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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?

marked as duplicate by Hart CO, Brythan, Michael, Nathan L, D Stanley Jul 27 '17 at 21:44

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migrated from politics.stackexchange.com Jul 27 '17 at 17:48

This question came from our site for people interested in governments, policies, and political processes.

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    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
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    @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. – Nathan L Jul 27 '17 at 18:03
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    @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)? – Nathan L Jul 27 '17 at 18:06
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    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
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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.

  • Your last couple of sentences are a valid POV, but there's plenty of countering POVs, FWIW. – DA. Jul 27 '17 at 18:18
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    @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
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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.

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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.

  • 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
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    @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

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