The more folks I run into the more I find that most employers do a crappy job selling these accounts and even if they do, the default firm that administers the accounts that they recommend take most of the benefits. There is also a lot of confusion by HR folks and employees that the HSA is just a new version of medical spending accounts. Generally HSAs are used by folks who are healthy and do not use the health care system. Someone with a chronic condition or an upcoming pricey medical procedure (things like new knees or hips that are scheduled months in advance) may want to skip it.
I had read a few articles several years ago and as soon as my company offered the right insurance plan (more below on HD plans) I started up an account and its been a winner for me as I did some homework. I dont make a buck on this but hopefully I might help someone out. (note if someone really wants to PM me I can refer them to my plan and get a Amazon gift card for a referral but feel free to skip the middleman)
The basic idea is like the old medical spending accounts, you set aside a sum of money to pay for medical cost every year that you can draw from the account over the year, you can take a deduction on your taxes on that amount you set aside. Unlike the old medical spending accounts, at the end of the year you keep whatever you did not spend at the end of the year and it stays in the account until you need it. If you need the money next year for medical cost just take it out. Next year you can set more money aside and take another take another tax deduction. At this point you may ask what the catch is?. The catch is you need to have a high deductible health care plan (lets call it s HD plan) at work or on your own. So why would you voluntarily chose to spend more money over the year out of pocket when you can let the insurance pay the bills? Well the HD plan cost less out of your paycheck and many companies contribute to the HSA to make up part of the difference. I do not have access to company insurance so I have to buy on the Health Care Exchange (AKA Obama care). I do not qualify for subsidies at least for now so I get to see the difference costs for the Gold, Silver, Bronze and HD plans. The ones I have access to have the same services its just lower deductibles on the Silver and the lowest on Gold. The HD plan is very similar price as the bronze plan. The interesting thing is that the cost difference for the plans is very close to the difference in deductibles between the plans. So in my case is if I pay more for the Gold plan I am just doing an installment plant to pay down my deductibles if I need to use medical services. If I do not use the services that money is gone. With my HD plan I pay less and if I do not need to use medical services it stays in the HSA.
So what are the benefits?. HSAs are the ultimate tax shelter. For a working person, its a tax deductible item just like an IRA or 401K contribution but unlike those two where you need to pay income taxes when you take it out, you do not have to pay taxes on HSA distributions as long as they are medically related. Various studies show that typical retires will spend 250K during their retirement out of pocket on medical during their retirement so they will have plenty of options to spend the HSA down. They can also pay their medicare Part B plans.
The big problem with HSAs is the companies who offer them typically want to make it easy for themselves and usually recommend the same firm that handles their payroll. In my experience those plans are crap. They are basically a low interest savings account with fees withdrawn. Its easier for the company as they just click a box on the payroll and it goes in. The money is as "safe" as it can be so employees do not complain about investment losses and the company could care less about potential investment profits. The trick to this is that the HSA is owned by the employee and they can put have it in an administrator of their choice and a lot of those administration firms are far lower cost and allow the money to be invested in mutual funds. When I looked into it when I first started my companies standard plan was 4 times the annual cost and they defaulted to a savings account. They did have investment options but they were all high cost plans and the bank charged an extra fee. Our company accountant with an MBA and I both did independent research and picked the same company. I still use Health Savings Administrators (healthsavings.com) but there are several other options that may be right for others. The annual costs are a lot lower and they let me invest in noload Vanguard funds. I invest those funds conservatively but over the long run, the have grown by about 8%. I dont pay capital gains or any taxes on that growth as its tax free account. When I first told my HR group that I wanted to use an outside HSA firm they complained as they had to write a check every paycheck to my firm but it helped that the accountant was also doing it. Its the law that they have to send it where you tell the to as its you account and its portable.
Folks who already have HSAs can move them to new firm anytime. Anyone with insurance with an employer has to wait until next year to set up HD plan (if its offered). The health care exchanges which normally are open enrollment in December (unless you switch employers or unemployed during the year), were re-opened for some limited time due to the Covid blll and i think someone with an individual plan can swap over to HD plan.
BTW, the government put some free care into the HD plans that you do not have to pay for. Some of them is yearly physical and free vaccine shots including covid. There are more but I dont have a list. One big detail is once you go on Medicare you no longer can contribute. I have 4 more years to build up the account. I may not have 250K but will have a chunk of it. Because its tax free I am far better paying for out of pocket costs directly than raiding the account.
As usual do your research as there are details I skipped but dont just trust your company.
I had read a few articles several years ago and as soon as my company offered the right insurance plan (more below on HD plans) I started up an account and its been a winner for me as I did some homework. I dont make a buck on this but hopefully I might help someone out. (note if someone really wants to PM me I can refer them to my plan and get a Amazon gift card for a referral but feel free to skip the middleman)
The basic idea is like the old medical spending accounts, you set aside a sum of money to pay for medical cost every year that you can draw from the account over the year, you can take a deduction on your taxes on that amount you set aside. Unlike the old medical spending accounts, at the end of the year you keep whatever you did not spend at the end of the year and it stays in the account until you need it. If you need the money next year for medical cost just take it out. Next year you can set more money aside and take another take another tax deduction. At this point you may ask what the catch is?. The catch is you need to have a high deductible health care plan (lets call it s HD plan) at work or on your own. So why would you voluntarily chose to spend more money over the year out of pocket when you can let the insurance pay the bills? Well the HD plan cost less out of your paycheck and many companies contribute to the HSA to make up part of the difference. I do not have access to company insurance so I have to buy on the Health Care Exchange (AKA Obama care). I do not qualify for subsidies at least for now so I get to see the difference costs for the Gold, Silver, Bronze and HD plans. The ones I have access to have the same services its just lower deductibles on the Silver and the lowest on Gold. The HD plan is very similar price as the bronze plan. The interesting thing is that the cost difference for the plans is very close to the difference in deductibles between the plans. So in my case is if I pay more for the Gold plan I am just doing an installment plant to pay down my deductibles if I need to use medical services. If I do not use the services that money is gone. With my HD plan I pay less and if I do not need to use medical services it stays in the HSA.
So what are the benefits?. HSAs are the ultimate tax shelter. For a working person, its a tax deductible item just like an IRA or 401K contribution but unlike those two where you need to pay income taxes when you take it out, you do not have to pay taxes on HSA distributions as long as they are medically related. Various studies show that typical retires will spend 250K during their retirement out of pocket on medical during their retirement so they will have plenty of options to spend the HSA down. They can also pay their medicare Part B plans.
The big problem with HSAs is the companies who offer them typically want to make it easy for themselves and usually recommend the same firm that handles their payroll. In my experience those plans are crap. They are basically a low interest savings account with fees withdrawn. Its easier for the company as they just click a box on the payroll and it goes in. The money is as "safe" as it can be so employees do not complain about investment losses and the company could care less about potential investment profits. The trick to this is that the HSA is owned by the employee and they can put have it in an administrator of their choice and a lot of those administration firms are far lower cost and allow the money to be invested in mutual funds. When I looked into it when I first started my companies standard plan was 4 times the annual cost and they defaulted to a savings account. They did have investment options but they were all high cost plans and the bank charged an extra fee. Our company accountant with an MBA and I both did independent research and picked the same company. I still use Health Savings Administrators (healthsavings.com) but there are several other options that may be right for others. The annual costs are a lot lower and they let me invest in noload Vanguard funds. I invest those funds conservatively but over the long run, the have grown by about 8%. I dont pay capital gains or any taxes on that growth as its tax free account. When I first told my HR group that I wanted to use an outside HSA firm they complained as they had to write a check every paycheck to my firm but it helped that the accountant was also doing it. Its the law that they have to send it where you tell the to as its you account and its portable.
Folks who already have HSAs can move them to new firm anytime. Anyone with insurance with an employer has to wait until next year to set up HD plan (if its offered). The health care exchanges which normally are open enrollment in December (unless you switch employers or unemployed during the year), were re-opened for some limited time due to the Covid blll and i think someone with an individual plan can swap over to HD plan.
BTW, the government put some free care into the HD plans that you do not have to pay for. Some of them is yearly physical and free vaccine shots including covid. There are more but I dont have a list. One big detail is once you go on Medicare you no longer can contribute. I have 4 more years to build up the account. I may not have 250K but will have a chunk of it. Because its tax free I am far better paying for out of pocket costs directly than raiding the account.
As usual do your research as there are details I skipped but dont just trust your company.
