Shoud I get a Health Savings Account?

Discussion in 'Community Discussion' started by GanChan, Nov 18, 2008.

  1. GanChan macrumors 6502a

    Jun 21, 2005
    I have my own high-deductible insurance policy -- since I'm healthy, self employed, and relatively poor -- but I'm still paying too high a premium. The other day I found a Blue Cross/Blue Shield HSA that offers the same benefits at the same deductible level for half the monthly premium I'm currently paying for my regular insurance policy.

    Are there any hidden catches here? As i understand it, I contribute to this thing pretty much as I would an IRA, with a set maximum allowable contribution per year, and that money can be taken out for medical or non-medical expenses. Medical expenses exceeding the deductible are then covered by the policy itself. Right?

    Is there a minimum amount of money I have to keep in an HSA account? Is managing an HSA a pain in the butt compared to regular insurance? What's the hidden cost in paying a lower premium?
  2. benbondu macrumors regular

    Jul 2, 2004

    If you already have a high deductible health plan, I don't see any disadvantage to using an HSA. All it does is allow you to pay for medical expenses on a before tax basis.

    A common strategy is to contribute to the HSA the difference between the HDHP premium and a traditional health plan premium. Thus, you end up paying the same amount of money each month as if you had a traditional plan, but if you're not ever sick then your HSA balance will accumulate. Then when you feel like your HSA balance is large enough (maybe after a year or two), you can hold of on the contributions and realize the savings of the lower premium HDHP.

    Or you can just keep contributing to it and treat it like a retirement account; the idea being that you'll probably have a lot of medical expenses when you're old. It can be a good idea for people who are already making maximum contributions to their IRA or 401k.

    Or if you feel like gambling, you can never contribute to the HSA. The downside is if you're sick, you'll have to pay the deductible with after-tax dollars.

    I don't think managing an HSA is much of a pain. The one offered through my work allows you to set up an automatic contribution schedule (every pay cycle). Then it gives you a debit card that use can use when you go to the doctor. I'm not aware of any account balance minimums.

    You should know that if you use the HSA funds for non-medical expenses, they become taxable.

    Medical expenses exceeding the deductible are covered under the co-insurance amount until you hit the out-of-pocket maximum.
    Example: You pay 100% up to $2,200 deductible, then you pay 20% and plan pays 80% until your out-of-pocket expenses have hit the $5,400 maximum, then the plan pays 100%. You might have to incur well over $20,000 in medical expenses before the plan starts paying for everything (which wouldn't be that hard if you took an extended trip to the hospital).

    Out-of-pocket maximums are often handled differently with HSA plans than with traditional plans; at least regarding dependent coverage. It's a non-issue if you're single, or if you don't plan on hitting your out-of-pocket max.

    As far as other "catches", I'd have to see what your current plan looks like before I could tell you about any other surprises that could be waiting for you. A lot of traditional plans charge a small copay for a doctor visit (~$10-20). If primary care visits aren't subject to deductible under your current plan, then you could be in for a shock when you go in for a check-up and get a bill for $80. I'd make sure the plan you get includes free preventative care. Usually they'll let you have one office visit a year for free.

    HSA plans appear to be extremely unpopular with many people, mostly due to the fact people don't understand them or they just don't like change. As a result, many insurers offer them at very reduced premiums to encourage enrollment. They can afford to do this because the only people enrolling are usually young healthy people. The one you're looking at probably has very good claims experience (the members, like yourself, are rarely sick so the insurance company is making a ton of money just collecting premiums). It's really not sustainable because if HSA plans ever catch on, you can expect the premiums to increase as you're pooled with older and less healthy people. But for now, enjoy it.
  3. InvalidUserID macrumors 6502a


    Sep 7, 2008
    Palo Alto, CA
    My company just finished open enrollment so this HSA is still sort of fresh in my mind.

    The hidden cost of paying a lower monthly premium is that you are responsible for the first $X, all out-of-pocket. After you hit $X, then the insurance will start to "help" and you are responsible for the co-payments only. At least, this is how my HSA is (I'm still rather new to this as well)

    I weighed the options and seeing as how I visit the doctor MAYBE once a year, the lower monthly premiums are worth it. As for the HSA account, I'm going to max it out and treat it like a 2nd IRA, as someone mentioned.
  4. GanChan thread starter macrumors 6502a

    Jun 21, 2005
    Thanks, folks. Sounds like a pretty decent idea after all.
  5. leishan macrumors 6502

    Jan 29, 2005
    You won't regret it! It really helps when you have a high deductible plan.
  6. ejb190 macrumors 65816


    Better take a second look at what an HSA is. You can not use this account for anything other then medical or medical related expenses. On the flip side, once you pay in, the money is yours to be used for the rest of your life. It comes out of your paycheck pre-tax and the interest gained once it is in the account is taxable. The penalty for using HSA funds for non-medical purposes is hefty.

    For more on HSA's check out this FAQ from the US Treasury Department or Publication 502 from your friendly IRS

    Personally, it is a good deal. My High Deductible Health Plan has 100% coverage for preventative health care like checkups. Kind of a nice little incentive to get these things done.

    Edit: I didn't read benbondu's post above. Excellent summary and he posted the same link I did...

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