Health Savings Accounts

[UptonStellington]

Does anybody know anything about Health Savings Accounts?

My knowledge is very limited, but I've just started reading about them. The only real background knowledge I have is from lefties saying that they benefit the rich and leave the less wealthy stranded. ... so I figured maybe there is something positive about them.

If you know anything about them, what is your take?

[softwareNerd]

Here's a write-up.

[UptonStellington]

Thanks sNerd, I'll check it out and get back if I have questions...

[DarkWaters]

If you know anything about [Health Savings Accounts], what is your take?

I do not know much but I think that they are a mechanism like a Roth IRA that allows you to shelter your some of your before-tax income from taxes under stipulations that you will use that money for health care. I know that free-market in health care advocate David Gratzer spoke very positively about Health Savings Accounts (HSAs) in his fantastic book The Cure: How Capitalism Can Save American Healthcare.

However, when certain politicians speak about HSAs, they might implicitly assume that people should be forced to contribute a certain amount of money into their HSA on an annual basis or that .

My perception currently is that HSAs are like school vouchers. That is, they are a step in the right direction towards free-market capitalism but they are certainly not an ideal program. HSAs are good in that they will provide a tax relief and they will give individuals more freedom is choosing where and how much money to spend on healthcare. However, they are unideal in that the existence of HSAs still relies on the altruistic premise that the government still has some business in "providing incentives" for encouraging individuals to save for healthcare. Furthermore, the existence of HSAs would surely warrant a Federal Department of Health Spending, whose existence would be to determine what should constitute legitimate spending on healthcare. This department would answer questions such as "is chiropracty medicine?", "is this cosmetic surgery really necessary for your health?" or "should you be allowed to spend this much money on preventive health maintenance?"

Edited February 25, 2008 by DarkWaters

[themadkat]

I have a HSA through work, so I can at least provide some facts about it. Firstly I think it's not a bad thing to have, but that's mostly because my company makes a (tax-free) contribution to it for the year which is considerable. It's also nice because it decreases my taxable income by the amount I choose to contribute. And, to top it all off, it's interest-bearing.

Now some problems. By choosing to put money in my HSA I'm "earmarking" it for medical expenses. I could have just as easily invested that money, even in my humble online savings account, gotten more interest on it, kept it more liquid, and also "earmarked" it for medical expenses by just saying, "I won't spend this money except on medical expenses." But instead, to get the tax deduction (which is really the only benefit to having an HSA), I have to forfeit my ability to spend my own money any way I choose as it is assumed I do not have the responsibility to keep my hands out of any personal "lockbox" I might create for myself to pay for healthcare. Another problem is that in order to qualify for an HSA you must enter into a High Deductible Health Plan (HDHP), which restricts your choices of what health plan you can enroll in. It also has the unintended side effect of making people liable for the entire high deductible if they cannot qualify for the HSA due to some other tax provision and therefore cannot receive the company contribution (this actually happened to one of my direct reports, a veteran whose military benefits prevented him from getting an HSA).

So are HSAs a good thing? For the moment, maybe. It's mostly just a tax shelter. But I'd still prefer to have affordable individual insurance available to me where I could choose exactly the kind of insurance I wanted (probably just catastrophic) and disconnect my health insurance from employment entirely. I'd be more than happy to conduct more of my healthcare transactions directly with the provider without the middleman of insurance, since if everyone was doing that all treatments would probably cost less.

[K-Mac]

If you haven't watched this, it may also be helpful. There are six parts but the owner of Whole Foods has some interesting commentary on HSAs, which they recently switched to. I haven't watched it in awhile, but if I recall correctly, some employees discuss the pros and cons as well. All six parts are great and anyone interested in the health care debate should watch. Stossel always explains things so well.

[exaltron]

If you haven't watched this, it may also be helpful. There are six parts but the owner of Whole Foods has some interesting commentary on HSAs, which they recently switched to. I haven't watched it in awhile, but if I recall correctly, some employees discuss the pros and cons as well. All six parts are great and anyone interested in the health care debate should watch. Stossel always explains things so well.

I've actually seen this and even watched it again with a semi-lefty friend who was visibly swayed by the arguments (It helped that Michael Moore was in rare idiotic form talking to Stossel). The one thing I don't understand is the idea that money you don't spend on healthcare in the case of the Whole Foods employees was said to go into a savings plan or Roth IRA. However in New York State, I've always been told that if you don't spend the money in your HSA, it is basically gone (then again I suppose it was never really mine to begin with as far as my trusted local representatives are concerned).

[softwareNerd]

... I've always been told that if you don't spend the money in your HSA, it is basically gone...

That's the rule for "Flex" accounts (also known as "Cafetaria plans" or "HCRA" plans). As far as I know, HSAs don't come with that type of restriction.

[UptonStellington]

Thanks for the links KMAC. -- I saw the Stossel report a while back several times, but I was definitely going to check it out again. So thanks for doing the searching for me....

[themadkat]

I've actually seen this and even watched it again with a semi-lefty friend who was visibly swayed by the arguments (It helped that Michael Moore was in rare idiotic form talking to Stossel). The one thing I don't understand is the idea that money you don't spend on healthcare in the case of the Whole Foods employees was said to go into a savings plan or Roth IRA. However in New York State, I've always been told that if you don't spend the money in your HSA, it is basically gone (then again I suppose it was never really mine to begin with as far as my trusted local representatives are concerned).

I know this was already said by another poster, but yes, you are thinking of Flex Spending Accounts. With an HSA, it's a bank account (mine is serviced by Chase, for example) that you own. It's your money and it gains interest and rolls over from year to year. In fact, if you build enough of a balance of unused funds, you can begin an investment portfolio with the money (serviced by Chase, of course).

[Steve D'Ippolito]

HSAs are *extremely* advantageous for those in their 20s or 30s with no real health problems. They can dump a ton of money into them and basically save up for their old-age medical expenses. Not quite as good for middle aged but still better than flex accounts (flex accounts are only useful if a) you know in advance you will be spending that money--then at least that spending is with pre-tax rather than post-tax dollars or you enjoy giving your unused money away).

My employer offers HSAs paired with a high-deductible plan. That's insurance as insurance *ought* to be; basically insurance against big bad events. (Health insurance as it is usually done in the US is like having your auto insurance pay for your oil changes as well as wrecks [think what the paperwork would cost!]. It would make sense to think of it as insurance plus pre-paid regular care.) The HSA is basically a way to give you as the individual the same tax break your employer gets for buying insurance plus pre-paid regular care.