Author Topic: What the heck is an HSA and how do I use it properly?  (Read 3415 times)

Making Cents

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What the heck is an HSA and how do I use it properly?
« on: May 30, 2015, 05:23:57 PM »
I'll start with the disclaimer: I am in financial kindergarten and everything below may be total and utter nonsense. This is why I need advice from full-fledged mustachians like yourselves.

I think I want to start an HSA. (?) Both my husband and I have had access to healthcare FSAs through our employers since a move/job changes a year and a half ago, but we haven't taken advantage because I'm afraid of losing what we put in. We are both very healthy so our medical expenses are usually very low, but when they're not they are hard to predict. In a normal year, we might only spend maybe $50-$100 on co-pays for checkups. In other years with mishaps (like the time I broke my knee on a trampoline!) one of  us will max out a deductible. This year, my husband had to have some biopsies for cancer (all good results) and so we've spent almost a grand so far. He now needs new glasses and contacts (with a very expensive prescription). I'm kicking myself for the hundreds in tax we could have saved.

I'd be more comfortable with an HSA knowing that any contributions can roll over and grow tax free for use in the future. My employer only offers the FSA, no HSA. His offers both, but my insurance is the better deal so we are both on it and consequently can't use his HSA.

Total newbie questions:

1) I saw through Vanguard's website that I can start an HSA for us independently of either employer?

http://healthsavings.com/members/benefits-for-individuals/

Am I on the right track? If I begin this now, can I use it to get back the tax on money paid for my husband's medical expenses earlier this year?

2) Which funds do you recommend?

3) (Still trying to understand what an HSA is and how it works...) Can I consider an HSA to be a better substitute for emergency savings (for medical purposes anyway)? We keep our emergency fund as low as $5k because we both have good job stability and low expenses but are behind in investing for retirement. As I understand it, an HSA kind of serves dual purpose because it is invested and earning interest but can be used for medical emergencies.

Also... and I don't even know if this is relevant... We have yet to itemize our taxes. Our property taxes, mortgage interest, etc are low enough that whenever I've itemized and compared, we've come out just barely below the standard deduction. This may change this year since I started using Mint in January and have been careful to flag everything that might be deductible.

Thanks in advance for anyone patient enough to explain to me what I don't know!


rubybeth

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Re: What the heck is an HSA and how do I use it properly?
« Reply #1 on: May 30, 2015, 05:39:23 PM »
First of all, you can only contribute to an HSA if you have a qualifying health plan--which must be a High Deductible Health Plan (or HDHP). It sounds like you are on your employer's coverage because it's better than your husband's and that you have co-pays. The terms "co-pay" and the fact that your employer doesn't offer an HSA leads me to believe it's not a qualifying plan, in which case, all of your other questions are moot. Check with your HR department or insurance documents.

MDM

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Re: What the heck is an HSA and how do I use it properly?
« Reply #2 on: May 30, 2015, 05:42:39 PM »
See http://www.irs.gov/pub/irs-pdf/p969.pdf.  In particular, you can start with
Quote
To be an eligible individual and qualify for an HSA, you
must meet the following requirements.
You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month.
You have no other health coverage except what is permitted under Other health coverage, later.

Quote
My employer only offers the FSA, no HSA. His offers both, but my insurance is the better deal so we are both on it and consequently can't use his HSA.
Does your employer offer an insurance option that would qualify as a High Deductible Health Plan (HDHP)?  If so - and if you decide to use this - then you can set up your own HSA regardless of whether your employer offers an HSA via payroll deduction.

Is the distinction between HDHP and HSA clear to you?

bacchi

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Re: What the heck is an HSA and how do I use it properly?
« Reply #3 on: May 30, 2015, 05:47:12 PM »
I'd be more comfortable with an HSA knowing that any contributions can roll over and grow tax free for use in the future. My employer only offers the FSA, no HSA. His offers both, but my insurance is the better deal so we are both on it and consequently can't use his HSA.

If you're both on your non-HDHP, you can't get an HSA. Is your plan a high deductible plan?

Quote from: IRS
If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you.

http://www.irs.gov/publications/p969/ar02.html#en_US_2014_publink1000204025

Next, if your husband switched to his plan for the HSA, he may not be able to use both the FSA and HSA. Only limited purpose FSAs can work alongside an HSA.

Your questions:

1) Yes, if your husband is on his high deductible plan, and the FSA is limited purpose or he doesn't use it, he can start one through Vanguard (really, it's HSA Administrators).

2) Wellington?

3) Yes, it can serve as an emergency fund for medical purposes. Most people leave it untouched to let it grow tax-free.

As for the past expenses, no, they can't be reimbursed if they're before the HSA was established.

Making Cents

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Re: What the heck is an HSA and how do I use it properly?
« Reply #4 on: May 30, 2015, 06:02:58 PM »
Well, I am living up to my disclaimer! Thanks for all of the replies.

I thought our deductible was high enough to qualify, but did not understand that there is a different cap for out-of-pocket maximums and out-of-network deductibles are irrelevant... so you have all set me straight. We are not eligible for this.

OK, so I guess we are SOL at least until open enrollment when I'll take another look at my husband's available plans and consider an HDHP if he is offered one coupled with an HSA. If not (he may, like me, have been confused about the medical FSA vs HSA), then we'll have the same dilemma for the FSA next year. At least I'm tracking our expenses better now, but where healthcare is concerned they are so lumpy that it is hard to know how best to handle them.

Sorry for wasting your time and thanks for cluing me in.

MDM - Yes, I understand the difference between HSA and HDHP, just not apparently what they are exactly or how they work! Thanks for checking.

MDM

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Re: What the heck is an HSA and how do I use it properly?
« Reply #5 on: May 30, 2015, 06:12:17 PM »
Sorry for wasting your time

I don't consider it a waste of time at all, and suspect other responders think likewise.  If anyone does, well, they've only themselves to blame.... ;)

Good luck for you investigations during next year's enrollment!

rubybeth

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Re: What the heck is an HSA and how do I use it properly?
« Reply #6 on: May 31, 2015, 08:42:34 AM »
I don't consider it a waste of time, either. Happy to help!

rubybeth

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Re: What the heck is an HSA and how do I use it properly?
« Reply #7 on: May 31, 2015, 08:51:23 AM »
Was also going to add, when you have open enrollment, come back and post your options for help deciding. If you are generally healthy, a HDHP can save you a lot of money. DH and I are on separate plans (no kids), and he always meets his defuctible, while I haven't in many years. But there's more than enough in our HSAs to cover both deductibles.

humblefi

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Re: What the heck is an HSA and how do I use it properly?
« Reply #8 on: May 31, 2015, 10:03:03 AM »
I learnt about HSAs from a wonderful post by MadFientist...should be a known name for folks in the FIRE space.

        http://www.madfientist.com/ultimate-retirement-account/

Take a peek at this and hope it helps!

HP

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Re: What the heck is an HSA and how do I use it properly?
« Reply #9 on: May 31, 2015, 01:28:10 PM »
An HSA is a Home School Alumnus and you use it like you would a dictionary.



*cough*

sorry. couldn't help myself.

Making Cents

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Re: What the heck is an HSA and how do I use it properly?
« Reply #10 on: May 31, 2015, 01:49:43 PM »
Was also going to add, when you have open enrollment, come back and post your options for help deciding. If you are generally healthy, a HDHP can save you a lot of money. DH and I are on separate plans (no kids), and he always meets his defuctible, while I haven't in many years. But there's more than enough in our HSAs to cover both deductibles.

Thanks again to all. I will post an update in the fall.