The Scam that is Health Savings Accounts

[The_Voice_of_Reason]

A few years ago I had Rotator Cuff Surgery...with Physical Therapy and everything else, the total bill was around $35,000

Average family with two kids, both of them working for say $10 and hour. That's $800 a week for the couple, or about $41,000 a year. Doubt they could afford to save ten percent of their income a year, but lets say they could. Various taxes (local, state and federal) will see about 20 percent skimmed off the top, leaving this couple about $33K give or take some change. So, that would mean they would have to save 10 percent of their remaining income for 11 years to have enough for that one singular surgery!

No average American can make a Medical Savings account work for their family, so stop trying to fool us with that Red Herring.

Second Red Herring...giving us the right to PURCHASE HEALTH CARE INSURANCE does not mean we can afford to purchase it...especially when Congress refuses to pass legislation for a LIVING WAGE.

[The_Voice_of_Reason]

4. BINGO.....

It SOUNDS good, but it is a Three Card Monty Scheme that will not work for most Americans. Places like Walmart pay just over $8 and hour, Staples and similar stores...ten bucks and hour. That bypass would require them saving every penny they earned at $10 bucks and hour for 25,000 HOURS!...so average American...go work for 625 weeks (paying no taxes, no rent, no car payment so forth and so on) and you have saved enough in your Medical Savings account to pay for that ONE SURGERY! That's over TWELVE FREAKING YEARS!

[WillowTree]

11. It sounds as if you don't understand that you're not trying to save the whole $250,000.

The HSA is a savings account backed by a high deductible insurance policy, so what you're saving for is the deductible. No, not everyone will be in a position to sock $10,000 into that account, but a lot of people will and for those who can handle it, the savings on taxes and insurance premiums can make it worthwhile. I know a number of people for whom HSAs are working out well. They're just not for everyone, and certainly not those in minimum or near-minimum wage jobs.

[susanna]

19. "not those in minimum or near-minimum wage jobs"

What percentage of people might that be?

I am honestly curious. You must know, if you wrote this.

[melm00se]

26. Characteristics of Minimum wage workers

https://www.bls.gov/opub/reports/minimum-wage/2015/home.htm

Summary:

Age. Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less. Among employed teenagers (ages 16 to 19) paid by the hour, about 11 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and older. (See tables 1 and 7.)

Gender. Among workers who were paid hourly rates in 2015, about 4 percent of women and about 3 percent of men had wages at or below the prevailing federal minimum. (See table 1.)

Race and Hispanic or Latino ethnicity. The major race and ethnicity groups had similar percentages of hourly workers paid wages at or below the federal minimum. About 3 percent of White, Asian, and Hispanic or Latino workers earned the federal minimum wage or less. Among Black workers, the percentage was about 4 percent. (See table 1.)

Education. Among hourly paid workers age 16 and older, about 6 percent of those without a high school diploma earned the federal minimum wage or less, compared with about 3 percent of those who had a high school diploma (with no college), 3 percent of those with some college or an associate degree, and about 2 percent of college graduates. (See table 6.)

Marital status. Of those paid an hourly wage, never-married workers, who tend to be young, were more likely (5 percent) than married workers (2 percent) to earn the federal minimum wage or less. (See table 8.)

Full- and part-time status. About 7 percent of part-time workers (those who usually work fewer than 35 hours per week) were paid at or below the federal minimum wage, compared with about 2 percent of full-time workers. (See tables 1 and 9.)

Occupation. Among major occupational groups, the highest percentage of hourly paid workers earning at or below the federal minimum wage was in service occupations, at about 9 percent. Almost two-thirds of workers earning the minimum wage or less in 2015 were employed in service occupations, mostly in food preparation and serving related jobs. (See table 4.)

Industry. The industry with the highest percentage of workers earning hourly wages at or below the federal minimum wage was leisure and hospitality (15 percent). Nearly three-fifths of all workers paid at or below the federal minimum wage were employed in this industry, the vast majority in restaurants and other food services. For many of these workers, tips may supplement the hourly wages received. (See table 5.)

State of residence. The states with the highest percentages of hourly paid workers earning at or below the federal minimum wage were in the South: Alabama, Louisiana, Mississippi, and Virginia (all were about 6 percent). The states with the lowest percentages of hourly paid workers earning at or below the federal minimum wage were in the West: Alaska, California, Oregon, and Washington (all were about 1 percent). It should be noted that some states have laws establishing higher minimum wage rates than the federal minimum wage. (See tables 2 and 3.)

but to answer your question: approximately 3% of workers paid hourly rates is at or below minimum wage (the "near minimum wage" limitation is more challenging as it is not clearly defined).

[susanna]

35. Thank you for the explanation. This helps a great deal. n/t

[WillowTree]

32. I don't know why you think I would know "what percentage of people" are making minimum wage.

And I don't see why you think that would be relevant to this discussion in the first place.

[susanna]

36. Because HSAs are not going to work for that percentage of people. n/t

[WillowTree]

37. And.....................? Why do you think they have to work for everyone?

Most products of any kind won't appeal to or be of use to everyone. They all have their own audience. As such, there are other insurance products what will be of more benefit to people with low or lower incomes. Doesn't mean that this one shouldn't exist for the segment of the population that will benefit from it. I don't exist in that income bracket, but I know people who do. Should the newer "high end" kitchen appliances not be made and offered to the public, some of whom can afford them, because not everyone can afford them?

[Skittles]

21. that's what it is NOW

if REPUKES have their way, HSA would be expected to take the place of much of what insurance pays

[WillowTree]

33. Maybe, maybe not. I haven't heard anything to that effect. Not yet, anyway.

The OP states that HSAs are a scam. As of now, they are not. I wasn't trying to predict the future.........as you seem to be. doing.

[Skittles]

34. they are a scam in that they greatly benefit higher earners more than they help people

and repukes want to make that the gold standard of health care

http://www.pressherald.com/2017/01/23/sen-collins-proposes-obamacare-replacement-plan-would-provide-uninsured-5000-for-health-benefits/

remember when 401Ks first came out? They would be part of the 3-legged stool (along with pensions and savings) approach for retirement - of course that is not what happened

the same will happen with HSAs

[WillowTree]

38. How does this harm anyone?

Last edited Wed Feb 8, 2017, 04:29 PM - Edit history (1)

No one is forced into an HSA. It is, presently, an option available to those who can benefit from it and is no scam for them. Others will benefit from other products which are better suited to their needs. You seem to have a crystal ball that tells you what the future will be. I don't and can only speak to what exists in the present.

[Skittles]

39. they're fine right now (assuming you can afford to contribute)

what is being proposed is NOT fine....what is being proposed is A SCAM

[WillowTree]

41. If you say so.

[Yupster]

15. Like you said

Most people have no understanding of what a HSA is.

And DU is sure not the place to find out.

As great a place as DU is, when you get to things like HSA's and pretty much anything investment or economics related, stay away because much of the information is uninformed and seems just designed to cause people to get mad.

There are good explanations of how HSA's work down this thread if you're interested.

[madaboutharry]

16. Ok.

[unblock]

2. all hsa's do is let you get a tax deduction (not a credit) for certain medical expenses

the value of that tax deduction depends on your marginal tax bracket (federal and state and city, as applicable).

which means that people who pay little to no income tax get little to no benefit, and people who make a ton of money get a rather larger benefit.

in other words, at best it helps exactly the wrong people. bill gates, or anyone else who could easily pay medical bills gets the maximum benefit, and those struggling get the smallest benefit, if any.

[susanna]

20. Thank you. n/t

[grantcart]

42. I doubt that Bill Gates bothers with HSA. There are another class of tax payers that get a big

benefit from it.

Two income families with a combined income between $ 70,000 - $ 200,000 AND have chronic medical issues (such as a child with a chronic condition). Would be able to save their taxes on the medical expenses they paid out of pocket.

Obviously it is not a solution for insurance but it can help middle income families who have a significant medical burden and knowable out of pocket expenses.

[WillowTree]

43. That's not entirely correct.

If you're in an HSA, your monthly contributions are pre-tax dollars which lower your taxable income and reduce the amount of your tax liability.

But you're correct that these plans are almost always unsuitable for those in low income brackets. There are different insurance plans that would be of much more benefit for them. It's not only "people who make a ton of money" for whom HSAs work. There are lots of people who do not "make a ton of money" who can benefit from them.

And, as others have said, I'm pretty sure that Bill Gates and Mark Cuban bother with insurance at all when it would be so much easier for them to just pay the bills and be done with it.

[Warpy]

3. Those tax credits are a big scam, also

since so many people don't pay enough taxes to purchase a month's coverage, let alone a year for a family.

Congress is just completely disconnected from reality. They have no idea how little people earn or how much insurance costs.

If we ever have a real revolution in this country, then one of the first orders of business would be to tie the Congressional wage to the median income. We'd have a very different country if we did that.

[The_Voice_of_Reason]

5. If we stopped putting

Millionaires in Congress, and Billionaires in the White House and Cabinet we would see a change.

[Warpy]

6. Many of them weren't wealthy when they got to Congress

Insider tips make them that way when they get there.

It's the cushiest job they've ever had and it pays very, very well if they're corrupt and most of them are corruptible.

[napi21]

7. That's RIGHT. They are also pushing another idea that's just as deceptive and bad!

I think it was Ivanka who recommended tax deduction in place of tax credits to pay for child care. What many people don't understand is to get a TAX CREDIT you need to file a tax return, even if you don't owe any tax. To get a tax deduction, you must OWE tax to be able to "DEDUCT" your expense. If you don't owe any tax, YOU GET NOTHING!

You have no idea how many people I had to explain that to. Lots of people don't understand the difference between a tax deduction & a tax credit!

They're trying to screw the average American everry way they can!

[rickford66]

8. HSA at my employment (large corp)

Eligible only if you are enrolled in the high deductible insurance option AND have no other insurance. Also if you have Medicare you are barred from applying for an HSA. The corporation contributes about $1500 a year to your account in addition to any of your own contributions, which are pre-tax. The money carries over. You keep it even if you leave. I have Medicare so I can't apply for it. The corp is still setting aside money for me that I can never access.

[pangaia]

9. That is not how health savings accounts work.. not that they are anything to brag about, anyway

I made the same mistake in assuming it was,

Here is how they actually do work....


http://www.figuide.com/health-savings-account-for-2017.html

[subterranean]

10. I agree with most of what you wrote, but...

there seems to some misconception about health savings accounts. HSAs are always combined with a high-deductible health insurance plan. They are not intended to be used alone to pay for ALL health care costs, just the portion not covered by insurance. So you wouldn't have to pay the entire bill for a $35,000 surgery, unless your insurance was cancelled but you still had the money in the HSA.

HSAs are a good tax avoidance strategy for people who can afford to put money into them, but you're right, they're basically useless for the average working family, who already have to put money aside to save for retirement, save for college, and pay insurance premiums, taxes, and food, shelter and clothing.

[RobinA]

29. All True, But

they are all marketed to Joe and Josephine Average Salary as if they were something great. It's basically your own money, so they shouldn't really be mentioned in the same breath as "insurance," as that is misleading.

When the company I worked for at the time introduced the HSA as if it were something great that I should like (at the time making $30,000 a year), I thought, Great, this sounds good. Then I read about what the deal was and it dawned on me it was a fancy savings account from which I would lose all remaining money at the end of the year. WTF??? I couldn't imagine why average people would do that. I still can't. I know people how use them and then scramble around trying to spend it down so they don't lose the money. And the tax savings are minimal with an average income. More trouble than it's worth in my book.

On edit to say: After reading further down it seems that some companies add to an individual's HSA. I have NEVER encountered that. Of course, in 30 years in the private sector I never got a 401k match, either, despite always having a 401k, so I obviously am not employed by the right companies. That's why I went public sector with union. I get a decent health plan and a real pension now. Only wish I had done it sooner.

[tammywammy]

30. You're confusing HSA with FSA

A Flexible Spending Account is use it or lose it in a year. A Health Savings Account rolls over each year. The benefit of a FSA is that I'm paying for my glasses for example with pre-tax money instead of after tax income.

[cvoogt]

12. HSAs are great ...

.. if you make over 100k and can spare the 6k a year or so for a family HSA high deductible plan. For most people it's not worth even thinking about.

[WillowTree]

13. One more apparent misunderstanding.

If the deductible on your insurance policy is $6,000 as you suggest, you don't have to fund your HSA with that amount every year unless you used it all last year. If you had a total of $1,500 in expenses last year, you just have to replenish the account with the amount used.

Again, these accounts aren't for everyone, but thanks to the tax savings and the savings on insurance premiums, they can work well for some.

[cvoogt]

18. not a misunderstanding.

You don't HAVE to fund the 6000 every year, but if you want to take full advantage of the HSA tax benefits, you really should. Many people don't have the luxury of throwing 6k at an HSA each year, though.

[taught_me_patience]

14. I've had a great experience with HSAs. Your characterization is wrong

because HSAs are combined with a high deductable insurance plan.

I'll give you a detailed breakdown of my insurance and why it is beneficial:

traditional PPO plan for family ($300)

HSA for family
Cost $150/mo
Employer contributes additional $750/yr to the HSA
I contribute an additional $150/mo to the HSA (pre tax and equal to the cost of the traditional PPO)
Deductible $3000
Once deductable is hit, then I'm responsible for 20% of the bills until I reach the yearly max
Yearly out of pocket max 6000

My yearly contribution to the HSA + employer contribution is $2,500. I can use this to only pay for deductables and medicine. Yearly exam and child preventative visits are free (thanks ACA!)

We had one sick visit that costed $65 and a visit to and ENT that was $85 and some medicines that totaled about $75. Negotiated rates for visits are well below what you think they might be. Total HSA expenses were about $200 paid from the HSA.

The end result is that for the exact same price as the traditional plan, I now have 2,300 in an HSA that is rolled over to the next year and if not used, can be eventually invested and taken out in retirement. After three years of employment, I've saved up over the 6,000 out of pocket max. Even if I get cancer and have a 500k bill, I'll still be ahead of where I would have been with a traditional plan.

[Yupster]

17. I love my HSA too

I have put enough in over the years that some portion of mine is now invested in mutual funds.

If I never need it for medical, it will basically just act as a second IRA for retirement. I don't pay close attention to it, but last I looked I had some in cash and about $ 40,000 in mutual funds. The only thing I use it for is to pay for medicines, $ 5 or $ 10 bucks at a time but I realize each time I use it I'm getting 30 % off of whatever I buy.

[susanna]

22. How old are you, if you don't mind my asking?

Because when you get older, those dollars and cents are going to get much, much larger.

What will you do then?

[stevenleser]

23. In his case, since it seems his employer offers different plans he could then switch

to a more traditional health insurance plan. Although from how he is able to withhold, he might not need to do so.

[susanna]

24. Either way, my point stands.

This shit gets worse before it gets better, as you age.

But thank you for explaining for him.

[mythology]

27. Use the accumulated savings would be my guess

That's kind of the point. When you have lower health care costs, you still put some of that into the HSA so in future years when you do have higher costs, you've already got the savings available in a fund restricted to health related expenses. You don't start saving for a new car when the old one has broken. You do it ahead of time.

[haele]

44. I've had great experiance, also - but I can afford them now when I couldn't 6 years ago.

HSAs (and FSAs) are great for an individual that has health issues making over the equivalent of $20 an hour, or families making the equivalent of around $28 an hour, whether they're pre-tax or tax deductible.
We didn't have to save for braces when the kidlet finally decided to get her extra "eye-teeth" pulled and mouth straightened two years ago, nor did we have to wait and save for prescription glasses changes when they happened.

Full disclosure - I got my account through my previous employer as a WageWorks benefit along with $2500 max for an FSA, which meant before they laid me off last year, I was putting in the monthly max deduction pre-tax.

My current employer does not have a HSA, even though the insurance is a high deductible, so I was able to roll over the $2600+ I had in the HSA and the $124 FSA accrued (but not spent) into a personal HSA account offered by BNYM, and I now put in $200 a month to maintain it.

As my husband is disabled and needs to have lots of maintenance testing and medications, having that money available and dedicated to medical is literally a life-saver.
But again, I'm currently making enough that I can afford an HSA - at $200 a month and any extra money at the end of the month I might be able to spare to throw in on it.

If I were making $50K a year - or became unemployed or retired and eligible for Medicare/Medi-caid/Tricare, I'd seriously think twice about continuing the HSA, balancing the potential medical expenditures against what is required to pay the rent and keep food on the table every month.

The rate of interest return (not taxable, so long as it's rolled into the account) is better than a savings account; .75% no matter how much is in the account. So right now, it's an economically feasible investment, especially if I can put in enough to get it up to - and keep it at around $20K to cover medical emergencies later on.

But - here's the rub with HSA's - according to the rules of my personal HSA through WageWorks/BNYM, the max I can put into one and not have the IRS looking at charging for any interest is $7800 a year, because I'm over 55 and have dependents. Like a 401K, there's a max the IRS lets you put in every year.

Other HSA plans I have looked at have pretty much the same rules. For people under 55, the max seems to be $6800 pre-tax/tax deductible, and single people are only allowed to put $3400 (+ $1K for over 55) in a year pre-tax/tax deductible.

As with all financial products, YMMV depending on the HSA plan you can get in your state.

Haele

[fescuerescue]

25. HSA's themselves are fine and not a scam.

I've used them, and its an effective way to use pretax dollars for healthcare. They are quite effective at smoothing out the lumps on small medical spending (say under $2,000) for things like glasses and braces etc. Since they are pretax, in your scenario they would be saving the $41k not the $33k figure.

What doesn't work (although I wouldn't call it a scam), is to pretend that it replaces health insurance for major bills. It takes a lifetime to save for ONE major medical problem and years for ONE ER visit.

I guess I reserve the word scam for, well scams that essentially steal your money. HSA aren't a theft mechanism.

So yes - I agree, they aren't a replacement for insurance. They are however a useful financial tool

[melm00se]

28. Like many things

in this world, HSAs are not for nor a fit for everybody.

That fact does not make them a "scam".

If an individual fits into the HSA model (having a high deductible health insurance policy is the main one), then they are viable option and mechanism. If the individual does not, then an HSA is not something to participate.

[Skittles]

40. actually, the high deductible trend IS a scam

and more and more people are being forced into them

[exboyfil]

31. One other feature about HSAs is the fact the income is exempt from

Social Security taxes. This is probably good for the earners with earnings between $50-$115K. For those making less than $50K - if that salary (inflation adjusted) is typical in your working career, then you probably want the S.S. deduction for the increased benefits instead of the HSA (this probably only applies to two earner households since it would be difficult to save much off of a $50K salary to an HSA anyway).

For those over the Social Security withhold limit, then the benefit of HSAs definitely decreases.

The ironic thing is that HSAs actually benefit the employer. That money is also exempt from the employer withholding requirement for Social Security. Bet most people did not know that.

I think there are different tax treatments for HSAs. The Social Security exemption feature is characteristic of mine.