looking to open an account at HSA Bank. They allow trading in Stocks, Bonds, and Mutual Funds. Insurance companies take your premiums and invest it. If you can generate a better return than they do, you should be better off.

              If you can afford to max out your annual contributions and have it compound over time, even if right now your HSA Plan seems like a wash for you versus your COBRA, in the long run I think you'll make out.

              If you leave it up to the insurance company to invest the premium and provide coverage to you, they won't seek the best possible returns and just charge you more premium for the coverage you want. You'd be surprised that you as an individual might have a decent edge on the company in obtaining better investment results. Just as most Financial Advisors are just selling investment products to you to get commissions. They are not exactly knowledgeable enough to actually direct your investments into the best performers or actually have a conflict of interest in doing so.

              Thanks for sharing your experiences and the link to the calculator.

              Comment


              • #8
                Re: Health Savings Account

                Originally posted by GnosticWarrior View Post
                Bard, Thanks for the feedback! But if you don't mind I have a few more questions. Did your employer already have a list of insurance providers for you to choose from? Which provider do you have your policy with? So far I only see HMSA as the only option for me. Just wanted to know if they're other options.
                We had just one option, which was Blue Cross Blue Shield. We got to choose between a PPO and an HSA, the former being about $50 a month more in premiums, and the latter with zero pay-out until the deductable, and 100% coverage after that.

                I work at a libertarian sort of company, so we got to deal with everything on the money end. They signed us up for the plan and pay for it out of our checks, but everything else is up to us. So I picked a random HSA bank (they're technically called something else, can't remember what right now) that had no monthly fees and a decent interest rate. I dump as much in there each month as I want until it hits the ceiling.

                As Miulang says, it is not tax-free money when done that way, but I get to deduct all of it from my taxes next year, so it works out about the same. The basic idea is that you can deposit up to a certain amount per year, set by the IRS. That's usually either the amount of your deductable or some global cap (I think it's $2700 right now). Everything you deposit gets deducted from your AGI. Then if you spend from the account, you keep your receipts (in case of an audit or something). For any "qualified medical expenses" (most normal stuff) that's the end of it -- it's just tax free. If you pull some out for anything else then it is subject to a 10% penalty and back-taxes. Each year the limit resets, so e.g. if you deposit your deductable one year, you can do so again next year if you wanted to. And all money generated within the account (through investing it or interest) just adds to the balance, doesn't get counted as income.

                We have a pretty high deductable so it's mainly a catastrophic type thing. I'm trying to get the account filled up to at least the deductable amount so if something does happen it won't hit me too badly. That's the ideal situation.

                Yes, I was thinking it would be a plus to invest the savings in premiums. And the ability to invest in mutual funds and/or stocks are very appealing. I'm thinking earning an investment rate of return of 10% annually is quite realistic and probably higher than the assumed rate of return the insurance company uses, so by investing on my own instead of paying more premium to the insurance company to do it, i'll make out in the long run.
                Yep. And you can use it as a low-powered retirement fund, which is a bonus. Even if you cancel your insurance (IIRC) you can keep using the funds for medical expenses or cash out at retirement age. You just can't deposit more into it unless you get another high deductable plan.

                It's all about trade-offs really. Like Miulang said, look up how much things cost in your area, and don't just take a doctor's word for it -- at least here they don't seem to know their own prices. I went in for a visit last month thinking it'd probably cost me $90 since that's the raw cost of what they charged my previous insurance. Try more like $180! And I did some lab tests because they said it'd be in the range of $50 (I told them the situation and asked specifically). Got the bill: $250. Bunch of BS. Of course the health care provider and the insurance haven't finished haggling (they still do discounts), but I expect I'll end up having to pay 60% or so of that.

                As little as I go to the doctor though, it's still coming out way ahead for me.

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                • #9
                  Re: Health Savings Account

                  Thanks for sharing your experiences Bard! After all the feedback here, I am more committed than ever to implement my plan and just finished filling out my enrollment forms.

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                  • #10
                    Re: Health Savings Account

                    No problem, and (mandatory CYA post ) I'm not a real tax professional or CPA, I just play one around tax time , so if you know one you might do well to ask them about all this stuff too. There might be things about your situation or area that change whether it's as good for you or not.

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                    • #11
                      Re: Health Savings Account

                      My HSA is with Mellon Bank (the only choice my HMO gave me). They offer a piddly 3% interest on my account as long as it has a balance of >$1,000 in it. But they also charge a $3.65/mo processing fee on amounts less than $1,000. Still, my expenses will be tax deductible and I do have a couple of expensive drugs (no generics available).

                      Miulang
                      "Americans believe in three freedoms. Freedom of speech; freedom of religion; and the freedom to deny the other two to folks they don`t like.” --Mark Twain

                      Comment


                      • #12
                        Re: Health Savings Account

                        Originally posted by Miulang View Post
                        My HSA is with Mellon Bank (the only choice my HMO gave me). They offer a piddly 3% interest on my account as long as it has a balance of >$1,000 in it. But they also charge a $3.65/mo processing fee on amounts less than $1,000. Still, my expenses will be tax deductible and I do have a couple of expensive drugs (no generics available).
                        As you know, I don't have any experience with any HDHP or HSA custodian for that matter. But my understanding is that a HDHP is seperate from an HSA. However, inorder to be eligible to open an HSA, you must be covered by a HSA qualified HDHP. I don't think it would be legal for your HDHP provider to limit your choice of who you choose as custodian of your HSA as long as they are a qualified custodian with the IRS.

                        Almost all of the HSA custodian websites have a link to help you find a HDHP provider. I think they receive some sort of commission from the insurance provider for each customer they refer. But, I don't think your eligiblity to open a HSA is dependent on who your provider is.

                        Why don't you search for an HSA custodian that you would prefer over Mellon Bank and inquire about transfering your HSA to them? But if you don't want all the hassles of switching HSA custodians, Why don't you contact your HSA custodian and inquire about your investment options? I think Mellon does offer a way to invest your contributions in mutual funds. Your contributions by default are being deposited into a checking account, only when this account has reached $3000 can you then transfer $1000 over into an investment account. You must keep at least $2000 in your checking account at all times.

                        I would prefer HSA Bank bcs they offer more investment options. But if Mellon at least offers an index fund, that is a whole lot better than earning 3% and you don't have to go through the hassle of transferring your HSA to a new custodian.

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                        • #13
                          Re: Health Savings Account

                          I doublechecked the fine print on the HDHP that I have through my HMO and I'm stuck:
                          You can use either the HealthPays HSA financial institution or choose your own financial institution. (However, if choosing your own, you would not be able to use our HealthPays online financial services through MyGHC for Members
                          . What this means is I couldn't pay for any services online using any other HSA debit card other than Mellon, and I do most of my interaction with my HMO via the internet. So I think the HMO has some sort of financial deal with Mellon Bank. I used to work on the ecommerce payment gateway that is used to collect payments online for my HMO, and I know that the banking system itself has no way of knowing where the electronic payment is coming from, so it has to do with the relationship the HMO has with Mellon Bank.

                          Miulang
                          "Americans believe in three freedoms. Freedom of speech; freedom of religion; and the freedom to deny the other two to folks they don`t like.” --Mark Twain

                          Comment


                          • #14
                            Re: Health Savings Account

                            Originally posted by Miulang View Post
                            What this means is I couldn't pay for any services online using any other HSA debit card other than Mellon, and I do most of my interaction with my HMO via the internet. So I think the HMO has some sort of financial deal with Mellon Bank. I used to work on the ecommerce payment gateway that is used to collect payments online for my HMO, and I know that the banking system itself has no way of knowing where the electronic payment is coming from, so it has to do with the relationship the HMO has with Mellon Bank.
                            I think this relationship is legal and seen it mentioned else where. Hopefully your current custodian offers some sort of investment option to at least invest in mutual funds. If not, IMHO you are losing out on one of the best benefits of going with the HSA.

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