[I recently started writing a monthly column for the American College of Emergency Physicians new publication, ACEP Now. They will all be similar to the Friday Q & A posts. Here is my first column.]
Question: My employer has recently gone to a high-deductible health plan (HDHP), so I became eligible this year to use a health savings account (HSA). What is the best way to use my HSA?
Answer: In 2014, HDHPs must have a minimum deductible of $1,250 if you’re single ($2,500 family) and a maximum out-of-pocket amount of $6,350 ($12,700 family). The plan may offer preventive care for a lower deductible (or none at all) and still qualify. If your only health coverage is a HDHP, then you qualify for an HSA and may contribute up to $3,300 ($6,550 family), with a $1,000 “catch-up” contribution if you’re older than 55. Even if your spouse is covered by a non-HDHP, as long as you are not, you may still use an HSA, and if at least one of your children is also not covered by a non-HDHP, you may contribute the higher family amount.
There are two ways that people use their HSAs. The first is to pay for health care in the year you make the contribution. If you get a CT scan for $1,000, you use the HSA money to pay for it. Not only do you get to use untaxed dollars to pay your health-insurance premiums (at least if you’re self-employed), you also get to pay for unreimbursed health care using untaxed dollars. If you plan to use your HSA to pay your deductible and other health-related expenses in the near future, you want to invest the money very conservatively, probably in the savings-account option of your HSA.
HSAs for Long-Term Savings
The second way to use an HSA is as a “Stealth IRA.” Many physicians need to save more money for retirement each year than they are allowed to contribute to their available retirement plans. While a taxable investing account is always an option to save more, an HSA offers three significant advantages over a taxable account as a retirement savings plan. First, just like any other retirement plan, it offers an estate-planning advantage in that you can simply name a beneficiary on the account instead of having those assets go through probate. Second, although asset protection is always state-specific, your state may protect assets in an HSA from your creditors in a lawsuit or bankruptcy proceedings. Last, and most important, an HSA is the only “triple-tax-free” account.
What do I mean by triple-tax-free? Consider your 401K. You get an up-front tax deduction in the year you make the contribution. It then grows protected from the drag of taxes. Finally, when you pull out the money in retirement, you have to pay taxes on it. I consider that “double-tax-free.” A Roth IRA, into which you contribute after-tax dollars, but then is never taxed again, is also double-tax-free. But an HSA is different. You get the up-front tax deduction, just like a 401K. You get the tax-protected growth, just like a 401K and a Roth IRA. In addition, as long as the money is spent on approved health-care expenditures, it comes out of the account tax-free. Triple-tax-free. There is no minimum income required to contribute or maximum income above which you cannot contribute to an HSA.
If you find yourself wanting to save more than you can put into your retirement accounts, consider using your HSA as a Stealth IRA, the only triple-tax-free retirement account.
Advantages of HSAs
Because an HSA is the only triple-tax-free account, unless you’re receiving an employer match on your 401K, the first retirement contributions you make each year should go into your Stealth IRA. An HSA is different from a flexible spending arrangement (FSA) in that there is no “use it or lose it” provision. If you don’t spend your HSA in any given year, it just rolls over to the next year. Because you don’t need to spend this money for decades, it can be invested aggressively like any other retirement account. If you decide you don’t want to spend it on health care for whatever reason, after you turn 65, it becomes just like any other IRA. You can blow it on a boat without having to pay the 20 percent (not 10 percent like most retirement accounts) early-withdrawal penalty, although you’d still owe income tax on the withdrawal. Still, that’s double-tax-free. Most retirees, however, will have some health-care expenses in retirement because medications, Medicare premiums, and long-term-care insurance premiums are all considered eligible expenses. The 20 percent early-withdrawal penalty, as with most retirement accounts, also doesn’t apply if you die or are disabled.
There is one other loophole worth knowing about: the IRS doesn’t require you to withdraw the money from the HSA in the same year you incur the health-care expenditure. That means you can leave the money growing tax-free in the HSA and keep a running tally of your qualified health-care expenditures and receipts. Then when you need money to buy that sailboat, even before age 65, you pull it out of the account and report an equal amount of health-care expenditures from prior years on your tax form 8889 for that year. Be sure to keep your receipts in the event of an audit. The requirement is that you incurred the health-care expenditure after opening the HSA, not necessarily in the year you withdrew the money from the account—although it wouldn’t surprise me to see this loophole closed in the future.
HSAs have other advantages over employer-provided retirement accounts: you do not have to use your employer’s suggested HSA, and you can transfer HSA assets to another HSA account once per year. Employer-provided retirement and HSA accounts are notorious for poor investment choices and high costs. Even if you decide to use your employer’s designated HSA to obtain an employer-provided match, you are allowed to then transfer the money to your own preferred HSA immediately afterward, so you’re never stuck in a poor HSA for long. Recommended HSAs with low fees and solid investment options include HSA Bank, Health Savings Administrators, and Alliant Credit Union.
If you find yourself wanting to save more than you can put into your retirement accounts, consider using your HSA as a Stealth IRA, the only triple-tax-free retirement account.
The part you mentioned about stacking expenditures over the years until you want to take it out of the HSA sounds awesome. I’ve got to wonder how long it will be until that changes, since it’s probably higher income people who would use the HSA in that manner.
I recently finished my EM residency and am working for one of the big groups. I chose the HDHP but did not like the HSA plan they offered their employees so I chose to use HSA administrators.
I basically wrote an after tax check for 6450 in 2013. The money was not deducted from my paycheck. I will deduct the 6450 from my taxes for the year of 2013.
Am I still taking advantage of the upfront tax advantage or am I doing something wrong? Should I just use the plan through my group?
Sorry if this is a silly question but I’m new to this.
Thanks for all the help! BTW, love the site.
I had this question too and just did my taxes. You will get the full amount of $6450 deducted back when you do your taxes….so yes this is how it is tax advantaged up front.
You should utilize your employer’s plan. Employer contributions to a HSA account are not wages, and therefore are not subject to wage taxes like FICA. Meaning, you avoid FICA if your employer deposits the money directly into their HSA plan versus you making voluntary contributions to the HSA, which will have been subjected to FICA taxes. You should then rollover the money to HSA Administrators, HSA Bank, Elfcu, etc.
HSA Rollover: You write a check from your current HSA account and deposit into your preferred HSA account within 60 days. It’s simple, fast, no tax implications, and no fees. Your employer’s plan will report it to the IRS as a distribution, you will list it on line 14a form 8889 and then you need to put rollover amount (which is the same) on line 14b of the form. You can do rollover only once per year, so wait until you’ve maxed your employer’s HSA plan before doing this.
http://apps.irs.gov/app/vita/content/37/37_08_005.jsp
Good idea and I like the math, however doing this would require having an employer that offers a health plan…Not everyone fits that criteria including myself.
Dave W. definitely should. Sorry, I replied to his, but these comments only nest once. You are right though, if you are making voluntary contributions into an HSA, you should most definitely deduct the full amount from your taxes.
Thanks for the tip. Just to be clear, my employer is not making the contribution, the contribution is coming from my paycheck. My employers HSA would be saving me in taxes though, right?
Another question. If I am doing the transfer every year from my employers plan to HSA admin I would have to be paying fees on both accounts I assume. The savings in taxes would be more than the fees though I assume?
Thanks again.
This is a great point. Doesn’t work for the self-employed or partners though.
So is this more advantageous than doing a trustee to trustee transfer? I see on the form for HSA Bank for a transfer/rollover request form that there is a direct MSA/HSA Rollover option (but it also closes my current HSA account). Do you simply skip this form and write a check from your HSA checking account to HSA Bank?
We’re both “E”. You can do either. When I moved from my bank to HSA Bank, I did the trustee to trustee transfer. It took a looong time to complete the transfer, but it was clean and both parties handled most all of the process. Also, I don’t have to worry about documenting it when doing taxes (I’m pretty sure).
I could have easily done a rollover and then separately closed my first account and achieved the same end result (again, I’m pretty sure).
I think where the rollover is most advantageous is when you aren’t closing that original account, say if you are going to continue having an employer deposit your pre-tax contributions into it. The employer HSA will see it simply as a distribution, which to them might seem like a medical expense, but you know what it really is and why you fill out form 8889.
If the employer HSA has a monthly maintenance fee or low balance fee, your choices are probably a bit more complicated. I don’t have experience with decided based on this.
Thanks “E.” So to clarify . . . since my current HSA is a checking account, I can write a check to myself “E” or the new HSA entity (e.g. HSA bank) using the check from my current HSA checking account. Sounds clean and simple.
I am assuming that the “within 60 days” clause that you wrote above is if you deposit the HSA check into a personal account, then subsequently write a personal check to the new HSA entity?
You guys might want to use more than one letter as an anonymous identifier.
Regarding writing a check to yourself or directly to the second preferred HSA custodian, I think you probably wouldn’t just want to write it directly to the latter. I’ve yet to do this, but that makes sense to me. And that should just eliminate the need to worry about the “within 60 days” piece like you mentioned.
Also, I am strongly considering going with Elfcu and leaving HSA Bank. You can invest with TD Ameritrade through both of them, but Elfcu doesn’t have the fees or $5,000 minimum requirement in savings like HSA Bank does. Something to research more for sure. More here: http://thefinancebuff.com/best-hsa-provider-for-investing-hsa-money.html
Yes, ELFCU is new on the scene and looks pretty promising for a new account. I’m not sure they’re enough better that I’m willing to go through the hassle of changing, but if I were starting an HSA for the first time, I’d probably go there. Competition is a good thing.
Thanks….Didn’t know about the loophole of paying for healthcare costs that are years old.
Will have to start saving all my receipts so I can buy that “boat” when I’m 65. Do you know if dental costs are considered healthcare costs usable from and HSA account?
Yes, dental expenses qualify. See IRS Publication 502 for a complete list of qualifying expenses.
http://www.irs.gov/pub/irs-pdf/p502.pdf
I’m a dentist. I know for a fact that we have patients who use their FSA, and I’m pretty sure we’ve had them use their HSA.
It doesn’t make any sense at all to pay for health care bills out of the HSA if you have maxed out all your other tax advantaged accounts and are saving extra money in non-tax advantaged accounts. Just shift the amount you are saving in the taxable acounts to pay your health care bills and keep the HSA growing tax free on both the front and back end. There is no better retirement plan out there (unless you get a match on your 401k).
oops, sorry, I just read the initial article briefly and didn’t see the link for the full article, which you state exactly what I wrote, but in a much better way.
“First, just like any other retirement plan, it offers an estate-planning advantage in that you can simply name a beneficiary on the account instead of having those assets go through probate. ”
This should not be counted as one of “three significant advantages over a taxable account.” Most taxable brokerage or mutual fund accounts have “Transfer on Death” features/forms where you can designate beneficiaries – keeping the assets out of probate.
Good point. Thanks for the clarification.
WCI
What is the treatment of HSAs for beneficiaries? Can they be “stretched” to the beneficiary’s life expectancy like other IRAs? Are the distributions still tax free if used for health care?
A decent summary I pulled from Sterling HSA’s website:
If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death. The surviving spouse is subject to income tax only to the extent distributions from the HSA are not used for qualified medical expenses.
If your HSA passes to a person other than your surviving spouse, the HSA ceases to be an HSA as of the date of your death, and the beneficiary is required to include the fair market value of the HSA assets as of the date of your death in his or her gross income. The includable amount is reduced by any payments from the HSA for your qualified medical expenses, if such payments are made within one year after your death.
If you have not made a valid beneficiary designation, your HSA ceases to be an HSA upon your death and the fair market value of the assets in your HSA, as of the date of death, is includable in your gross income for the year of death.
So based on that treatment at death, you wouldnt want this account to grow to be too large. You need to make sure you use it before dying and not pass on to heirs.
I would hesitate to keep receipts from 30 years and then reimburse myself for over 100k in one year. I would be afraid the IRS might change the rules one day and then you dont have enough med expenses to reimburse yourself from to use up the account. Plus pass away early, and all the favorable tax treatment disappears.
Yes, there are some issues with using it this way. However, even if you only let it grow for a decade or two, it’s still pretty nice to get an additional tax-protected account. If your account seems too large to you early in retirement, you can spend it like any other IRA. If Congress starts talking about changes, you could whip out your receipts and use them for the current year, as most tax law changes aren’t retroactive.
Great article, great discussion!
1) If I currently have an FSA in place for 2014 but have not yet used it, can I cancel it and sign up for an HSA instead?
2) if the answer to #1 is no, can I set up an HSA for 2015 an contribute to it for 2015 and retroactively for 2014?
Thanks
1) I’m pretty having an FSA makes you ineligible for HSA in 2014, but I guess it’d be worth talking to HR. Maybe they have some tricks they can pull.
2) You have to be covered by a HDHP by December 1st of the year you wish to contribute to, at which point you can contribute the full amount. But that’s if you are starting with a new HDHP and haven’t already gone with the FSA. I know that doesn’t really answer your question, but your scenario seems odd. If you were eligible to contribute to an HSA in 2014, I believe you would have until 2014 tax day April 15, 2015, to voluntarily contribute for 2014. But if you were ineligible to contribute for 2014 in 2014, living in 2015 doesn’t make you anymore eligible for 2014.
I have BOTH an FSA and a HSA. How, you ask, “that’s illegal”. Not according to my HR guru. Just a small catch. My FSA can only be used for vision care (glasses, contacts, refraction exams, pictures of retina etc) and dental care (fluoride, cleanings, fillings, etc).
In general, the deadline to make changes has passed, but check with your HR rep ASAP!! Good luck.
I simply don’t know about retroactive funding, but since I haven’t heard of it, it likely doesn’t exist (because I pay very strict attention to that kind of thing).
You have a limited-purpose FSA. Per IRS regulations, you may not contribute to a health savings account (HSA) if you are covered by any non-qualifying health plan, including a general-purpose health FSA. By limiting FSA reimbursements to dental and vision care expenses, you (or your spouse) remain eligible to participate in both a limited-purpose FSA and an HSA. Participating in both plans allows you to maximize your savings and tax benefits.
In my case, I am fully participating in an HSA, but I am also taking advantage of a Dependent Care FSA, which is a limited-purpose FSA.
What if you have a regular FSA and use it to fund medical expenditures like a “Limited-Purpose FSA”, e.g., Vision & Dental only? Can you still contribure to the FSA along w/ the HSA? Reason I’m asking is that I am finally eligible to contribute to an HSA on my own however would still like to use my company’s FSA plan if able.
There is no reason you can’t have both. Just make sure you have an HDHP or no HSA for you.
I’m looking for advice. I am currently an independent contractor (newly finished an EM residency) and have $4500 invested in HSA bank (though just about all of it is with a TD ameritrade vanguard index ETF). My work status will be changing to an employee with generous health benefits in May. I won’t be HSA eligible at that point. I’m not sure what to do with this money. The $50+/yr in fees at HSA bank seems a bit over the top. Looking at the previous comments, I’m wondering if I should switch to ELFCU to avoid fees and leave the money alone (and maybe max out my contribution this year while I still can to save for retirement). Another plan would be to bag the HSA all together and get LASIK with the money which is something I have been wanting. My new employer offers matched 401k money so I feel I can catch up on retirement funds. Any thoughts? – appreciate your time!
ELFCU seems like a good idea. You could also contribute more money to the HSA so you can avoid those fees (or so they represent a lower ER.) Why not pay for Lasik with cash and keep your money growing in a tax-protected manner?
Question about deducting HDHP premiums. I work for a medical practice but have chosen to buy an individual HDHP through BCBS, as this is much less expensive than my practice’s insurance plan. I do have 1099 income (and an accompanying Solo 401(k) and federal tax ID) from some side work. Does anyone know if I can deduct my insurance premiums as a business expense for my sole proprietorship? Thanks!
I believe so.
Excellent, excellent, excellent tip!!
Sorry if this has already been answered, but if you opened an account at an HSA that you now don’t like, want to transfer it to HSA Bank or another better provider, can you still use the funds you transferred to pay for medical expenses you incurred prior to opening the new HSA account? Or would you have to pay them using the old account or with after-tax dollars?
Also, if I incur an expense this year, and pay for it with after-tax dollars, my understanding is that I could theoretically hold onto the receipt for years and then pay for it out of the HSA after I retire. Is that right? And related to the above question, would that get messed up if I do a transfer to a new HSA trustee before I pay the expense using the HSA?
The HSA keeps no record of your health care expenditures, so it wouldn’t get messed up. The law may change though.
If you already took money out and spent it on health care, then no, you’re not allowed to replace that money in the HSA. If you have no yet paid that bill, then you can pay it with after-tax money.
So basically you’re allowed to open an HSA, then incur a reimbursable medical expense, then transfer the HSA funds to a new HSA with better investment options, let the money grow over time, then use that HSA to pay for the old medical expense, because the expense was incurred after the original HSA was opened? If so, I’ll definitely consider moving my HSA to HSA Bank.
I would think of it more as incurring a reimbursable medical expense while covered by a high-deductible health plan (HDHP). You don’t need to worry so much about where your HSA funds are located in regards to what you’re trying to determine.
Sure. Nothing wrong with doing that.
Hey WCI,
Apologize for my newbie question but if you would mind giving me some advice, I’d be much obliged. I am currently a PGY-3 at a University of California program and I currently do not have a HDHP. However, I did my internship at a program that did offer a HSA and I still have ~$900 in that account. Because I no longer qualify for a HSA with my current health care plan, what should do I with that money? I figure I can try changing my current health care plan (which is free of charge by the way thanks to the UC system) to a HDHP but we are planning to have children within the next year or so and I would like to avoid having to pay a high deductible on medical expenses if I can. Thanks so much!
I’d leave the money in the HSA for now, use a regular plan as a resident and at some time in the future when you have a HDHP/HSA, you can roll your current HSA money into it.
Thanks for the speedy reply WCI. One follow up question, if you don’t mind: can I contribute to my previous HSA if my current plan is not a HDHP? My current HSA is under the 1k minimum so i’m incurring a $3.00/mos maintenance fee. I would like to contribute enough so I’m at least above that minimum.
Nm. I got it–sounds like I can’t contribute to my previous HSA plan if my current plan is not a HDHP. I guess I have to eat the maintenance fees until I become an attending and I switch to a HDHP. Thanks again WCI
You might be able to transfer it somewhere else that doesn’t have a maintenance fee. Since it’s only $900 you might just use it for health care if you have any health care expenses.
I am mulling this over. In theory, I agree with the benefits. Except that the actual health coverage seems to me like it should be a bit cheaper than what it is, or at least what I am being offered by my employer: It’s about $1,600 less per year for the high deductible health plan (with premiums partially subsidized by the employer) vs. the same insurer’s PPO plan (also employer subsidized). One health issue every couple of years wipes out the savings. I had an HSA previously, and a month after switching over to it from a PPO, had to go to the emergency room, and paid ~$3,000 out of pocket. With the HSA out of funds (used them for these expenses, contrary to the advice here), when changing employers, I went back to the PPO. For that sort of downside, it seems like there should be more discount on the premiums than there is. If it wasn’t for the tax benefits of the HSA contributions, it certainly wouldn’t be worth it; as it is, it still seems to me like less of a slam dunk than it is portrayed here. Are you guys getting more premium discount than I am, or similar but still think the math strongly favors HSAs?
First decide what type of insurance plan works best for you. Then if that is a high deductible health plan, get an HSA. But it’s dumb to get an HDHP if you’re maxing out your deductible every year or if your employer is paying the premiums or if the premiums are the same etc.
I followed your instructions to set up a backdoor IRA account and an individual 401 k account (as an independent contractor) to rollover funds from my previous employer. As an independent contractor I am considering to buy an HDHP for my family. Will an HSA account (mostly to be used as a tax shielded retirement account) mess with the backdoor IRA account?
Thank you.
No. It has nothing to do with it.
Thank you for your quick reply.
One quick question. Can I use funds from HSA account to pay for monthly premiums for HDHP (or use the cumulative premiums over the year(s) to pull an equivalent amount from the HSA account tax free, in some future year)? Or is the HSA account only to pay for uncovered medical expenses and deductibles?
No you can’t. It’s an excellent idea, since my premiums are higher than an annual HSA contribution, and easily tracked. You might think you could count premiums by reading this in Pub 502
http://www.irs.gov/pub/irs-pdf/p502.pdf Page 2, last paragraph on the page:
Medical expenses include the premiums you pay for in-
surance that covers the expenses of medical care, and
the amounts you pay for transportation to get medical
care. Medical expenses also include amounts paid for
qualified long-term care services and limited amounts
paid for any qualified long-term care insurance contract.
However, those are medical expenses deductible on Schedule A. But per Pub 969, page 8, under Qualified Medical Expenses, it says this:
Qualified medical expen-
ses are those expenses that would generally qualify for
the medical and dental expenses deduction. These are
explained in Publication 502, Medical and Dental Expen-
ses
Which sounds pretty good, until you read this later on:
You cannot treat insurance
premiums as qualified medical expenses unless the pre-
miums are for:
1.
Long-term care insurance.
2.
Health care continuation coverage (such as coverage
under COBRA).
3.
Health care coverage while receiving unemployment
compensation under federal or state law.
4.
Medicare and other health care coverage if you were
65 or older (other than premiums for a Medicare sup-
plemental policy, such as Medigap)
So it looks like a typical health care insurance premium doesn’t count, sorry. The good news is those are generally deductible anyway for the self-employed. Of course the IRS isn’t going to let you pay for it with pre-tax dollars and then ALSO pull out HSA dollars tax-free in that same amount- that would be a double deduction for the same expense.
Thanks again for such a prompt response. I really appreciate all the resources you provide.
A couple more questions on HSA account.
From the stance of investment, all gains from dividends, interest, and/or capital gain within the account must be tax free, right? I should be able to mange investments within the account just like I do for any IRA account, right?
Funds from the HSA account can be used to pay for current/future qualified medical expenses not only for myself (covered by an HDHP)but also any of my family members (spouse and/or children), even if (s)he is not covered by an HDHP, right?
Yes.
Yes.
Since it’s HSA season, I have a question for anyone that might have insight in this area.
Regarding HSAs, I understand that there are benefits for listing a spouse a the primary beneficiary. Is it advantageous (or allowed) to list an FLP, living trust, or an IRA inheritance trust as the contingent beneficiary?
Thanks
Interesting question. Haven’t ever thought about it. I found a site that says this:
If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death, subject to the completion of documents required by Sterling. The surviving spouse is subject to income tax only to the extent distributions from the HSA are not used for qualified medical expenses. If your HSA passes to a person other than your surviving spouse, the HSA ceases to be an HSA as of the date of your death, and the beneficiary is required to include the fair market value of the HSA assets as of the date of your death in his or her gross income. The includable amount is reduced by any payments from the HSA for your qualified medical expenses, if such payments are made within one year after your death.
If you have not made a valid beneficiary designation, your HSA ceases to be an HSA upon your death and the fair market value of the assets in your HSA, as of the date of death, is includable in your gross income for the year of death.
So there is no more benefit to naming an FLP or trust as the beneficiary than putting cash into an FLP/trust etc instead of giving money directly to the heirs at death.
http://www.sterlinghsa.com/faq/death_of_an_hsa_account_holder/
A couple more questions regarding HSA.
The maximum (family) contribution towards an HSA account for 2014 in $6650. As an independent contractor, I will have an HDHP coverage for myself and my family from February 1, 2015. Can I still deduct $6650 of HSA account contribution while filing for tax, or is the amount going to be prorated for the period of time I will have HDHP coverage (11 months of 2015)?
As far as using money from HSA account to pay for current or future qualified medical expenses is concerned, do the expenses have to be above 10% of AGI?
Thank you.
Per this site: http://www.optumbank.com/using-your-health-savings-account/contributions-deposits/contribution-limits/
Sounds like you can do the whole amount for 2015 to me. You can find the same info on page 5 of IRS Publication 969: http://www.irs.gov/pub/irs-pdf/p969.pdf
Thank you for clarifying that. I assume the 10% of AGI is not applicable for spending money from the HSA account on qualified medical expenses, right? Money can be drawn from the HSA account against any qualified medical expense, even if it comprises a very tiny portion of my AGI.
That’s right. The 10% of AGI only has to do with deducting the medical expenses on Schedule A. Actually, it has a 7.5% floor, not 10%.
My group has a high deductible plan, but also has a MERP to reimburse you for out of pocket cost. Does the presence of a MERP exclude me from being allowed to do an HSA (purely as a tax shelter)? Thanks, Know this is very delayed based on other comments.
I believe an HRA (of which a MERP is one type) does exclude you from an HSA.
http://www.zanebenefits.com/blog/bid/97341/FAQ-Can-I-have-an-HRA-and-an-HSA-at-the-same-time
Hi, so if we have a MERP, it must have a deductible equal to the HSA health plan deductible, say $2000 individual/4000 family? I can max out the HSA for $6000+. The MERP can pay for my premium. Then what happens when I have medical expenses, say $3000 for a procedure? Can I pay using post tax dollars and submit for reimbursement through the MERP? Or do I have to use the HSA funds until I meet the deductible ($2000 out of the HSA, and then $1000 post tax that I can submit for MERP)?
Thank you I’m trying to wrap my head around it. The premium for our PPO $1700/3400 deductible is actually just a little less than for the HSA $2000/4000 plan.
I don’t think you can fund an HSA if your employer provides an HRA/MERP. I don’t know if there is an exception if the HRA deductible is the same as the HSA deductible, but that would kind of defeat the purpose of the HRA, no?
Typically, if you have an HRA and you have a medical expense, then you pay the first $250, then the HRA picks up the next $2250 or so, and then the insurance pays 80% above that and the HRA pays 20% above that until you hit the maximum out of pocket after which insurance pays everything. It’s basically a way for the employer to use a high deductible plan without the employees feeling the high deductible.
But read your plan document to see how yours works.
Well, then the way I see it, the benefit to the HSA is maxing out the account and getting the maximum pre-tax benefit. Any medical expenses are paid by cash. Then later, hopefully after the HSA has grown, I can reimburse myself from the HSA for those expenses. On the other hand, if I use the MERP plan instead of the HSA, I would be able to effectively pay with pre-tax dollars, but only when there is an expense. This makes it seem like the HSA is better, although the premium is a little bit higher, $2400 a year (which can be paid with pre-tax dollars). So that alone probably negates any potential growth benefit of the HSA and makes it again better to use the MERP plan. Is that a good way to look at it all?
The first question is “Are you eligible for an HSA?” If you are not, then no other question matters. As a general rule, if your employer is offering a plan with an HRA/MERP YOU ARE NOT ELIGIBLE FOR AN HSA.
Yes, we have an HSA compatible plan and a non-HSA compatible one. I was able to clarify that if we choose the HSA compatible plan, we can no longer participate in the MERP.
I see, so it’s either/or. Well, it really comes down to the premium difference, how much of that premium you pay, and how much health care you consume. If you don’t consume any, and your share of the premiums are much lower with the HSA, then yes, you’re better off with the HSA plan. But it’s tough to predict future health care consumption…