Inadvertently solved healthcare out of pockets in perpetuity

[roomtempmayo]

A few years ago I began maxing out an HSA as a savings vehicle, but also used it to cover our out of pocket costs.

Yesterday while confirming that my employer's annual lump sum contribution had been made to the HSA, I realized that the invested balance threw off far more money than we spent on our out of pocket costs last year, and in a normal year returns would even cover the max out of pocket under our insurance plans.

For as long as we retain our current employer-sponsored insurance, the investment increase in a pretty piddly little HSA will take care of our out of pocket costs.  That's pretty cool. 

For anyone looking for savings motivation, you could disaggregate FI into categories that would be pretty rapidly attainable: housing FI, food FI, healthcare FI, education FI, etcetera.  To me, it feels more concrete than thinking I'm 54% FI.

[getsorted]

That's incredible! Well done!

[patchyfacialhair]

I emptied the HSA to pay for major dental work for my wife a few years ago, but haven't touched it for withdrawals since then. We're going to try to do our best to do the same thing once it gets large enough!

[mntnmn117]

Yeah, I made a post about having too much money in an HSA and no one really understood. Basically health insurance plans have an out-of-pocket max, so there's essentially a cap on how much you would withdraw annually from an HSA. Your 4% perpetual withdrawal target is right there.

Maxing out contributions, investing, and not withdrawing much (as you're younger and shouldn't be) gets you there pretty quick. Not sure how it plays out post retirement when the company insurance goes away.

[Turtle]

Yeah, I made a post about having too much money in an HSA and no one really understood. Basically health insurance plans have an out-of-pocket max, so there's essentially a cap on how much you would withdraw annually from an HSA. Your 4% perpetual withdrawal target is right there.

Maxing out contributions, investing, and not withdrawing much (as you're younger and shouldn't be) gets you there pretty quick. Not sure how it plays out post retirement when the company insurance goes away.

The only time HSA can legally be used for health insurance payments is paying COBRA when you leave a job. That's significantly more expensive than out of pocket expenses for someone in good health.  So that's an additional expense which you can use HSA for, and potentially useful depending on your other factors related to your ACA level.

[Omy]

I thought it could be used for Medicare premiums and long term care premiums as well.

[Turtle]

I thought it could be used for Medicare premiums and long term care premiums as well.

Quick Google confirms that Medicare premiums can be paid for with HSA.  Thanks for pointing that out.  There's conflicting information about paying for insurance between retirement and Medicare eligibility though.

[ducky19]

We started contributing to our HSA in 2017 and, with a few exceptions, have left it to grow and paid all of our medical expenses out of pocket. The beauty of it is, you can claim against those expenses years later. So just because you can't technically pay for premiums using your HSA, you can make a claim against an old expense and use that money however you like. We have enough expenses paid out of pocket that I could pay insurance premiums for the next ten years using those funds.

[chuckster]

Yes and there are many things HSA and FSA eligible. Eyeglasses, contact lenses and solution, birth control, some OTC cold medications and cough syrups, dental co-pays... it's not too difficult to rack up enough eligible out-of-pocket to make later withdrawals easy. 

[TheFrenchCat]

We also leave out HSA contributions untouched, even though we have significant out of pocket costs.  We figure if we can afford to both pay the costs and contribute to the HSA, then we should just leave it to grow due to the tax advantages.  It's also a good "hidden," automatic savings for us, since we don't see it in DH's paycheck and I tend to forget we have it.  We do keep all our receipts for medical care so if we need it, we can get to it. 

[curious_george]

That's awesome!

When I was saving money to retirement this is how I thought about it as well. This is actually how I have it listed in my financial spreadsheet also. Looking at 4% withdrawal rate, expenses arranged by importance, with a formula for calculating which expenses are now paid and a percentage paid. Something like:

Property taxes....100%
Electric................100%
Water/trash/sew.100%
Food at home......100%

And so on

It was really motivational because, psychologically I had already 'paid' for those things from investments, and if I ever wanted to quit my job and retire I knew exactly what expenses I would have to give up in order to retire, which is whatever expenses were not covered 100%, which were also the least important expenses, like my entertainment budget.

[achvfi]

We paid our health expenses out of pocket and left HSA balances invested until 2021. Balances were close to 6 figures by then. I got tired and wary of keeping track of expenses overtime and decided to take out already paid expenses.

I took it out close to 2021 peak market and it bought us a minivan! It worked out very well.

Now I use HSA balances to pay for medical expenses as they happen. Few more years in, now our invested balances are back up close to 70K. At this point, I think money invested will keep growing faster than our medical expenses.

[Trimatty471]

Yeah, I made a post about having too much money in an HSA and no one really understood. Basically health insurance plans have an out-of-pocket max, so there's essentially a cap on how much you would withdraw annually from an HSA. Your 4% perpetual withdrawal target is right there.

Maxing out contributions, investing, and not withdrawing much (as you're younger and shouldn't be) gets you there pretty quick. Not sure how it plays out post retirement when the company insurance goes away.

I also read that you can use HSA for medical premiums while collecting unemployment.

The only time HSA can legally be used for health insurance payments is paying COBRA when you leave a job. That's significantly more expensive than out of pocket expenses for someone in good health.  So that's an additional expense which you can use HSA for, and potentially useful depending on your other factors related to your ACA level.