Evaluating My 1 Year of HSA Contributions in 2016
I have been contributing to my health savings account (HSA) for nearly 1 year now, having $98 deducted from my biweekly paycheck to go towards the HSA account. The IRS has set a maximum annual contribution limit of $3,350 for the individual and $6,750 for a family. In order to qualify for the HSA I had to switch from my Cadillac plan to a high deductible health plan (HDHP).
I have talked about a HSA in a previous post, I’ll summarize a few key points about it here and then move on to talk about whether it has been worthwhile for me to use a HSA.
Basics Of A HSA
If you anticipate making minimal use of your healthcare then a HSA can make sense, allowing you to invest the money that you set aside for your healthcare, which will grow tax-free.
An HSA is something you can sign up for yourself or sign up through your employer as long as your health insurance has a high deductible (it’s not as high as you think) and meets the criteria for a HDHP.
The nice thing about health savings accounts is that it has a maximum out-of-pocket that’s set by the IRS. This changes every year but for 2016 I would never pay more than $6,550 – but since my deductible is only $2k I would never even go above $2k.
My medical group will contribute $1,000 toward my HSA, called a match. They will match my contributions with $1k out of their pocket, so all I have to do in order to max out the HSA is contribute $2,350 which is pre-tax. The advantage here is that my gross income will be reduced by $2,350.
What Is A Deductible
This is the amount of money you must pay out of pocket for the actual cost of health services provided to you until it is exhausted, at which point the coinsurance kicks in – which is when your health insurance starts picking up the full tab.
In my case I have a deductible of $2,000. I will pay out of pocket for my genital wart cryotherapy, for my rectal foreign body removal and my MRI of the abdomen/pelvis.
So if the medical group charges $150 for wart cryotherapy then that’s exactly what I will be billed. I will keep getting billed for the straight-up cost right up until I reach $2,000 at which point my insurance actually kicks in.
There is even a cool little estimator tool that you can use (most insurance websites have this) to see how much a certain surgery, procedure, office visit, lab or imaging test will cost out of pocket.
What Do I Do With My HSA Money
Unlike a FSA where you lose what you don’t use, a HSA is investable money that you can treat just like your 401k or IRA. In my case I have it invested in index funds. Each HSA plan manager will have different investment options available. And you can always keep it in a cash-equivalent so that you have access to it at any time.
If I need to pay for something out of pocket, say that foreign body removal, then I can tap into my HSA balance and pay for it with untaxed money, a nice savings for me.
Or, if my expenses are low, I could just pay for whatever health expenditures out of pocket and let my HSA grow tax-free until I reach age 60. At that point, as long as I’ve had health expenses matching that value over my lifetime, I can take that money out without owing taxes on it.
I realize this last bit is a bit confusing. To summarize, if you leave your HSA alone for several years until you reach age 60, you can use it for non-health expenses, just like a Roth IRA or savings account.
HSA, Use It As A Savings Account Or Use It For Health Expenses
Some people might get confused as to why high-earning professionals use a HSA to begin with. Most of us are offered Cadillac health plans – why not just use those and be done with it.
Using HSA for health expenses. This is the obvious option right? You set pre-tax money aside for health expenses in a HSA account and whatever health event comes up you pay for it using that money. This way you save a little on taxes.
Using HSA as an investment account. In this method we don’t touch the HSA money, we invest it in the funds of our choice and pay for our health expenses out-of-pocket. The money grows in these HSA accounts tax-free and is available to us once we reach retirement age. We can spend it the way we would our savings, not just on healthcare related expenses.
What Happens To The HSA When I Leave My Employer
The money is yours, you take it with you. If you decide to go per diem and as long as you have a high deductible health plan (HDHP) then you are able to continue to make the maximum annual allowable contributions to your HSA.
In my case I will likely use a company like HSABank now that I have switched over to per diem status. I need to research what the maintenance fees are for these outside HSA custodians – as always, the financial sector is not transparent.
Was It Worth It?
If you asked me this question while I was still working full-time and pulling in $300k a year I would have said no. There was some paperwork involved, I had to figure out how to log in to the website, setup my investment contributions etc.
Now that I don’t have a high income it’s a whole different story. Every dollar matters to me, not because I’m afraid of not having enough money but because back in the day I could make $1k by simply working an extra Saturday – now I’m not willing to give up my Saturday, not even for $1k.
It looks like so far for the year I won’t be spending anything on healthcare except for vision glasses and dental which doesn’t fall under my HSA plan. So in summary, I saved quite a bit.