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Health Savings Account Options

mps01060 12 10 March 8, 2016 at 01:53 PM
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With my current company I will have to enroll in a high deductible health plan (HDHP). The company will also set up a health savings account (HSA) with the HSA bank (I think related to Cigna?). Unfortunately, my company will only cover the $100 annual fee with the HSA bank, and will not contribute any money to the HSA. I have a few questions / concerns, and was hoping someone has experience with this:

1. From what I gather, I don't think I am required to use my company's HSA provider (the HSA Bank). Is this true?

2. The HSA bank seems to allow use of DEVENIR and/or TD Ameritrade for investment options. These options seem limited and appear to have high fees, although I may be mistaken. I was thinking that an index-based fund with a low fee would be best for this type of account. Does anyone have experience with this?

3. Since this is for medical primarily, should I just let the money sit safely as "cash" in an account (with very low interest)?

Thank you for any help. I'm definitely new to this HSA thing and was wondering what others do.

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Quote from mps01060 View Post :
With my current company I will have to enroll in a high deductible health plan (HDHP). The company will also set up a health savings account (HSA) with the HSA bank (I think related to Cigna?). Unfortunately, my company will only cover the $100 annual fee with the HSA bank, and will not contribute any money to the HSA. I have a few questions / concerns, and was hoping someone has experience with this:

1. From what I gather, I don't think I am required to use my company's HSA provider (the HSA Bank). Is this true?

2. The HSA bank seems to allow use of DEVENIR and/or TD Ameritrade for investment options. These options seem limited and appear to have high fees, although I may be mistaken. I was thinking that an index-based fund with a low fee would be best for this type of account. Does anyone have experience with this?

3. Since this is for medical primarily, should I just let the money sit safely as "cash" in an account (with very low interest)?

Thank you for any help. I'm definitely new to this HSA thing and was wondering what others do.
1. From what I've seen on the google, that's correct. You can open an HSA with any custodian, as long as you are covered under an HDHP (note that you only need to be covered to open the account, not keep it open). Note that your employer may not offer the same benefits (e.g., covering the annual fee) if you use a different custodian, and you may not be able to make contributions directly from your paycheck.

2. If you are going to invest some or all of the money, low fee options are likely better than the high fee ones, yes. However, tying in to your point 3, you may want to keep some or all of that money as "cash", so you can pay off medical expenses as you incur them. I've found that even keeping all of the money as cash, it still comes out ahead in terms of reducing your taxable income. Maybe not the best option in terms of money saved / earned, but certainly better than not having the HSA.

3. The typical usage (and how I use mine) of an HSA is to pay for medical expenses as you incur them, so you'd want some money kept liquid in the account (e.g., one year's deductible, or deductible + some extra to cover dental, vision, etc expenses). Any additional balance beyond that could be invested without fear of needing that money soon. Adjust your threshold once or twice a year or as needed.

Some SD'ers treat the HSA as a super Roth IRA, by paying for all medical expenses OOP, and reimbursing themselves for those expenses after retirement. The reasoning behind that is contributions are tax free, growth is tax free, and withdrawals (for medical expenses, or maybe all withdrawals after age 55.5) are tax free. Depending on how much your medical expenses are in a given year, a portion of them could be deductible as well. The super Roth takes a lot of discipline (and saving of receipts), as well as the ability to pay for the medical expenses without the HSA - it also assumes that the tax laws governing HSAs won't change in the meantime (which I guess is an assumption on any retirement investment vehicle). It's certainly not for everyone, and others here can probably speak more about it than I can.
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- You can use any bank you like. It may be easier to use one that is recommended by your employer, and they may waive fees for that provider only. I shopped around a bit when I set up my HSA but I generally found that big banks will offer investment options while smaller ones like CU's will only offer flat interest, although the interest rate will be higher than the big bank. For example the best local CU I found was offering 4% (IIRC) but no investment options. Big banks like BoA were offering a myriad of investment options but a ~ $4-5/mo fee. This is my first tax year with an HSA so I am not sure if the fees are tax deductible or not

What mmathis says in the last paragraph is the best way IMHO to use an HSA. Save your receipts and only "cash out" if you really need the $$. Once you hit retirement age, the HSA essentially becomes a 401k/IRA - you can take money out WITHOUT the need for medical expense, you just pay income tax on it. so it's far better to let the money ride in the account, invest it or just get simple interest, then pull $$ out of it at a later date.

"Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties."

Either way you still have to keep track of receipts and whatnot, so why not try to get some interest out of it? The only sticky situation that can arise is if you change plans - the HSA money is yours, forever, and can always be used in the manner above, but if you change plans/jobs and go to a non-HDHP, you won't be allowed to contribute to the HSA any more and AFAIK you can't contribute to a possible FSA (googling there appear to be caveats to this but this is the general rule).
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My company also uses Cigna and Cigna recently switched their HSA provider from Chase to HSA Bank. I've been very happy with this change, so far. As you said, HSA Bank allows you to invest through Devenir or TD Ameritrade. Devenir offers a limited set of funds that may not include low-cost index funds. If you choose to invest through TD Ameritrade instead, then you will have access to their 100 commission-free ETFs [tdameritrade.com] which include many great Vanguard Index Funds.

If you choose TD Ameritrade, be sure to Enroll in the commission-free ETFs as soon as you get access to your account. I thought that I did, but then mint.com pointed out that I was charged $9.99 for my first ETF purchase of one of the supposedly commission-free funds. I logged in and it looked like my account had not been enrolled so I clicked the button again to enroll and placed two more buy orders. The next day I called TD Ameritrade's self-directed number and they quickly agreed to refund the $9.99 charge but they claimed that my account was still not enrolled in the commission-free ETF offer... They were able to enroll me over the phone and it appears to have stuck since then.

It's great that your company is covering any fees that might otherwise be charged for holding an HSA. Lots of people treat their HSA as a triple tax-advantaged [usnews.com] retirement account by paying for their qualified medical expenses out of pocket, but keeping the receipts to be able to reimburse themselves from the HSA at a much later date. All this time, the pre-tax money invested within the HSA grows
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Last edited by dhc014 March 8, 2016 at 07:43 PM
#5
If the name of the HSA bank is actually "HSA Bank" then it's not owned by Cigna. It's actually owned by Webster Bank (CT-based). I use HSA Bank myself and had done some research before deciding to go with it, but a lot of employers will only support one particular HSA bank (lowercase "b") when it comes to automatically withdrawing contributions from your paycheck, which is necessary in order for it to be handled as pre-tax contributions. If you use a bank of your own choosing and have to make the payments yourself, you'll lose out on that advantage, and I'm not certain whether you'll be able to get all of those payroll tax savings back at tax-time.

Back to HSA Bank (uppercase "B")...their fees may vary depending on particular agreements they've made with your employer, so you should check with them to find out if you're enjoying any particular fee savings compared to someone who independently chooses HSA Bank. Often there are fees which get waived if you have a minimum balance amount, and you often have to have a minimum balance amount (and maintain that in the cash portion) before you can then invest funds above that amount in TD Ameritrade.

FWIW, I haven't bothered taking advantage of the investment options (yet).
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Quote from hipnetic View Post :
... you often have to have a minimum balance amount (and maintain that in the cash portion) before you can then invest funds above that amount in TD Ameritrade.

FWIW, I haven't bothered taking advantage of the investment options (yet).
You usually don't need to maintain the minimum balance in cash. You just need to build up the minimum amount in cash before you're allowed to use that money to invest.

With HSA Bank, whether you choose TD Ameritrade or Devenir, there is "No HSA minimum balance required to begin investing." [source [hsabank.com]]
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Quote from Dr. J View Post :
The only sticky situation that can arise is if you change plans - the HSA money is yours, forever, and can always be used in the manner above, but if you change plans/jobs and go to a non-HDHP, you won't be allowed to contribute to the HSA any more and AFAIK you can't contribute to a possible FSA (googling there appear to be caveats to this but this is the general rule).
Not sure if this is a rarity, but Fidelity allows post-tax contributions to their HSA plan which can be made post-employment.
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Quote from mmathis View Post :
Some SD'ers treat the HSA as a super Roth IRA, by paying for all medical expenses OOP, and reimbursing themselves for those expenses after retirement. The reasoning behind that is contributions are tax free, growth is tax free, and withdrawals (for medical expenses, or maybe all withdrawals after age 55.5) are tax free. Depending on how much your medical expenses are in a given year, a portion of them could be deductible as well. The super Roth takes a lot of discipline (and saving of receipts), as well as the ability to pay for the medical expenses without the HSA - it also assumes that the tax laws governing HSAs won't change in the meantime (which I guess is an assumption on any retirement investment vehicle). It's certainly not for everyone, and others here can probably speak more about it than I can.
Exactly what we are doing with the account. Two HSA's, one through Fidelity and one through ELFCU. Had opened the ELFCU when I was making post-tax contributions (no employer deduction available), but now also have the Fidelity account to take advantage of the payroll deduction and additional tax savings (about a $650 delta).

Both of the accounts are invested, with the exception of the 2.5K min requirement to keep in cash at ELFCU.

I figure this is a great retirement account that can be easily cashed out in the chance that early retirement happens or can even be used as an emergency fund as well.

It does come down to keeping receipts. We have about 15K in the HSA and unreimbursed receipts for 3K at this point. Emergency happens? Pull the money out from the receipts and it is tax free.

In reality, with a HDHP plan for the next 20 years, there will be plenty of costs that can be reimbursed when I am ready to retire in my late 50's - all tax free!
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Quote from tennis8363 View Post :
Not sure if this is a rarity, but Fidelity allows post-tax contributions to their HSA plan which can be made post-employment.

All I can say is if you are not on a HDHP, you cannot, by law, contribute to (or create a new) HSA account. You can use the funds though.
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Quote from tennis8363 View Post :
Exactly what we are doing with the account. Two HSA's, one through Fidelity and one through ELFCU. Had opened the ELFCU when I was making post-tax contributions (no employer deduction available), but now also have the Fidelity account to take advantage of the payroll deduction and additional tax savings (about a $650 delta).

Both of the accounts are invested, with the exception of the 2.5K min requirement to keep in cash at ELFCU.

I figure this is a great retirement account that can be easily cashed out in the chance that early retirement happens or can even be used as an emergency fund as well.

It does come down to keeping receipts. We have about 15K in the HSA and unreimbursed receipts for 3K at this point. Emergency happens? Pull the money out from the receipts and it is tax free.

In reality, with a HDHP plan for the next 20 years, there will be plenty of costs that can be reimbursed when I am ready to retire in my late 50's - all tax free!

That's how I see it. The money is very liquid - so I keep an XLS with summaries of expenses and a running total of unreimbursed QME's (Qualified Medical Expenses). If I need the $$ at any point, I just withdraw it. Otherwise, why not let it sit in there growing? To withdraw it and not "need" it would be pretty stupid. Our HSA account is less than a year old so it only has like $4-5k in it but UQME is already about $1500.

I've got payroll deductions set up to maximize the deposits ($6750 for 2016) but that still doesn't "make up for" the difference in premiums and what I would have put in an FSA ($2500) in prior years under a PPO. IOW my taxable income went up when switching to the HSA, so I've found other ways to shield it.
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Last edited by Dr. J March 10, 2016 at 04:50 AM
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Quote from Dr. J View Post :
All I can say is if you are not on a HDHP, you cannot, by law, contribute to (or create a new) HSA account. You can use the funds though.
Right, but it is easier to find an HDHP plan outside of employer options through the large carriers or in the marketplace.
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Quote from tennis8363 View Post :
Right, but it is easier to find an HDHP plan outside of employer options through the large carriers or in the marketplace.

AFAIK the bank doesn't care where the $$ comes from. In fact you don't even have to prove you are on an HDHP (I didn't at least). HSA is very much "wild west" and "honor system" compared to an FSA.
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Thanks for all the comments and explanations. It looks like I'll stick to the HSA Bank and keep it in "cash" for now, until I build a little more. I'm thinking that building enough to cover the max expenses for a year (I think approx. $3500 for my HDHP) in "cash" first. After that I'll likely invest any extra, assuming my medical costs are low at that time. This is my first time I've been on HDHP rather than a low deductible co-pay type of plan, but it seems like the HDHP can have advantages if planned for correctly, and if you are relatively healthy. I like the idea of controlling (sort-of) my own money for healthcare.
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