0

I suspect that my relative's situation is not unique. He is 60 years old, living alone, has a full time job that pays 10.15/hour (annual earning about 20,300). His take home pay is about 1300 per month, his health insurance (ACA subsidized) is 90.00/month. After paying his car insurance, rent, food, gasoline, phone, and incidentals he has about 50-60 dollars at the end of the month for bowling and movies. How would an HSA (as proposed by the HC reform plans) really help him?

FightOrFlight
  • 177
  • 6
BobE
  • 688
  • 4
  • 12
  • 1
    This appears to be a question about personal financial planning, not about politics. I will migrate it to money.se. – Philipp Jul 27 '17 at 17:48
  • 2
    @Philipp It may have been intended as a financial planning question, but it may have been intended as a rhetorical question to point out that the proposed HC reform doesn't help the neediest, rather it provides more benefit the more taxable income one has to shelter through an HSA. If that is the case, this is still a political discussion more so than a personal finance discussion. – NL - Apologize to Monica Jul 27 '17 at 18:03
  • 1
    @NathanL, this feels like a "why are republicans emphasizing HSAs at all" question to me. – quid Jul 27 '17 at 18:05
  • Is it possible to undo the migration (assuming more clarification from the OP)? – NL - Apologize to Monica Jul 27 '17 at 18:06
  • @NathanL We generally don't like rhetorical questions on Politics.SE, because we don't like people who come to Politics.SE with a political agenda to spread. – Philipp Jul 27 '17 at 18:08
  • If this question is not rhetorical, please make sure your relative is enrolled in all forms of aid available to them, he should qualify for food/housing assistance in addition to his heavily discounted health insurance. No, HSA's aren't going to help him, but there are many other programs that can, help them use the benefit finder on https://www.usa.gov/benefits – Hart CO Jul 27 '17 at 18:12
  • 1
    Sounds to me like the question is intended to be political rather than personal finance. He's saying, "would this policy "really help" people like "my relative". The phrasing would seem to indicate that it's a rhetorical question to express a political opinion, not a practical question seeking personal financial advice. – Jay Jul 27 '17 at 18:41
  • @HartCO (and everyone) - HSA would still help him if he has an eligible HDHP because his medical payments would all be tax deductible. I outlined details in my answer below. – TTT Jul 27 '17 at 19:25
  • @Phillip, I should have asked this question in two stages (A) what is the difference between current HSA regulations and proposed HSA regulations AND then (2) does the proposed HSA regulations impact my relatives specific situation. – BobE Jul 28 '17 at 17:31
  • @Nathan (and others) the only intent in my question was to seek information, and it certainly wasn't rhetorical as it has actual application to my relative. – BobE Jul 28 '17 at 17:37
  • @TTT (and others) further specifics on his healthcare policy: His is NOT a High Deductable plan, his deductable is $700, out-of-pocket max is $2000. The available High deductable plans all cost more then twice his monthly current premium (even with subsidy) and have higher oop maximums - thus placing him a greater financial risk. – BobE Jul 28 '17 at 17:46
  • @BobElston - Good to know! Your question is worded in such a way that he is eligible but can't afford to make contributions. The question doesn't make sense if he's not even eligible to have an HSA. That would be like asking: "How does the mortgage interest tax deduction help me if I don't own a house?" Sorry to be so blunt, but in that case the answer is simply that it doesn't help. Why should it? – TTT Jul 28 '17 at 18:49
  • @TTT my Uncle's buddies have told him that he should support the HSA reforms being proposed because it would benefit him to get or be eligible for an HSA. I told him that it didn't look to me like it would be to his advantage - but then I'm no expert. That's why I asked here and included his specific situation so that I could get other opinions. No harm done, just some of his buddies trying to get him to join their political agenda. – BobE Jul 28 '17 at 23:49
  • @BobElston - right. AFAIK the new proposal doesn't remove the HDHP requirement or lower the qualifying deductible, so your uncle wouldn't be eligible to have an HSA before or after the proposed legislation. (If he keeps his current insurance plan). – TTT Jul 31 '17 at 04:53

3 Answers3

5

HSAs as they exist today allow a person to contribute tax deductible money (like a traditional IRA) to a savings account. The funds in the savings account can be spent tax free for qualified expenses. If the money is invested it also grows tax free. This means a discount on your cash health expenses of the amount you would have paid in taxes, which given your relative's income isn't likely to be very much.

As HSAs exist today they must be paired to a qualified High Deductible Health Plan (HDHP). Many plans have a deductible that meets or exceeds the level set by the regulations but many plans waive the deductible for things like X-Rays; waiving the deductible causes most "high deductible" plans to not qualify for HSA accounts.

There are other qualified HSA expenses like Long Term Care (LTC) insurance premiums that can also be spent tax and penalty free from HSA funds.

At age 60 with low income an HSA serves little purpose because the tax savings is so marginal and an HDHP is required. That does not however mean that the scope of HSA availability should not be expanded. Just because this is not a silver bullet for everyone does not mean it is of no use to anyone.

quid
  • 48,976
  • 11
  • 99
  • 161
  • Your last couple of sentences are a valid POV, but there's plenty of countering POVs, FWIW. – DA. Jul 27 '17 at 18:18
  • 1
    @DA. I'm not starting an argument, I'm responding to what I feel is an attempt to start an argument in the question. The subsidies don't do me any good, so we should just get rid of those, because it doesn't do anything for me specifically. IRAs also don't do anything unless you have money to put in to it, so we should get rid of those too. – quid Jul 27 '17 at 18:30
  • Considering that HDHPs are often have much smaller premiums than otherplans (which may more than offset the higher deductible), I disagree with the blanket statement that HDHPs are unsuitable for low-income individuals. – D Stanley Jul 27 '17 at 18:30
  • I didn't make a blanket statement that HDHP is unsuitable due to income. I said "At age 60 with low income an HSA serves little purpose." I'm very much pro HDHP+HSA, as I thought would be evidenced by my last couple sentences that seemed to upset DA.. But when you're 60, not making much money and can get subsidized coverage the HDHPs really stop making sense. – quid Jul 27 '17 at 19:05
  • @quid There was no intent to start an argument in my question, just looking for other POVs from from those that have actual experience with HSAs as it applies to a specific circumstance. Your answer makes sense to me. BTW, I noted above in comments, a HDHP policy premium (after subsidy ) is actually almost three times the cost of a standard policy. At least in my relative's county) – BobE Jul 28 '17 at 18:02
  • @BobElston, I don't doubt it. Once the subsidies are in play the math becomes very different. The real benefit of an HSA comes from socking money away because while you need to be in an HDHP to contribute to the HSA you can be enrolled in anything (or nothing) to spend tax free on qualified costs. – quid Jul 28 '17 at 18:07
3

It wouldn't. An HSA is essentially a tax shelter (emphasis mine):

For those that can afford it, the HSA is a powerful tax shelter

It helps anyone that has money, and can put it into an HSA, but if the money isn't there, the HSA serves no real purpose.

DA.
  • 539
  • 3
  • 9
2

I disagree with those that claim an HSA is only useful for those that can afford it. An HSA is useful for anyone that is eligible to contribute to one and also pays their medical bills. This is true even if you are living paycheck to paycheck and have no money left over to contribute! Here's how you do it:

  1. You have a qualifying HDHP plan and are eligible to open an HSA account.
  2. You open an HSA account and put a small amount of money in it ($5 for example).
  3. You wait until you get a medical bill, let's say you get a bill for $100.
  4. Instead of just paying the bill, put the $100 into your HSA account.
  5. Once the money is in the account, you can either pay the $100 bill directly using your HSA debit card, or if you prefer, take the $100 back out of your HSA and pay the bill with your personal credit card or debit card, etc. (This way you can still get the points on your preferred credit card.)

This way even if you don't have enough money to make regular contributions to the HSA, you still get the tax advantage anytime you make a payment. It's effectively the same thing as regular contributions but without having to guess how much you'll need. You only contribute exactly the amount you need.

TTT
  • 47,155
  • 7
  • 99
  • 151
  • Don't forget that every $100 (or whatever) contribution is deducted off your AGI at tax time! – Ogre Psalm33 Jul 27 '17 at 19:43
  • @OgrePsalm33 - Yep. That's the entire point! (Which I tried to make in my last paragraph.) – TTT Jul 27 '17 at 19:56
  • The type of contributions you describe are post-tax contributions, you'd lose the payroll tax benefit, and only benefit if you had income tax liability. You're right that there could be a benefit, I was wrong to assume someone in this situation would have no income tax liability and/or not be on an HDHP. – Hart CO Jul 27 '17 at 20:06
  • 2
    @HartCO - you are correct that if your employer offers a work sponsored HSA plan, then you are better off making your contributions through your employer so you can get the FICA savings too. For this specific question (and much of the general debate regarding the ACA), those people that have plans on the exchange are less likely to have an employer sponsored HSA plan. Furthermore, this advice is generally geared towards those that are either going to do this, or make 0 contributions otherwise. – TTT Jul 27 '17 at 20:15