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Supplemental Health Insurance and HSA

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  •  KL33 
    Participant
    Status: Other Professional, Spouse
    Posts: 11
    Joined: 10/30/2018

    Beginning to look at health insurance plans during open enrollment…  My wife and I currently have a supplemental health insurance plan from American General and have never used a HSA.  I’m now exploring our options of using a qualifying high deductible primary health insurance plan with HSA.  However, I’m not sure how the supplementary insurance would affect eligibility for the HSA.  Would anybody have experience with this?

    Thanks

    #170269 Reply
    Michael @ BattDouglas Michael @ BattDouglas 
    Participant
    Status: Financial Advisor, Insurance Agent
    Posts: 19
    Joined: 04/13/2018

    IRS publication 969 states that you cannot have two medical plans and qualify to fund the HSA.  This is directly from publication 969.

    Other health coverage.

    You (and your spouse, if you have family coverage) generally can’t have any other health coverage that isn’t an HDHP. However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you aren’t covered by that plan. However, you can have additional insurance that provides benefits only for the following items.

    • Liabilities incurred under workers’ compensation laws, torts, or ownership or use of property.
    • A specific disease or illness.
    • A fixed amount per day (or other period) of hospitalization.

    You also can have coverage (whether provided through insurance or otherwise) for the following items.

    Michael Douglas CLU, CHFC, CFP with the BattDouglas Financial Group
    Direct Phone: (216) 470.2728, [email protected]

    #170276 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1246
    Joined: 02/01/2016

    The common supplemental insurance you can have and still be HSA eligible, are Cancer, Heart/Stroke, Hospital Fixed-Benefit and/or Accident Fixed-Benefit coverage.

    #170287 Reply
     KL33 
    Participant
    Status: Other Professional, Spouse
    Posts: 11
    Joined: 10/30/2018
    Earnest refinancing bonus

    Thank you Michael and spiritrider.  I think it is also a good time to determine whether the supplemental insurance is still a good idea.

    #170398 Reply
     KL33 
    Participant
    Status: Other Professional, Spouse
    Posts: 11
    Joined: 10/30/2018

    So, my supplemental health insurance plan is for “accident” and “critical illness” only.  I believe it should not be a problem to have this and remain eligible for an HSA with my wife’s high deductible health plan.  Does that seem correct?

    I do have two questions though…

    1)  With respect to the health insurance part…it seems to me that it is especially beneficial to have the supplemental insurance (with a deductible of $500) when combined with a high deductible health plan.  That way, we would actually have some help in the event we needed it so that we wouldn’t end up paying the high deductible from the primary insurance.  We also wouldn’t need to access the HSA, so it could remain as an investment.  Am I thinking about this correctly?

    2)  With respect to the logistics of setting up the HSA…my wife’s employer (which is where we get out primary health insurance) is offering the high deductible health plan and an HSA from either UMB or YSA.  Her employer will also contribute $1000 to her HSA.  Seems like it’s a good idea to set this up.  In addition to my wife’s 401(K), she also has about $7,200 in a rollover IRA.  This is in Fidelity Freedom 2030, which has an expense ratio of 0.7%.  I was already thinking that we should move this to a better fund, but would it make sense to roll this IRA into the HSA?  I’m not sure how this would work…would a rollover from an IRA count with respect to the contribution limit?  If it does, and this would go over the limit, can we move the excess into something else?

    Does this all seem like a good idea?

    Thanks

    #170725 Reply
     spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1246
    Joined: 02/01/2016

    Two points:

    1. While @[email protected] and I answered you on the types of specific coverage that are allowed with an HDHP and do not HSA disqualify the individual. Supplemental Insurance is almost never cost effective insurance. In fact it is some of the most expensive insurance on an actuarial basis there is. How otherwise does the “duck” get such a cushy gig.
      1. The first rule of insurance is that you should never pay for something you can self-insure. That is the whole point of an HDHP and the government gives you a tax benefit to self-insure. Now you want to insure that what you should be self-insuring. The purpose of insurance is not so you never had to pay out of pocket. That is the purpose of an emergency fund.
      2. It is like extended warranties, you should almost never buy them. Yes, you will have specific instances of loss, but you will almost always come out way ahead by not buying them.
    2. Just because you can do something, does not mean you should do something. Yes, it is better than a stick in the eye, but funding an HSA with a qualified funding distribution from an IRA is almost never a good choice unless you have no other way to fund the HSA. It is a funding contribution in place of additional to HSA contributions. It takes up valuable HSA contribution space and you do not get additional income/FICA tax exemptions on the contribution.
      1. Also, Qualified HSA funding distributions from an IRA are subject to the same testing period as for the last month rule. You must maintain HSA eligibility for the entire year following the year of the funding distribution.
    #170754 Reply
    Liked by G
     KL33 
    Participant
    Status: Other Professional, Spouse
    Posts: 11
    Joined: 10/30/2018

    Thank you.  Makes sense.

    #171629 Reply

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