14 Reasons I Love My New HSA

I’m deeply thrilled to take out a high deductible health care policy and open a healthcare savings account (HSA). Or at least as thrilled as one can be about paying for health insurance or health care. I won’t talk about the inflated prices of both, here, but merely the reasons I chose this HSA approach.

First, let me say that there’s no comparison between this approach and an employer subsidized health care plan, even though as an employee you can still save a ton of money this way. The real deal is that employees are paid a fraction of their actual worth in salary. Then the employer uses some of what’s left to purchase group health care. You might think group is less expensive – it isn’t – not just for being group. It looks less expensive to the employee, because the employer then pays part of the employees premium. That’s part of your paycheck – you just have less control over how it’s used. You can’t buy a plan on the open market, or choose the percentage paid out in health premiums vs. salary. Don’t think it’s part of your salary? Look at your stub. It’s interesting to watch people say they want choice, no authority figure telling them what kind of insurance they can/can’t have, and then they accept this employment arrangement where not only is all of that true, but you pay *even* if you don’t take the insurance. How? Well, if the insurance really costs $1100/mo, and the employer pays $800 of that, your part is $300, right? But if you elect not to carry insurance, the employer does *not* increase your salary by $800. You simply lose that income. So yes, if you have this kind of employer-subsidized plan, you are being forced to take the insurance, even if you don’t carry coverage, you are paying for it, even if you don’t pay for coverage, and you don’t have the option to choose any plan you want in the open market. You have socialized health care, just controlled by a small state. Deal with it.

Second, getting paid in the first place, for employees has no comparison to getting paid as a self-employed person. As self-employed person, you must pay your own full premiums (the equivalent of that $1100 the employer gets – except individual plans tend to cost less than that), as well as not getting retirement fund matching. That’s income too, you know – same deal – that 50% matching your employer does is just your salary, except it’s held back and *you* actually have to match it, in order to get paid that money. In other words, if your employer will give you some money (and it does show on your pay stub – it’s part of your remuneration for working there – it’s not a gift out of the kindness of their hearts), but you can only get that money if you do what someone else tells you to with an equal amount of your own money, then it’s you who is doing the matching, not them. That aside, the point is that this is why self-employed people need to make $90,000/year if they were making $50,000 as an employee. This is why professionals need to charge a premium for their work (and deliver premium value), because there’s no illusory relationship that doles out your salary partly as a cash allowance, partly by putting it in a savings account for you (IRA), and partly by buying you health coverage. You get all the money, but you have to be the one who makes your own decisions. In that sense, I wish every foe of national health care would become self-employed, so they can see more clearly what the terms of freedom really are, and how the illusions of freedom they have now really are forms of control.

But enough anarchism for now. Assuming one is self-employed, and would pay 400% of their existing portion of the premium to get similar health coverage on their own, what does the HSA approach do for you? Not flexible spending account, by the way – that’s another control mechanism, and they suck. A real HSA is a tax-free savings account. You invest pre-tax money, even if you’re self-employed, and it grows tax-free, and you take tax-free withdrawals to reimburse you for medical, dental, and other health care. You can use it for aspirin, nasal spray or a heart attack or a root canal or a dental checkup or whatever. But there are some really neat hidden benefits of the HSA-compatible high deductible PPO over the usual “copay” type of low deductible PPO.

Now right away, if you’d told me this some years ago, I’d have thought “but I don’t want to pay for my health care. That’s what I have insurance for.” No dice. You’re paying – and you’re paying more than me, and probably have worse insurance. You’re just paying in lost salary that goes, involuntarily, toward higher premiums. We’ll come back to that. And my insurance, by the way, was 60/40 as an employee – in other words, even with the employer paying 3x what I was paying for the policy, I wasn’t getting 100% coverage. Back to the HSA:

Here’s what I like:

1. I get control back – I get to manage my own health care. It sort of feels like a Roth-IRA for health care, except it acts like a standard IRA. There’s a psychological benefit. Likewise, I get to see the real cost of my healthcare, and deal with it without a lot of smoke and mirrors.
2. I’ve been following David Ramsey’s plan for an emergency fund, and so I’ve got the money to back the high deductible. Meanwhile, I’ve dented the premiums severely.
3. Yep, it’s cheaper. You’re not getting an office visit for $35. You’re getting an office visit for $35 plus the difference in monthly premiums for that plan and a plan that doesn’t have a copay. So if you spend $1000/mo on the full premium of a plan with copay visits, and you go for 6 visits per year, vs. a $400 plan with no copay visits. That’s $600 difference times 12 months = $7200 plus the 6 copays at $210, for a whopping $7420 for the 6 office visits. And you know what’s coming… that’s about $1237 per visit. How much does that $35 copay really cost you? Let’s say you get a dirt cheap plan that doesn’t cover a lot, and it’s half that. OK $600/visit. Still not good enough? Let’s say it’s a nothing plan for 25% of that. You see what I mean. You’re paying $300/visit. I can pay $150/visit in cash out of my pocket. But I won’t. I’ll pay it in pre-tax money out of my HSA. You’re paying post-tax, so that $300 is actually $400.
4. I don’t have to pay out of the HSA, though. If I want to pay out of pocket (post-tax money), I can leave that pretax money in the HSA to grow. Again, it’s like an IRA. HSA Bank pays 1.75%. It’s not keeping up with inflation, but neither is paying tax on that money, and then still not getting any percentage points, let alone blowing it on medical care that’s almost 300% more expensive, even if the premiums are 400% cheaper than we think. You dig? Besides, I can invest excess funds in my HSA that I think I won’t need in no-load mutual funds. Since, from age 65, I can take out the money for any reason (not necessarily medical), the HSA is effectively an old-age fund (call it a retirement fund, if you’re still living in that era). Two investment types in one wallop – health and living expenses during old age – not that I plan to retire. People generally needs *lots* more money for health care in old age than they realize. Whatever you’re thinking, quadruple it.
5. If I leave that money in the HSA and later, I need money while I’m still young, I can reimburse myself tax-free, if I kept my medical receipts, in a later year. Since I can put $6100/year into this thing, of pre-tax money (with a family of 2), I can save with confidence that I still have some liquidity, while it grows, and my health expenses are covered, too. After all, if I put in $5000/year for 2yrs, I’ve covered the $10,000 deductible (yep 10K) on my high deductible PPO. After that, the PPO pays 100%. And I’m putting money in every year.
6. Here’s the thing, though – with a standard low-deductible PPO, I’m *still* paying that money, because it’s so much more expensive. If I pay $1000/mo for an employee-like PPO vs. $400/mo for a high deductible one (I pay less than that), then that’s $600/mo ($7200/year) I’m chunking toward my health care. Except – I don’t ever see that money again. I’m giving it to the healthcare landlords as rent. That’s more than the maximum you can even put into an HSA. But even if I get it all back by something catastrophic happening, I gave them an interest-free loan of post-tax money for the year, where I could have been earning interest on pre-tax money, and not risking that money so that I have to actually get sick in order not to lose my investment! Yuck. Now are you seeing how convoluted the health insurance game is?
7. I get a triple tax advantage with an HSA. Pre-tax money, growing tax-free, with tax-free withdrawals for medical. And I’m going to spend money on medical, and so are you – one way or another. The difference is that most people’s expenses are hidden from them as premiums – you pay whether you get sick or not. I spend a little on premiums, so I’m covered 100% after that $10K deductible, but I keep and save and invest and grow the rest. I *own* my health, not rent it from someone else who owns it.
8. You got it, it’s avoiding the bodysnatchers, where insurance companies (which are speculative organizations – make no mistake – they draw lots to gamble on what happens to my body) – where insurance companies also actually get to invest my health. It’s an icky feeling, no? They take the money I could have used to keep myself healthy to begin with, or at the very least (even if premiums were identical) the *earnings* on that money (on my health), and add it to profit. If anyone is going to invest in my health, I at least want to be the chief investor. I want to own most of the stock in the company of my own body, folks, not let other people become bodysnatchers.
9. Here’s a great deal. I can leave pre-tax money in my HSA growing tax-free and, when I do take a withdrawal, I can deposit that reimbursement in a Roth-IRA (which typically only gets post-tax money), and the Roth makes that money tax-free for life – it can never be taxed again, if I withdraw it when I’m older. So, effectively, I’ve created wealth that is truly income-tax immune. How’s that for health? I’m going to need money. Whether for health or just getting by. And so the HSA helps me get and keep more of that money. Why pay income tax if you don’t have to? Sure, the max I can immunize from tax right now is about $6K/year, but that’s good enough to lower my tax bracket, potentially. Heck, I effectively get to write off health care costs, and keep the change. Sweet deal.
10. I get negotiated pricing for big stuff. Some doctor’s offices have a lower rate tier for uninsured people, true enough – mine does, and I won’t get that this way. But it’s not the $1000 care that I’m worried about. What, I want to be without coverage on the $100,000 things, so I can save a couple of hundred on an office procedure? But hospitals and specialists typically don’t give you a break because you have no insurance, or at least there’s no guarantee. With insurance, you get the negotiated lower insurance rate they’ve contracted for, and you get maybe a month while they send that bill to the insurance company, and it gets sent back to you, to get some more pre-tax money in that HSA if you need to. My father was pushing me about this benefit for a while, and I didn’t really grasp it, because I was used to the doctor’s office discount. Credits at the end (I got the point from Wisebread).
11. If you don’t own a home, it’s pretty darned hard to itemize on your taxes. So all those supposedly tax deductible itemized donations and other deductions just don’t work – you get the standard deduction and that’s it. I own a home, but I’m planning to go mobile and ditch ownership. Fortuntely, there are two things to help: 1) I work all the time, and most of what I buy is for work, and those items are always itemized on Schedule-C. 2) Medical expenses with an HSA are accounted for on the primary form, not by itemization. Sure, you need to keep the receipts in order, just like you itemize, but it’s just a single line entry of one amount.
12. I think HSAs have the potential to transform the health care market into more of an open market. Sure, my high deductible PPO still wants me to use the network for the deductible to apply – not my favorite thing – I want a completely open market. But with the HSA, I’m not paying in advance, before I even see or choose a specialist or a general practitioner. So I feel more free to boot doctors I don’t like. I don’t like nasty front desk staff who act like they’re dispensing a privilege, and substitute their position for actual competence. Health care should be kind, empathetic, sympathetic. I don’t like tyrannical doctor personalities that want me to do what they say without questioning it, or asking about alternatives, or who don’t want to be bothered with my concerns. I believe the coming market will make those guys dinosaurs, and good freaking riddance. With a huge network (I have Humana), and my own wad of HSA cash, I can routinely fire the ones I have to be ‘careful’ around, as though I were the nurses and interns they like yelling at. And if they want me out, too, no problem – let ’em poach older people from the market, who are used to the era where your doctor is like a little god. I want a contractor, not a god. My HSA gives me a sense of clout in my health provider choices.
13. I’m looking into a supplemental insurance plan – e.g. accident or serious illness coverage, like AFLAC. For a small fee, it can help protect my HSA assets. My goal is not to get to that nice 100% pay out sweet spot, by having to pay big costs out of pocket. Obviously, the money is better served invested tax-free from my HSA. And accidents and serious illness are a common use of health care. Lets say you have already contributed the annual maximum to your HSA, and you have a $10,000 deductible HSA-PPO. Then you have a $5000 accident. You could pay out of your HSA, and it would fall under your deductible. You can’t put more money in the HSA until next year, and obviously $5000, all of a sudden, kind of hurts. But if you had $5000 of accident insurance at say $35/month, you’ve paid $420 annually to protect that $5000 in your HSA, and it covers your accident. You can’t take money out of your HSA for anything paid for by a supplemental plan (‘double dipping’), but even if you had to pay up front out of your HSA, you can do a “distribution reversal” form with the bank when you get the money from your supplemental policy, and put the money back in, without either the penalty for a non-reimbursable withdrawal or for excess contribution – and there’s usually no bank fee for that.
14. I can link the HSA, conceptually, with my emergency fund as I follow David Ramsey’s steps. Ramsey says health insurance is a necessary expense, and both your premium for the high deductible plan and the corresponding HSA are insurance – it’s just that you’re collecting premiums from yourself instead of paying them to an insurance company. Again, if the difference between $705/mo to keep a plan like my employer provided and $305/mo for my high deductible plan is $4800/yr, but instead I pay that $4800 into my HSA throughout the year, that’s my insurance – it’s just that *I* control the funds and earn interest point wealth on them, etc. So once my HSA reaches my deductible amount (e.g. $10,000 in the case of my plan – let’s say $12,300 if I fund it fully so I can cover non-deductible expenses like dental and cough syrup or an out-of-network lab test) then I can, if my other emergency funds are sufficient, move to the step of paying down any non-mortgage debt as quickly as possible – like the freaking student loan (the best investment is not in the 6% return from a Roth at this point, but in the 8% interest on that debt – doing it the other way would be losing money, not saving it). Besides, the HSA *is* an old-age fund at some point, with any un-used portions and earnings – though I’ll really need to fund it at the full contribution for life after non-mortgage debt is dead, and do the Roth also.

I tend to study things for a long time before I jump (but for me a long time is 2 days straight through), and get some advice from trusted confidents, and play devil’s advocate and bounce ‘what if’s’ and ‘what abouts’ with experts, and then I jump immediately. What happened to me was that I never understood HSAs, because employers didn’t explain them in a way that makes sense at all (guess what – are you an employee? your premium for an HSA compatible plan is probably $50 or so. So you can save, even if you’re an employee, as much as I pick on that). And I thought HSAs were basically flexible spending accounts, which employers likewise don’t explain well, usually sending in a junior HR rep with canned answers and the expectation (and social pressure) that you’re supposed to nod a lot, not ask overly challenging questions, get the training over with, and direct any further questions to the insurance companies (whose sole purpose is to sell you stuff, so prepare for even worse wrong answers). Anything that felt like *more* employer control (like the FSAs), I wasn’t going to get involved with; when employment starts to feel too cult-like, I’m out. I’ll have my birthday cake in the car, thank you. But the HSA thing is something a lot of entrepreneurs have been doing for a long time, and employees too.

Yet, I hear people asking why it seems like such a well-guarded secret, when the information is out there. I think a lot of people are put off by badly presented information with badly-explained effects on their lives, and it’s easier to trust an authority figure, even if you’re essentially better off throwing 60% of your money in the toilet, most years – that’s 60% of the 40% of your pay that isn’t handed to you as a cash allowance or paycheck. Let’s say it’s a new car every other year for as long as you’re employed. Sure, you get coverage, but you get coverage this way, too. I’d rather have the $40,000/year extra to invest and earn interest on myself, instead of someone else managing it, and pocketing the investment earnings – and if I’ve got that, I’ve got my $10K deductible any year I need it, right? Yes, I want the other $30K plus interest, dammit! It’s mine, I earned it. Yeesh – I remember someone saying about an employer “Yeah, they suck, but at least they give us matching retirement funds.” Give you? Gosh, that’s sheep thinking. That’s your income, buddy – you earned it – it’s on your pay stub not as a gift – ask your HR Dept. – it’s part of your pay. We trust and trust, but I think I take a lot better care of my health – eat better, do better preventative stuff, buy that $800 bicycle for hitting the trails – if I just had that 300% skim off the top. I want the whole milk!

I was almost sheepish to say I *love* my new HSA, but I actually found other people saying it with hearts and kisses, so I don’t feel embarrased at all. It feels like freedom. And all my experiments are, in some way, experiments in freedom. Peace.

Credits:

How Much Does a $20 Co-pay Really Cost? – C. Dean Richard

Why I (Heart) My High Deductible Health Insurance Plan – Wisebread

Tax Time! Maximize your deductions for 2010 – My HSA Guy (he really is my HSA guy)