The downside of an HSA

[disneysteve]

As I've mentioned previously, we switched our health insurance to a high deductible plan with an HSA back in September. I really have no complaints with it so far from a medical standpoint. The money goes in pre-tax so we are paying medical bills that used to be paid with post-tax money which saves us a fair amount.

However, I discovered one unanticipated downside to having the HSA. The money going into the HSA used to go into our checking account. Those funds would then be available for anything, not just medical expenses. Now, the money is locked up in the HSA. So far, we've been putting it in faster than we've been spending it, which is kind of the point, but it's left us short in our general everyday spending account.

Right now, we have just over $3,800 in the HSA. The problem is we have a couple of big bills to pay (like tuition) and don't have those dollars available as we would have in the past. That's left me having to shuffle around to get cash from other places, like our brokerage account, that I never had to touch before. Fortunately, we have the money. I'm just not used to it not being in the account when we need it.

So if you start an HSA, don't forget that you will lose the access to that money for anything other than medical expenses.

[kork13]

Somewhat separate, but HSA related.... I don't have one, but I've heard that HSA's have a "use it or lose it" component? That this leads people to rushing at year's end to spend what remains in their HSA? I've never understood why that component is there, and what happens to the money that is unused? Does it simply lose the tax advantaged status? I can't imagine that the excess money is actually seized by some heavy handed government agency... So how does the "use or lose" component actually work? How do people get past it?

[moneybags]

Somewhat separate, but HSA related.... I don't have one, but I've heard that HSA's have a "use it or lose it" component? That this leads people to rushing at year's end to spend what remains in their HSA? I've never understood why that component is there, and what happens to the money that is unused? Does it simply lose the tax advantaged status? I can't imagine that the excess money is actually seized by some heavy handed government agency... So how does the "use or lose" component actually work? How do people get past it?

An FSA has a use it or lose it component. An HSA does not. I use my HSA as a retirement savings account. I don't use it for my current medical expenses.

[greenskeeper]

Exactly why I decline the HSA option. I'd rather have the $ to do with what I please in regular funding.

[puck36]

As I've mentioned previously, we switched our health insurance to a high deductible plan with an HSA back in September. I really have no complaints with it so far from a medical standpoint. The money goes in pre-tax so we are paying medical bills that used to be paid with post-tax money which saves us a fair amount.

However, I discovered one unanticipated downside to having the HSA. The money going into the HSA used to go into our checking account. Those funds would then be available for anything, not just medical expenses. Now, the money is locked up in the HSA. So far, we've been putting it in faster than we've been spending it, which is kind of the point, but it's left us short in our general everyday spending account.

Right now, we have just over $3,800 in the HSA. The problem is we have a couple of big bills to pay (like tuition) and don't have those dollars available as we would have in the past. That's left me having to shuffle around to get cash from other places, like our brokerage account, that I never had to touch before. Fortunately, we have the money. I'm just not used to it not being in the account when we need it.

So if you start an HSA, don't forget that you will lose the access to that money for anything other than medical expenses.

Sounds like you have a money issue. I have a HSA and still have money so I don't have to take any out of the brokerage account.

[disneysteve]

I don't use it for my current medical expenses.

Why not? That means you are giving up the tax advantage of the HSA and paying medical expenses with post-tax dollars.

[disneysteve]

Exactly why I decline the HSA option. I'd rather have the $ to do with what I please in regular funding.

Not having the HSA would cost us a few thousand dollars a year more due to higher monthly premiums and having to pay medical expenses with post-tax dollars. I'm not sorry we went with the HSA at all. I just failed to account for the fact that $6,750 worth of income was going to get diverted into that account and not be available for other purposes.

Going forward in 2017, I'll adjust accordingly so that it doesn't leave us short in our operating account. It was purely an oversight on my part.

Part of the problem is that we didn't get the HSA until September 1 but I wanted to max it out for the year so I squeezed that $6,750 into only 10 paychecks. In the future, it will be spread out over 26 checks.

[moneybags]

Why not? That means you are giving up the tax advantage of the HSA and paying medical expenses with post-tax dollars.

I still get the tax deduction for my HSA deposit. The HSA money will be used in my retirement. it will be a tax-free withdrawal at that time. (Either by using it for current medical expenses or I can withdraw what I've spent in prior years on medical expenses. I keep all my receipts.). So, it is like an IRA for me. My HSA money is in investments and earnings are tax-free. Explained by an "expert" here:

http://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp

[disneysteve]

I still get the tax deduction for my HSA deposit. The HSA money will be used in my retirement. it will be a tax-free withdrawal at that time. (Either by using it for current medical expenses or I can withdraw what I've spent in prior years on medical expenses. I keep all my receipts.). So, it is like an IRA for me. My HSA money is in investments and earnings are tax-free

True. That makes sense.

[feh]

So if you start an HSA, don't forget that you will lose the access to that money for anything other than medical expenses.

No to be critical Steve, but this doesn't really sound like a downside to the HSA, but rather a lack of planning regarding cash flow.

[disneysteve]

No to be critical Steve, but this doesn't really sound like a downside to the HSA, but rather a lack of planning regarding cash flow.

Yep. I didn't mean it to criticize the HSA. Just a heads up to factor that into your overall budgeting accurately - which I failed to do.

[scfr]

deleted by poster

[StormRichards]

An FSA has a use it or lose it component. An HSA does not. I use my HSA as a retirement savings account. I don't use it for my current medical expenses.

I think they could have done a much better job naming these programs and the acronyms associated with them. If I had a dollar for every time I saw someone (including my DH) mix up the different components, I could actually afford my health insurance deductibles.

[greenskeeper]

Not having the HSA would cost us a few thousand dollars a year more due to higher monthly premiums and having to pay medical expenses with post-tax dollars.

Whether I use the HSA or not doesn't effect my premiums or deductibles at all with my plan.

This coming year my employer tried to "sweeten the pot" for one of those wacky high deductible plans by contributing up to $230 per paycheck into a HSA.

[disneysteve]

Whether I use the HSA or not doesn't effect my premiums or deductibles at all with my plan.

If an HSA wouldn't save you money, then I wouldn't take it either. That would make no sense. Generally, the HSA is paired with a high deductible plan that comes with a lower premium.

I had looked into an HSA several years ago and the premium difference wasn't enough to make up for the higher deductible.