Tag Archives: medical

HSA Account in California – Worth It?

December 2, 2017 Joy 3 Comments

As I mentioned in my recent post, I’m currently looking into what health insurance to select for next year. I have the options of Anthem HDHP, Anthem PPO, Anthem HMO and Kaiser HMO.

Typically, as a healthy-ish young adult, I’d select the HDHP. I’ve always been a proponent of HSAs, but now I’m not so sure – especially living in California, one of the two states in the country that doesn’t recognize HSAs as pre-tax income. It’s actually a rather complicated tax situation in CA that no one explains well… and I’m unsure if even I’ve been filing my taxes right with my HSA all these years!

What is an HSA?

An HSA is a supposedly tax-free account for healthcare costs. If you have an eligible health plan, you can contribute up to a certain amount per year (~$6900 for a family next year) which is put into the account pre-tax* and then you can invest that money and whatever it grows to you can take out tax free if used for qualified medical expenses at any point in your life. It sounds like a really good deal… and it is… except HDHPs have “high deductibles” and, even more troubling, HSA plans typically have very high fees that eat into any growth you see unless you are a wise investor (AND have access to good investing options, rare in typical employer-sponsored HSA accounts.)

*HSA Rules in California

What makes matters worse, California (and New Jersey) doesn’t recognize the HSA at all. So, any money you put into it is taxed as income. That seems to be handled automatically via the W2, since the employer makes those contributions on your behalf. But then you also (and I didn’t actually know this until yesterday) are supposed to pay taxes on dividends and any interest earned in the account annually. My HSA account is relatively small (it’s now about $7000) BUT I have to go back and amend returns likely if I have any earnings on the account each year. I did actually merge two accounts which, since both accounts did not have the same funds, required selling all of my funds to roll them into the other account last year. I’m guessing that will hit my 2017 taxes — and I’m not clear yet if gains will be taxed as long term capital gains or income. Not one HR person has explained this or mentioned this in all my years working… probably because they aren’t allowed to give tax advice… but it seems like something they should mention.

“Depending on what kind of annual statement the financial institution sends out, it could be extremely difficult to figure out how much HSA income account holders should report on their California tax return each year.” – SF Chronicle

Yup. I don’t recall ever getting annual notices regarding my HSA account’s tax information. The good news is that now that I’ve transferred all of my old funds to HSA Bank, I at least will have my records in one place – for this year. Well, sort of. I have two months worth of HSA funds at my new employer – though I’ve heard they’re actually using HSA bank now and transferring to a new system. I should probably check on that, since I have no idea where my new HSA funds are at the moment. Next year it will be a different bank that apparently provides fewer investment options in “funds.” This may still be worth it for the federal tax savings (over many years, as a retirement health account) BUT it’s troublesome that California is refusing to provide the tax treatment that the rest of the country (except NJ) offers. This state really is an expensive place to live.

HSA Account Math, Family of 2 (Example)

Family Out of Pocket Max: $9000
Monthly Cost (Annualized): $1030(*with employer coverage and contribution)

Max Out of Pocket Family of 2: ~$10k

HSA contribution: $6900
HSA contribution, 3% growth, in 30 years: $16,748

Value of tax deduction, federal: $2415 (35% bracket)
Value of tax deduction, state: $0 (or, -$897)

So, you pay $897 (state tax) + $5650 investment + $10k today = $16547 to have $16,748 in 30 years (*WITHOUT FEES ADDED)

(someone please check my math.)

Now, that doesn’t really work either – because unless you’re invested in TIPS (treasury funds that are tax advantaged), you’ll be taxed on any dividends earned by that investment every year, like it was a taxable account, for state purposes only. That will cut into your growth a bit.

Then, you also have to pay HSA bank fees, which are very high and also cut into your “savings.” Example fees include:

Maintenance fee and Service Fee: $66 per year (if your bank account balance / non-invested funds – is under $5000)
Monthly Investment: $21.00
Using your HSA Card: $2 per transaction (!)
Access Funds Through Internet Withdrawal: $2 per transaction

In any case, I’m not sure I know enough to call the HSA a sham, but it sure looks like a way for the bank to charge a lot of fees. And, just like any other screwed up government-created account (screwed up due to people in government not agreeing on anything and not giving a shit about the people of this country), the HSA which is supposed to be this brilliant tax free way to save for future healthcare needs is ACTUALLY just a way for banks to make money off of people who likely don’t even realize it.

It’s pretty crazy that there is a $2 fee to even use funds in the account EACH TIME YOU TRANSFER FUNDS OR USE YOUR CARD. This administrative fee might be necessary to cover the cost of running an HSA account, but if that’s the case, is it even worth it?

Now – if you can invest the funds in the market and do better than 3% a year, it gets a little more interesting. Still, because you’re investing in the market, what goes up can come down. As a long term investment it’s probably safe – which is why young people are wise to consider HDHPs and HSAs. However, none of this is discussed in open enrollment meetings. AND, most people consider an HSA just a larger FSA, and put their money in the account pre-tax and then spend their funds down over the course of the year. While there’s nothing wrong with this, per se, you are now paying $2 per doctor’s appointment to use your card. If you go to the doctor a lot, let’s say 20 times a year per family, you just spent $40 on going to the doctor in fees. For someone in a lower tax bracket who isn’t seeing that much in tax savings via a HDHP (since you only save the money from your top tax bracket), it may actually be a scam.

Let’s not forget that in the event of death, your HSA is taxable to your heirs entirely as income at their income tax bracket. While it can be used to pay off qualified medical expenses of the person who died and owned the account, anything left over is taxed as income. However, after 65 an HSA account owner can take out funds for non medical expenses without a 20% penalty. BUT, those funds will be taxed as income, just like a 401k.

So as much as I’m tempted to go the HDHP route next year (assuming we’ll spend the full $9000 out of pocket max) just to get those $6900 in federal funds in to an HSA pre tax, I’m really not sure it’s worth it.

PPO Costs in Comparison…

Family Out of Pocket Max: $5k
Monthly Cost (Annualized): $3k

FSA contribution (*is recognized as pre-tax in CA) = $2650 ($1272 tax savings)

Total Costs including FSA savings: $6728

PPO vs HDHP Costs Today

PPO: $6728 ($9819 remains to invest in post-tax accounts)
HDHP: $16547 (*includes $6900 investment)

PPO vs HDHP investments in 30 years (at 3% interest) – WITHOUT FEES ADDED

PPO: $23,883
HDHP: $16,748

IF USED FOR QUALIFYING MEDICAL EXPENSES (TAXED OR NOT TAXED)

PPO: $19945 ($3937 in cap gains tax, CA)
HDHP: $16,748 (minus fees and state taxes – which could be significant over the years)

So, if my math is correct there, the PPO actually ends up being the BEST plan long term anyway, with taxable investments, at least in the state of CA (and probably in other states, although it might look a little better without state tax.

What About if I Don’t Hit My Out of Pocket Max?

Ok, so for arguments sake, let’s look at a more typical HSA scenario. You’re a healthy 20 something with 40 years until retirement. As a single person you can put $3450 into your HSA. You’re smart, so you plan to invest this month over the next 40 years vs spending it from this account. You have a HDHP and your annual out of pocket plan cost is $840. Your employer contributes some money, let’s say $1000, so you’re already ahead, paying -$140 (*minus CA state tax, I’ll get to that in a bit) — so your annual costs are negative, before you start using your account.

You scrounge up the funds to put in the $2400 ($200 per month) into your account this year, which will be augmented by the employer’s contribution up to your max of $3400.

You don’t get sick often, so you don’t hit your medical deductible or out of pocket max. Let’s say you spend $1000 on a few office visits and blood tests due to a scare, but nothing major – no ER visits, no recurring specialist visits. So, now your total cost of healthcare this year is $2400 and you’re getting a federal tax savings on your $2400 investment (but paying state income tax on this.)

Your federal tax savings, since you’re in a lower tax bracket (in your 20s, we assume) is 15% (if you make up to ~$38k.) So your tax savings on this is $360 (if you make $38k-$93k, you’d save $600.) You still have to pay state tax on this income – let’s say that’s $3400*8%=$272 for the sake of simplicity.

So, adding up all the numbers with HDHP, $1000 medical spend and $3400 annual investment as per the rules above

Healthcare cost = -$140 (annual premium) + $1000 (medical expenses) + $2400 (investment) + $272 state tax – $360 tax savings = $3172

In 30 years (to compare to other couple above) you have:

HDP: $8252 – $3172 initial cost = $5080 (gained, as long as it’s used for healthcare)

Now, let’s say this same person used a standard PPO.

The math is tricky because we don’t know how the deductible and coinsurance will play out, but let’s say they have a $250 deductible but a higher monthly fee. It’s a $1080 fee for the year, but with the lower deductible instead of $1000 in healthcare spending, it’s more like $350 due to the low deductible and co-insurance.

Annual healthcare spend = $1430

But we’re not done yet…

Since this person didn’t spend $3172 on healthcare this year (including the $3400 investment), they have $1742 left to invest in taxable accounts.

With the PPO, they have $4228 in 30 years at 3% growth ($2486 taxable at investment gains rates) = 2486-696 = $1789
With the HDHP, they have $5080 (gains) in 30 years at 3% growth

In this case, the HDHP appears to win (significantly.) Even if they take out the HDHP money for non healthcare use and pay the 20% fee in 30 years and income tax on this amount (Let’s say 25% income tax plus 13% state) = $2387.60 you are still ahead of the $1789 if you invested in a taxable account.

This isn’t taking into account HSA fees over the years, which add up and might make both worth a similar amount. AND you’re taking on the risk in the HDHP that you won’t need to use the full out of pocket max ($4500) which clearly makes the math reverse. Very quickly.

So IMO HDHPs and HSAs are only good for young, healthy individuals who have a low chance of needing to use their health insurance each year beyond a few routine doctors visits. Otherwise, I’m not sure they offer better savings than a lower deductible account and saving that money to put into the market. What isn’t covered here is that your investment options will be much broader in a non HSA account, and fees will be much lower (or at least you can choose if you want a higher fee account.)

Is all of that worth ~$600 in gains (per year) — which is probably more like $450 per year after fees? This is if you don’t use your actual health insurance much… one trip to the emergency room and your numbers suddenly won’t look so good.

This is why I’m leaning towards thinking the HSA is a scam for everyone. It’s too risky for the minimal reward you get for investing in it vs a PPO and investing any remaining funds in a taxable account.

Does anyone disagree?

Family, Health, Retirement, Wealth

The Hard Realities of Aging and Falling to Pieces

May 29, 2012 Joy 1 Comment

A recent article on “life before death” dementia and late-life illness struck a cord with me and my family. While I’ve always been fearful of death, the reality is that death isn’t just a one-time end. Even if you’re “lucky” to reach 100, for everyone, that means many years of degraded mental and physical health. It must be terrible to go through, but it’s equally as terrible for everyone else around you trying to help you progress slowly towards death.

My Grandmother, 83, has a gambling problem. In the last 10, mostly 5 years, she has gambled away her entire life savings of more than $300,000. Everyone knew she had a problem, but no one legally could intervene to help. Now, she’s broke, and at age 83, approaching the age of severe medical problems, even after leading a relatively healthy life (more thanks to good genetics than being healthy.) My mother and her sister’s had already been in uncomfortable discussions around what to do with her — as her social security did not provide enough money to pay for her two bedroom apartment in her Las Vegas retirement community, but she refused to move into a smaller space.

A few days ago, my grandmother fell down. She broke a bone in her neck, which was operable. On the scene of the fall, the paramedic asked her how old she was — she said 64. The doctor’s brought her to a rehab facility after she stopped being combative and arguing with them, and after one day there she told my mother via phone she had been there for weeks. The doctor diagnosed her with mild dementia. Now the question is not how she can afford the 2 bedroom apartment and a $2000 tax bill, but how to afford many years ahead of assisted living.

Meanwhile, her daughters — my mother, and her two sisters — are not in strong enough financial places to step in and help. My parents are concerned about their retirement savings as the stock market has not recovered, and they continue to spend like it is magically going to. I tell my mom over and over to not make the same mistakes her mother did, but she cannot see spending money on clothes and cleaning help as the same as her mother’s gambling away all her savings. In the end, the money will be gone, I tell her, so it’s the same. She ignores me.

For now, they need to figure out what to do with their mother as she gets increasingly senile. She’s always been a bit crazy, so adding real dementia to that crazy could get very bad, very fast. My mother is considering trying to get her to move out to New Jersey to be closer and find a lower cost place to stay, but all is up in the air right now. I don’t think my mother can really handle her mother at the moment, as my dad is in the later stages of terminal cancer and his cancer will likely get worse in the next few years or even months.

Overall, this is a very depressing situation, but so goes life.

Health

Occupy Doctor’s Office & Health Insurance Agencies

October 27, 2011 Joy 4 Comments

They say the occupy movement is unfocused — it’s about all these various things we’re upset about — but a lot of the movement is about the lack of transparency in between bureaucracy and us common folk.

When I got home yesterday, I went through my mail and discovered a “explanation of benefits” mail from a recent “surgery” I had on two pilar cysts on my head. The doctor’s office never knows about costs — they don’t really care about how much you end up getting charged, as long as you pay it. Even with medical insurance from work, the two cysts removed cost me $550. Last time I had two cysts removed it was $300, so I was a little surprised that the cost went up $250. But I haven’t found a way to identify how much any medical interaction will cost in advance of the treatment… it always has to be a big surprise after the fact.

Another example… I went to a regular yearly gynecological exam a while back, which is covered by my insurance. Or is it? The gynecologist decided to do an ultrasound to check out my polycystic ovaries which — big surprise — still had cysts on them. That procedure wasn’t covered by the free annual checkup description, as it was considered diagnostic, and ended up costing me a few hundred bucks. Continue reading Occupy Doctor’s Office & Health Insurance Agencies →

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Medical Costs, Life Costs, … are expensive

November 6, 2009 Joy 1 Comment

My medical AND entertainment costs are adding up, and I’m behind in accounting for them. I really need to sit down and make a budget for all of these costs. Some are not necessary, of course, but I’m still struggling to understand how much money I should/can spend on LIVING versus SAVING.

A reminder… I do have $8k in a CD for my emergency fund as well as another $4k in laddered 6 month CDs. I’m about $150 from maxing out my Roth IRA for 2009, and I have put about $5k in stocks & ETFs over the year. Additionally, I overestimate on my taxes so I will have enough to put at least $3k into my Roth for the next year to get it jump started. Plus I put $100 a month into my 529 plan, which may or may not be a stupid idea.

However, I’m worried my current medical and non-medical “fun” spending is going to hinder my savings at all. Basically, I really need to budget. I don’t think I’ll be getting a raise this year… (I don’t know if companies like mine give raises, esp in this economy.)

Here’s the thing. I have decided that I want to spend on ME. That is, on making myself a better person, inside and out. But all of this soul-searching guidance and external beautification is expensive. Very, very expensive.

This weekend I want to come up with a serious budget, but right now I just want to look at my major expenditures per month. Please don’t judge yet — I KNOW there are many things here that I don’t need, and that I’m very fortunate to be able to afford such things! I know one day when I have a family or even after I go to grad school and have to pay back loans I will have much less flexibility in spending on myself.

Extra Monthly Costs:

$250: laser hair removal financing plan (over 18 months)
$250: group therapy to deal with social issues (4x month) OR
$200: career counseling (2x month)
$190: voice lessons (2x month)
$60: one dance class
$32: gym membership

There are actual medical bills I need to sort through:

$2000: one-time necessary (non cosmetic) dental work (this is beyond my insurance coverage)
$400: foot doctor, 1 consult, xrays & 1 follow up
$100: gynecologist ultrasound

On top of all this, I’m trying to get a grasp on how much graduate school will cost me. I’m completely confused about financial aid. If my savings will hinder me from getting need-based financial aid, shouldn’t I spend it all before applying to a grad program? That sounds counterproductive, but if they really decide on your financial aid based on how much you’re making and how much you have in savings, I should spend all my money and quit my job! I’m just not 100% sure I want to go to grad school yet, so I don’t want to spend all my savings yet. Oy.

Uncategorized

My Expensive Right Foot

October 8, 2009 Joy 1 Comment

Let me start out by saying I have no idea how much my podiatrist visit yesterday is going to cost me. Granted, I try to not really include my HSA dollars in my networth, but I do, because it’s my replacement 401k. But I think I just spent my entire deductible ($1500) in one day, thanks to some foot problems I’ve been having.

Doctor’s aren’t educated in how much things cost, and I think they need to be. Especially with the ways HSA’s work. There should be a clear menu of pricing for various treatments. It’s really unfair to expect the consumer to pay for everything without clearly letting them know how much it’s all going to cost, or to order expensive xrays that may not be necessary without even mentioning that they will cost $500 or more.

Even now, I don’t know how much yesterday’s visit cost. I’m guessing I met my deductible with that one visit. I received a consultation, cortisone shot for a bone spur / nerve on my foot that was causing the problems, and a full set of xrays for my lower back to see if my sciatic pain and leg numbing problems are caused by any issues with my spine. On top of that, I got the ultrasound to check out my polycystic ovaries on Wednesday at my otherwise covered yearly checkup at the Gyn. In other words, after an entire year of not spending a penny on my healthcare, and saving in my HSA for retirement, I’ve likely spent it all and then some.

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Health Insurance Plans & Depression

September 29, 2007 Joy 2 Comments

I called up a psychiatrist for an appointment since I didn’t trust my general doctor to throw random meds my way just because I told her that I was feeling blue and anxious. Whether I’m really depressed or not, I don’t know, but upon my first visit and answering a few questions my psych jotted down a bunch of notes and decided that I’ve got a case of moderate recurrent depression.

After she bitched for about 15 minutes about how most shrinks really hate medical insurance because of “all of the forms” and that it takes so long to get paid, she decided to give me a free trial of an SSRI antidepressent (Lexipro.) I’ve tried a few meds in the past — xanax for my panic attacks and ritalin for my add, but I’ve never consistently taken anything in the past. I’ve just gotten to the point where I can’t take my anxiety anymore, and it’s really getting in the way of functioning. Well, anxiety has gotten in the way of functioning since I was born, it’s just it was easier to hide it when I wasn’t completely responsible for my well being and time management.

Anyway, I figure the medicine will be rather pricey, even with insurance, but at that point I was ready to try anything to get me out of my slump. (That was about a month ago, btw.) Soon found out that a month’s supply of the antidepressant costs $50 (that’s after insurance pays their part.) Ouch. Then my doc also decided to prescribe me sleeping pills — I haven’t picked those up yet so I’m not sure how much they cost.

“Lucky” for me, I’m “severely” depressed, so my insurance only makes me pay $15 a visit (instead of 50 percent of the visits costs, which would be something like $75-$100 a visit, I think.) Also, if I wasn’t “severely” depressed, I’d be limited to 20 visits per year with a shrink. But because I apparently need lots of help, I can go see a therapist as much as I want for just my co-pay.

I barely go to the doctor for anything else, so I figured I might as well make use of my health insurance to help me be, uh, healthy. I’m quickly slipping some place I don’t want to be, and I’m willing to admit I need some outside help.

Well, after the severe depressive disorder went down in my file, I started reading up about future health insurance issues that go along with having pre-existing conditions like depression. My shrink made an aside when she was diagnosing me that she needed to check over time to see if I’m bi-polar, but then she asked for permission to write that down on my charts since apparently that makes it difficult to get insurance later down the road. At the time, I was so out of it and freaked out about the costs of therapy, I figured the worse of a diagnosis I had, the cheaper my costs were going to be.

Now I’m potentially facing a lifetime of overpriced health insurance. My dream is to work as a freelance web designer and marketing copywriter, but being a freelancer I will have to get my own individual health insurance plan. I’ve read many horror stories about people who were depressed and once on meds getting flat out denied when they applied for individual insurance.

Sure it makes sense for the health insurance agencies to protect themselves, but I’m now terrified (and admittedly even more depressed) knowing that one day I might be SOL when it comes to obtaining affordable health insurance. But it just seems so ridiculous that, while health plans cover mental health conditions, it’s all so shady. When I was looking for a psychiatrist in my area, I must have called every single person on my health insurance plan in a 30 mile radius before finding the one psych I’m seeing now. And I’m tired of her bitching about insurance companies and how most psych’s she knows don’t even take insurance anymore. Ok, I’m sorry I’m not rich enough like everyone else who lives in the area to just pay your fees and deal with my depression. I’m like, a normal person with a fairly normal salary and I need help.