Health Sabotage Accounts

The next person who tells me the U.S. has a "free market healthcare system", I’m going to laugh in their face.

When I got a job that offered a Health Savings Account (HSA) plan as one of their healthcare options, I was kind of excited.  I’m in favor of the HSA option – it puts consumers more in touch with the real costs of healthcare.  It’s also an excellent way to save money – a tax-sheltered account that follows you from job to job and allows you a fair amount of leeway in how you invest.  The idea is that you can build up a rainy day medical fund over time, and reap the benefits of a much lower insurance premium.

That’s the theory.

Remember that scene in Gladiator where they stab Russel Crowe in the side and then send him out to fight Caeser as he’s bleeding to death?  That’s what the government has done with HSAs.  They threw an apparent bone to the free-market crowd, sabotaged it just enough so that it can’t succeed, and sat back to watch the fun.

The IRS has capped contributions to HSAs.  For a family plan in 2008, the cap was $5,800.  Now, HSA health plans are, by nature, high-deductable plans.  Up to the deductable you pay your own way (minus any discounts the insurance company negotiates with providers), and then once you cross the deductable line they pick up the entire tab.  Our deductable is $5000.

It’s also important to understand that there are a lot of non-deductable expenses which HSA funds can still be applied to.  For instance, over-the-counter drugs, eyeglasses, etc. can all be paid for with HSA money, but they won’t count toward your deductable.

So if I make my maximum allowable contribution, I get $5,800 worth of tax-free healthcare dollars in 2008.  Of that, $5,000 goes to doctor bills and prescriptions until the deuctable kicks in.  With a family of four-now-five, it’s not hard at all to hit the $5,000 mark.  Especially if you have even a single emergency room visit – or give birth to a child. We hit the deductable before the middle of the year.

So that leaves a measly $800 that could theoretically be carried over to next year.  However, as mentioned before, there are a lot of non-covered healthcare expenses which that can be applied to – and since the alternative is using after-tax dollars, you’d be a fool not to.  Trust me when I tell you it’s not hard for a family of five to spend $800 in misc. health-related expenditures in a year.

End result: it is almost unthinkable that we would ever have HSA money left at the end of the year to carry over to the next year, invest, and build up a stockpile.  The entire selling point of the HSA – the ability to save and invest – is mooted.

As currently implemented, HSAs are only worthwhile if you are young, single, and never go to the doctor.  If you are in this category, by all means avail yourself of the HSA option!  Make the maximum contributions a year.  You don’t even have to use the money for healthcare – once you turn 65 it’s yours to do with as you please.  Use it as a retirement account if you want!

Families with children and/or chronic health problems are screwed, however.  Unfortunately, we don’t have any other option – it’s the only plan my company offers for PA residents.

There is no free market for health care in this country.  Nothing even close.  Honestly, I’m getting ready to say "bring on the nationalized healthcare, Obama!".  Not because I think that’s the best way to deliver quality, cutting-edge healthcare to the populace.  But this sham-free system we have is broken and seems to have inherited the worst properties of both private and state-administered healthcare. If the government is going to poke it’s clumsy fingers into every aspect of the healtchare system, let’s stop pretending otherwise and just be honest about it.

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  1. Interesting…

    I’m not sure, but I think Jai has something similar–where she gets to put money into an account–tax free–and spend it on such things.. but I always understood it to be something where she couldn’t carry over a balance.. i.e. she lost any remaining money at the end of the year…

    In any case–i would NEVER say that we have a free market health care system in the US. I would merely say that we have a health care system dominated by Private companies–rather than a public system dominated by the government…

    The difference, obviously, has everything to do with your previous post about corporations.

    on a general level, I wonder if free-markets would ever work in this kind of area… I say this, because it seems like “health” is a concept that is problematic when it is combined with the general profit motive.. i.e… you cannot really “sell someone health” like you can sell them “shoes.” By it’s very nature, helath is more similar to something like “employment” ..i.e. a state of being that is very good to have, but not really something that you buy, but rather, that you attempt to maintain.. Additionally, if you put the stipulation on “health care” that everyone must have access to it, then it is very much like trying to have a free market guarantee everyone a job–and that usually doesn’t work..

    anyway.. this is far to complicated a topic for me to resopnd any more to without coffee…

    I’m sorry about your HSA woes.I know that Jai emptied her account by around August–mostly with eyecare (glasses cost A BAZILLION DOLLARS by my reckoning compared to their physical size) for the kids–even though she still had to pay contributions for the rest of the year… and cannot submit anything until next year.. She may try to up her amounts this coming year–but we are pretty tight as it is until I get a real job..

    in any case, any system that

    1. Re: Interesting…

      It sounds like Jai had an FSA. They’ve been around longer as an add-on to traditional health plans, and they have a lot more limitations – e.g. use-it-or-lose-it per annum, it doesn’t follow you from job to job, less control over investment, lower cap, etc.

      As I recall the HSA was an early Bush initiative. It has his stamp – nice idea, craptacular execution.

      And yeah, holy crap are eyeglasses expensive.

  2. Ps

    I just succcumbed to Facebook and sent you a friend request…:)

  3. I’ve never been offered an HSA account where you can carry anything over year-to-year. Every one that’s been an option at various places I work (including the one I have now) is a “use it or lose it” thing, where if you don’t manage to use all the money you put in, it disappears into the ether. Which sucks even more, since you have to gamble on whether or not you might get sick, and how badly you might get sick, which essentially means that, at least in my case, I only put enough to pay for recurring monthly medications and a couple of doctor’s visit copays. Which means that, of course, I ran out of HSA money several months ago. Meh. The USA’s health care system is laughable.

    1. The use-it-or-lose-it plans are FSAs, not HSAs. The HSA is a relatively new innovation based on changes in the law, and not all companies offer it.

      1. Ahhh, I didn’t realize they were different things. Thanks for the clarification. 🙂

        (My company’s health care plans all suck, so it doesn’t surprise me that they wouldn’t offer the new version…)

  4. hsa

    I’ll tell you up front, I’m a big advocate for HSAs. Any program where I get to keep my money as opposed to an employer or the Government gets my attention.

    A couple of thoughts for you, which may or may not be new or help. If your HDHP has well-care included (mine does)that is going to save you the expense of 5 physicals including lab tests, mammograms, stuff like that. Your premium savings should free up cash to either fund your HSA. If your employer is a good soul and contributing to your HSA, that’s free money. You have already noted the tax benefit of the $5,800 which is like adding $ to your paycheck. Lastly, your HDHP limits your annual exposure, which should give you some comfort. No one wants to pay $5,000 in healthcare costs per year but at least you should not have to pay any more than that if your employer has a good HDHP.

    Here’s the important thing though. Unless you are planning to have children every year, go to the emergency room every year or have a chronic condidtion, there is a good chance you can get your will not average $5,000 per year over time. Plus the amount you can contribut to your HSA has gone up a little bit every year.

    I won’t suggest or argue with you for a second that healthcare exists in a free market economy. But HDHPs with HSAs give you more control over your healthcare dollars than any other plan I am aware of (with the exception of those fortunate few who have enough cash not to have to buy insurance at all).

    I have a family of 4. My deductible is $10,400 per year and I expect that by the end of the year, my TOTAL expenses INCLUDING my premium for which I pay 100% will be around $4,500. So, in my case, I have the ability to carry forward over $2,500 in funds from my HSA for next year and supplement it with another $5,950 if I can. p.s. I am a big advocate of for info on HSAs

    1. Re: hsa

      Thanks for your thoughts. Believe me, I’ve been an advocate for HSAs too. But I’m seriously beginning to doubt their usefulness – as implemented – for large familes.

      A few points:
      – No, my employer does not contribute.
      – Yes, I do plan on having a child every year or 18 months for the next several years.
      – Speaking of which, with 3+ kids an emergency room visit every year or two is, sadly, not that unlikely.
      – My wife has several necessary non-generic prescriptions which alone could add up to $2,500 a year (the individual deductable).
      – Yes, the cap goes up every year, but by an amount that is so small as to be meaningless.

      I’ve gone over the numbers a lot, and the upshot is that while it is theoretically possible that I might occasionally come out ahead at the end of the year, it will only be by a few hundred dollars at best. And that will most likely by eaten by extra nondeductable expenses in other years. I cannot rationally expect to ever save money in an HSA as currently implemented.

  5. Sounds like you need to sign up for a lower deductible health plan (unless $5000 is the lowest for a Family). Also, did you know that you can have a limited FSA account alongside an HSA? Usually, if you have just an FSA (no HSA), you can use that money for any medical expense, including deductibles, and the non-deductible-applying expenses you are familiar with in the HSA. However, if you have an HSA and also want an FSA, the law says you can only use the FSA for dental and vision benefits (aka-usually non-deductible applying costs). So that may be an option for you to help cover those costs. But remember, that an FSA is “use it or lose it” in a year, whereas an HSA is yours to keep year-to-year.

    That was probably too much info for you but I can’t help it as I am a fountain of knowledge being that I work for a Health Insurance Company.

    You are right. They should change the laws so that your maximum contributions for a year are adjusted according to your deductible amount.

    Good luck!

    1. $5000 deductable is the best deal I can get, sadly. Thanks for the info about FSAs with HSAs.

  6. Downsize Dc had a really good email about the three things government has made big intervention to try and make cheaper, health care, higher education and recently houses. We all know how those all went. BTW if you’re not a member of Downsize DC YOU NEED TO BE. Very important organization with some great goals and simple useful implamentation.

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