Health Savings Accounts

[jbischke]

Who here is using one of these?

U.S. Treasury - HSA Frequently Asked Questions

Anything I should be aware of (e.g., pros, cons, etc.) before diving in?

[Matthew Shea]

That sounds like a good idea in theory. The short version, for those not willing to read the link, is that you set up a special account in conjuction with the purchase of a High Deductible Health Plan ($5k - $10k deductible), which is presumably a lot less expensive than traditional health coverage. You then get to reduce your taxable income by the amount donated either by you or anyone else into that account. The account is used strictly for health care expenses. The idea is that you pay all your normal expenses, but you'll still be covered if anything catastrophic happens.

I'd say just do your research and make sure that the insurance company you're dealing with is reputable and financially stable.

[Alchemiss]

Based on IRS rules (at least in the US), whatever money you earmark for an HSA gets forfeited if you don't use it by the end of the year so it isn't a good option unless you know in advance you will have medical expenses. I rarely have medical expenses and do not take any prescription drugs so I don't use the HSA our company offers.

[Matthew Shea]

Alchemiss, you're thinking of a flexible spending account (FSA), which is different than an HSA.

HSA contributions roll over year-to-year.

[Dan.Linehan]

Originally Posted by jbischke

Who here is using one of these?

I have one, but its new, just started this month.

The consensus seems highly positive about them though.

[{aspiring_to_clarity}]

In the link that Matthew posted it talks about an HDHP (which I discovered stands for High Deductible Health Plan). So do you have to have some kind of insurance to use an HSA?

[Lynn 007]

I'm not sure if this is helpful as this is in Canada but I'll post it anyway. My husband's company offers this but it is a company benefit so he doesn't have to put anything towards it. The way it works for him is he is "given" $750.00 to use towards health services in a year to apply it towards health services not covered by his regular benefits. He does not have to use it if he doesn't want too. For example a dental visit with regular benefits is covered for 80%of the cost - he can use money from the HSA for the difference or he can pay out of his own pocket. It can also be used towards recognized alternative medicine practices (naturopath, acupuncture, shiastu, etc) or anything health related (cosmetic surgery is out). At the end of the year if he has any money left he can either receive it in cash or invest it in an RRSP (I think similar to yout 401K). He has had it for two years now and tries not to use it so he can invest it or receive the cash (minus taxes of course).

[Jim]

Dept. of Public Policy: The Moral-Hazard Myth: The New Yorker

I found this interesting, especially considering all of the recent discussions around the HSA vs conventional medical plans:

Moral Hazard (according to Wikipedia):
In economic theory, the term moral hazard refers to the possibility that the redistribution of risk (such as insurance which transfers risk from the insured to the insurer) changes people's behaviour. For example, a person whose automobile is insured against theft may be less vigilant in locking the vehicle than an individual who is not insured.

From the article:

The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we’re sick. “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says. “You always hear that the demand for health care is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”

For that matter, when you have to pay for your own health care, does your consumption really become more efficient? In the late nineteen-seventies, the rand Corporation did an extensive study on the question, randomly assigning families to health plans with co-payment levels at zero per cent, twenty-five per cent, fifty per cent, or ninety-five per cent, up to six thousand dollars. As you might expect, the more that people were asked to chip in for their health care the less care they used. The problem was that they cut back equally on both frivolous care and useful care. Poor people in the high-deductible group with hypertension, for instance, didn’t do nearly as good a job of controlling their blood pressure as those in other groups, resulting in a ten-per-cent increase in the likelihood of death. As a recent Commonwealth Fund study concluded, cost sharing is “a blunt instrument.” Of course it is: how should the average consumer be expected to know beforehand what care is frivolous and what care is useful?

So in the end, while HSA's may certainly make the insurance companies more profitable, I don't know if the patient is any better off.

[jbischke]

I get your point here Jim but I guess my feeling is that it's in peoples' best interest to learn about their health and what choices they can make to improve their well-being. There are also many ways to gauge health nowadays outside of the traditional health care system (read Fantastic Voyage) for more on this. I say "outside" because most health plans won't pay for a lot of the stuff people should be doing to monitor their health because it these are "preventative."

Health care (at least in the U.S.) is broken and we'll see more and more evidence of this in coming years. HSAs seem like a huge step in the right direction because they encourage people to take responsibility for their own health and choices. This definitely requires education and therefore might not be right for everyone. However, for people hanging out on a Personal Development for Smart People forum it might be perfect.