Test Driving an HSA

Saving & Investing / Tuesday, March 11th, 2014

Use an HSA to save taxes and invest for retirement

Like a lot of people, our family had to make a change in health insurance at the first of the year.

After reviewing all our options (and re-reviewing them, and reviewing them some more) we took the opportunity to go a direction we had been thinking about for a while: a high deductible policy that would allow us to also open a health savings account (or HSA). We purchased our policy directly from the company and not through the exchange.

Our previous policy had also been a high deductible policy, but because we had affordable co-pays for office visits and prescriptions, it disqualified us from having an HSA.

This time around we dumped the copays and are paying most of our health insurance costs out of pocket. Essentially what we have is a plan that provides coverage for a serious illness or catastrophic injury or, I suppose, lots and lots and lots of less serious things.

In exchange for having this catastrophic-only coverage, we are saving a significant amount on our monthly premium (we’re paying less than half than we were before) and we get to save for our healthcare expenses in a tax-advantaged health savings account.

The idea behind HSAs is that you pay for or reimburse yourself for your expenses from the account. But our plan is to do something different. We’re going to contribute the maximum to our HSAs ($6550 for a family in 2014) and leave it there. So we’ll be paying for our out-of-pocket costs with after-tax dollars.

Why would we want to do that? There are actually two reasons:

1. Our high deductible health insurance plan has – well – a high deductible: $6300 per year per individual. We hope we never come close to meeting that deductible amount, but we’d like to build up a savings cushion in case we ever do. So we won’t be paying for our teeth cleanings, allergy shots, prescription drugs, and other predictable expenses with the HSA, but the HSA money will be there if we ever have bigger, less routine expenses.

2. We also want to build up the balance in our HSA account as additional retirement savings. Once we reach 65 the money in our HSA can be used for non-medical expenses without a penalty, although we would still owe taxes on that money. Basically it would work like a non-Roth IRA at that point. We’re really focused on saving more money for retirement so this is a great opportunity to do that in a tax-advantaged way. Here’s an article from Forbes that also explains this strategy: The Most Tax-Savvy Use Of A Health Savings Account.

I have to admit that even though I fully understood the way high deductible insurance/HSAs work, there has been a bit of an adjustment period. There may in fact have been a little bit of a freakout period.

That bottle of nasal spray for my allergies? It has a $300 price tag, which I didn’t know about because I was paying a much lower copay amount with our old policy.

But I called a friend of mine who has had and HSA for years and he reassured me that it’s been a great plan for his family. I also discussed it with our accountant when I took our taxes in and he reminded me that he’s been encouraging us to do this for a while now. He also gave a thumbs up to the plan to use the HSA for additional retirement savings.

Needless to say I talked to my doctor about the nasal spray and he prescribed a generic for me to try and that’s actually the way this plan is designed to work. I’d never had a reason to ask my doctor about prescription alternatives before. The byproduct has been a more educated health consumer (I had no idea that prescription was that expensive) and lower healthcare costs (no reason to use an expensive name brand if a generic works just as well).

So we’ll see how this goes over the course of time. I’ll be looking at a couple of things in particular:

1. Will our out of pocket health costs be higher or lower once the lower premiums are figured in as part of the equation?

2. Will we be able to pay for all those out-of-pocket costs without raiding the HSA savings?

I’ll keep you posted.

10 Replies to “Test Driving an HSA”

  1. Hi Julie, The high deductible health insurance policy is ok, but have you figured in the cost of annual mammograms, and possibl colonoscopies for you and your husband? (Not sure if you are 50 yet, so may not be an issue ). But those 3 procedures are very pricey, probably the colonoscopy is a few thousand (anesthesia, office/hospital costs, doctor). You are lucky in that your family is healthy. We have a son who was diagnosed with Crohns Disease at age 10. He takes shots bimonthly(Humira) that cost about $800 a pop, twice a month, and has annual colonoscopies. So we could not use the high deductible type insurance. But love the idea of HSA account. We have that . Will be curious how much the annual total for medical expenses is at your year end.

    1. Hi Sherri, my husband had a colonoscopy last year and you’re right…it was definitely pricey. We paid for that out of pocket because it didn’t fall under an office visit copay so was applied to our deductible, which was high. I think we will actually be better off when I have mine, which will be soon (I’m turning 50 this year) because while our deductible is still high, our premiums are so much lower.

      It is my understanding that mammograms are covered with no cost sharing under the Affordable Care Act.

      Your son’s meds…ouch! I’m sorry you all are dealing with a chronic illness and at such a young age. I hope he is doing well.

      Thanks for the comment. Healthcare is such a complicated – but important – subject. I value the discussion as we try to figure out the best strategy.

  2. An additional way to stretch your Rx dollars is to compare prices of different retailers: goodrx.com has been a great resource for us. (They also have an app.). I just ask for my prescription to be printed out and then I can compare prices in the car before I have the Rx filled.

  3. We have had an HSA for a few years now and while I was nervous about it at first, I have to say that I have come to love it. I feel like we have a lot more control of our healthcare. Our insurance company pays 100% for one physical per year for everyone in our family. Make sure you check with your insurance company about colonoscopy and mammograms and other covereage. Our insurance pays 100% for one mammogram per year.

    Having an HSA has completely changed the way I approach our healthcare. I am no longer apt to take my children to the doctor’s office for every little thing that comes up. Instead, I assess a situation before instantly thinking that they need to see the doctor and I also take advantage of the on-duty nurses at the pediatricians office and call for advice about health issues first (we are not charged for this) before making an appointment.

    Of course, there are times when we have no choice but to see the doctor, but we have built up our HSA so that we know that we can afford the deductibles (we are not able to always pay out of pocket).

    Having an HSA also means more responsibility for us in double checking for mistakes. Be sure to check every. single. bill that comes in and make sure to keep all bills and the insurance statements that show how much you owe. I have learned to not be afraid to question things and double- check everything. Last summer I received a second bill 6 months after I paid the original bill but was able to get the charges removed after calling the hospital and the insurance company. I keep every bill that I get in a binder and write down the day I paid and check # for future reference.

    Thank you so much for sharing about using the HSA in retirement! We hadn’t considered that and were actually thinking about lowering our contribution each month, but after reading the article you shared I think it is important to continue to contribute to our HSA at the same level so that we can use it later in life.

    1. Vanessa, thanks for the feedback. Sounds like you’re a very educated healthcare consumer, which is great. I hope to become the same.

  4. Great post, Julie. My three kids and I had an HSA for a few years when my husband’s family medical premiums through work seemed exorbitant. It worked well for us; we stayed healthy. We tried the same thing you’re doing–fully funded the HSA but didn’t touch it unless we had to. Eleven years later, we have around $4000 still in the account. It gives me peace of mind to know that I have that money sitting in the bank down the street that I could access at any time. (Even though I’m not 65, we have paid well over $4000 in medical bills out of pocket, so I could reimburse myself for those costs.) Anyone who has tried to quickly get money out of the stock market will understand my desire to have extra money at my fingertips for emergencies.

    We definitely thought twice about going to the doctor during those years. My five-year-old fell down the stairs. She favored an arm, but did she need to have it checked out? After hemming and hawing, I finally took her to Urgent Care. She had a broken arm. That confirmed that she has a high pain tolerance!

    1. Brenda, sorry you had to learn about your daughter’s pain tolerance the hard way. Tough little girl!

      That’s great you have that money sitting there. My CPA recommended keeping copies of every medical receipt we get, just so we could document it if we ever decide to pull money out.

      Thanks for weighing in with your experience.

Leave a Reply

Your email address will not be published. Required fields are marked *