Health Savings Accounts (HSA) Nomad

[Greg]

This is a question towards anyone with experience in HSAs:

If you work for a company that provides the ability to contribute into a HSA and you quit that company, the HSA comes with you. If you then start working with another company with an HSA program, can you contribute to that original HSA or would you be creating a new HSA so you'd now have two Health Savings Accounts?

I ask this because with items such as a 401K or a TSP, you can roll them into an IRA and then if the new company has a 401k or TSP, you can keep rolling them all into presumably the same IRA you created from the previous job.

Thoughts?

- Greg "1NV3ST0R"

[Reub]

If you are going into federal employment and are young and healthy, I would look at the HDHP's (high deductible health plans) that are offered. You can use these to store away huge amounts of tax-free money and also get health insurance at the same time.

[Ad Orientem]

If you are going into federal employment and are young and healthy, I would look at the HDHP's (high deductible health plans) that are offered. You can use these to store away huge amounts of tax-free money and also get health insurance at the same time.

That is excellent advice. They used to call this "catastrophic health insurance." IMHO everyone should have a catastrophic health policy that pays 100% of all medical bills after you meet your deductible. The standard employer provided insurance policy these days rarely covers more than 80% of hospital and major medical expenses. More and more are covering only 75%. That is completely inadequate for anyone who is not wealthy. It is very easy to rack up medical bills deep into the six figures and if you are left on the hook for 20% that could be financially devastating.  

Lets be frank here. If you get zapped with a $5,000 bill (that's usually the max deductible for these policies) it would suck. And depending on your situation, in a worst case scenario you might have to work out a payment plan with the hospital or borrow money from relatives. But if you have a steady job, not many people will get pushed into bankruptcy court over $5k. On the other hand if (God forbid) you suffer a terrible accident or illness and wake up one morning with a half million in medical bills, you could be crushed if all you have is the WalMart employee insurance that leaves you on the hook for at least $100,000 of that bill.

My stepmother (memory eternal) suffered a massive stroke a couple of years ago. She had to be airlifted to a regional medical center with a neuro-medicine special wing. She underwent several operations and spent more than a month in the ICU and another six months in the hospital and a rehab center. She later had a couple of return trips to the hospital during one of which she contracted an infection that killed her. I don't know her final tab on medical bills but I know it was in the seven figures. Fortunately she had excellent insurance as a retired teacher and my father is extremely well off so the medical bills were not as catastrophic as her illness. I strongly suspect however that 80%+ of Americans would have been financially smashed by a million plus dollar medical bill.

My best advice is to get a low cost/high deductible catastrophic insurance plan. Plan on covering your routine medical expenses out of pocket. Most people don't call their auto insurance company if they need an oil change or get a flat tire. They deal with those things themselves. Likewise if your toilet backs up, you don't call your home insurance agent. You probably do what I do, swear a little and grab the plunger. Your home owners insurance is there in case your house burns down. That is what your health insurance should be there for too.

One big advantage is that these policies tend to be rather cheap since they know that you won't be calling them for anything except an emergency.

Edit: Typo

[Greg]

That's great advice Ad Orientem and Reub. I'll have to look at that in the coming months when I start work. I read in another post that potentially you could put REIT's in the health savings account which would be nice for the pre-tax benefits and you could pull money out tax-free for qualified expenses (if I'm thinking correctly). That's just a suggestion that would act as part of a VP along with other more PP items in a HSA.

Anyone know though whether you can continue to keep loading into the same HSA if you quit a job then get another job. Can you keep then depositing into the original HSA or would you need a new one? Also I guess I'm not sure on how they work if they are independent of the job so if it is then perhaps this is a moot point.

[MachineGhost]

My best advice is to get a low cost/high deductible catastrophic insurance plan. Plan on covering your routine medical expenses out of pocket. Most people don't call their auto insurance company if they need an oil change or get a flat tire. They deal with those things themselves. Likewise if your toilet backs up, you don't call your home insurance agent. You probably do what I do, swear a little and grab the plunger. Your home owners insurance is there in case your house burns down. That is what your health insurance should be there for too.

Correct me if I'm wrong, but I believe the Affordable Care Act outlawed those type of Major Medical-Catastrophobic insurance plans.  Call it a giveaway to the insurance industry.  The only practical option for those kind of plans now are via foreign insurance issuers that will cover you in the USA via an international option.

Of course, privileged federal government employees may not have to labor under the same restrictions as the civilian population they purport to serve...

[MachineGhost]

Anyone know though whether you can continue to keep loading into the same HSA if you quit a job then get another job. Can you keep then depositing into the original HSA or would you need a new one? Also I guess I'm not sure on how they work if they are independent of the job so if it is then perhaps this is a moot point.

HSAs are like IRAs, you can keep them separate, roll one over into another, etc..  Its all up to the trustee as to their limitations, if any.

[Ad Orientem]

My best advice is to get a low cost/high deductible catastrophic insurance plan. Plan on covering your routine medical expenses out of pocket. Most people don't call their auto insurance company if they need an oil change or get a flat tire. They deal with those things themselves. Likewise if your toilet backs up, you don't call your home insurance agent. You probably do what I do, swear a little and grab the plunger. Your home owners insurance is there in case your house burns down. That is what your health insurance should be there for too.

Correct me if I'm wrong, but I believe the Affordable Care Act outlawed those type of Major Medical-Catastrophobic insurance plans.  Call it a giveaway to the insurance industry.  The only practical option for those kind of plans now are via foreign insurance issuers that will cover you in the USA via an international option.

Of course, privileged federal government employees may not have to labor under the same restrictions as the civilian population they purport to serve...

If that is true I haven't heard of it. Not saying it's false, but as of 20 minutes ago Kaiser Permanente was still advertising its $5,000 deductible health plan.

http://www.ehealthinsurance.com/health- ... h-plan=134

[foglifter]

I've been using HSAs for a few years. First of all, I should point that, like an IRA,  HSA is yours and in no way is controlled by your employer. You can open an HSA  in any bank or credit union that offers them. The only special scenario when the provider of your HSA is determined by your employer is when your employer makes contributions to your HSA. Or perhaps your company's benefits provider offers an HSA and you can have it funded through pre-tax salary withdrawals, like 401(k).

You can have more than one HSA. You can transfer assets to another provider. You can pay your medical expenses from your HSA or (like I do) pay them out of pocket with a credit card and then reimburse yourself say once a year.

Often overlooked perk: after the age 65 you can use HSA money for ANY purposes without IRS penalty. In other words, your HSA becomes pretty much a traditional IRA.

[MachineGhost]

If that is true I haven't heard of it. Not saying it's false, but as of 20 minutes ago Kaiser Permanente was still advertising its $5,000 deductible health plan.

http://www.ehealthinsurance.com/health- ... h-plan=134

That's interesting, but its a HMO plan.  Its also $141 a month which is rather expensive for a basic major medical plan (it should be <=$100, in fact I do see a $97/month PPO plan with a $7500 deductible).  However, I tracked down my allegation and it seems to apply only to the forthcoming state-based exchanges:

The claim that exchanges are competitive “marketplaces”? with choice and clout is also challenged by the fact that the law outlaws catastrophic major medical insurance and limits insurance options in the exchanges to managed-care plans.

Not good, but if we still have true major medical, non-managed care plans outside the exchanges, that might be tolerable.  The problem is I don't think the non-state exchange insurance premiums are going to stay low going forward...  the state exchanges are just a stupid, indirect way to get to a single, national risk pool.

[Lone Wolf]

If you are going into federal employment and are young and healthy, I would look at the HDHP's (high deductible health plans) that are offered. You can use these to store away huge amounts of tax-free money and also get health insurance at the same time.

My best advice is to get a low cost/high deductible catastrophic insurance plan. Plan on covering your routine medical expenses out of pocket. Most people don't call their auto insurance company if they need an oil change or get a flat tire. They deal with those things themselves. Likewise if your toilet backs up, you don't call your home insurance agent. You probably do what I do, swear a little and grab the plunger. Your home owners insurance is there in case your house burns down. That is what your health insurance should be there for too.

One big advantage is that these policies tend to be rather cheap since they know that you won't be calling them for anything except an emergency.

Excellent advice from both of you gentlemen.  I heartily concur.  The system works best of every level when insurance operates as insurance.

I'm not buying insurance to cover birth control, fertility treatments, and very basic procedures.  I am paying my insurance company to bear a risk that I am not comfortable bearing on my own.  Insurance is simply a paid transfer of risk from a party that cannot afford it to a party that can.  An HDHP that pays 100% after deductible and has a huge lifetime maximum is IMO the ideal insurance plan.

[moda0306]

HSA's are great for the young & healthy.  I agree with LW, that as a purchaser of insurance products, you are almost always better off protecting yourself from really big things, and only really big things, leaving the smaller stuff for yourself to assume the risk.  Things like renters insurance, umbrella insurance, meaty liability auto insurance (not the state-minimum), life insurance, disability insurance, and long-term care insurance, are much, much more important to get than keeping low deductibles on other forms of insurance, or getting insurance for ridiculous things like wedding rings, iphones, etc.

These accounts have the following traits that IRA's don't:

- $3,100 per person contribution limit ($6,200 or so for couples & families).

- 20% penalty instead of 10% for nonqualified withdrawals.

- I don't think the usual exceptions to IRA distributions apply to HSA's.

- If an employer-based plan, they will reduce your "box 3 and box 5" income from your W2, likely reducing not just your federal & state income tax, but FICA & medicare tax.  This (pre-payroll tax cut) could save you another 7.65%.

- Can be used tax/penalty-free for qualified medical expenses.

- Can't convert into a "Roth HSA" or something similar for tax planning/diversification.

- Once you reach 70 (not 59.5 like IRA's) you can take the money out as taxable income for retirement without penalty.

- No required minimum distributions.

So there are a couple drawbacks, but not too bad a way of diversifying your retirement pot and back up your health savings.  Laws can always change, of course.

[foglifter]

These accounts have the following traits that IRA's don't:

- Once you reach 70 (not 59.5 like IRA's) you can take the money out as taxable income for retirement without penalty.

I believe the age limit when the penalty (additional tax) requirement ends is 65, not 70. Here's the excerpt from the IRS Publication 969:

Additional tax.  There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. Report the additional tax in the total on Form 1040, line 60, or Form 1040NR, line 59, and enter “HSA”? and the amount on the dotted line next to that line.

Exceptions.  There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.

[moda0306]

Yes, that's right.

It is 65.

[Greg]

I always liked thinking of insurance as you need it only for the things you couldn't pay for if something terrible happened.

For instance, I only have liability on my car rather than the comprehensive or collision. I want to protect myself for if I need to pay for medical bills, etc, not if my car gets destroyed. I'm taking that risk and because of that I'd pay lower premiums.

Same reason I wouldn't buy phone insurance (or GeekSquad insurance from something like Bestbuy). I'm willing to take the risk that my electronics will break but I could afford a new phone if something terrible did happen. Since I can afford to pay for it if something did happen or for my car, I'm not in the business for more insurance than I need.

[MachineGhost]

I always liked thinking of insurance as you need it only for the things you couldn't pay for if something terrible happened.

For instance, I only have liability on my car rather than the comprehensive or collision. I want to protect myself for if I need to pay for medical bills, etc, not if my car gets destroyed. I'm taking that risk and because of that I'd pay lower premiums.

Same reason I wouldn't buy phone insurance (or GeekSquad insurance from something like Bestbuy). I'm willing to take the risk that my electronics will break but I could afford a new phone if something terrible did happen. Since I can afford to pay for it if something did happen or for my car, I'm not in the business for more insurance than I need.

There is a rule of thumb that if an extended warranty costs more than x% of the purchase price where x == probability of having to replace it within the warranty period, it is a bad deal.  For instance, with all the cheap Chinese shit manufactured to such low quality standards nowadays, I opted to pay the extra $8 for an extended 2-year warranty on a $70 microwave, because I could just not find a microwave that did not have a high failure rate.  It's a brave new world where price has very little relation to quality, except at the extreme high end I suppose.

So I wonder if something similar applies to the insurance market.  It strikes me as an opportunity for some enterprising Internet entrepreneur to stick it to the insurance industry to make sure the premiums are truly reflecting the risk and nothing but the risk.  We don't need full public disclosure, we need to be able to calculate the risk ourselves, just as we do with warranties.