I wrote a year ago about why I stopped saving Health Savings Account Receipts. We had accumulated a low five figure balance worth of HSA expenses but I was frustrated with the high fees and poor options available in my employer’s plan. The math said we were better off taking a distribution and putting that money in a low-fee and tax efficient index fund. My employer finally made some changes to the plan and its time to update the original post:
We’re saving HSA receipts again!
You should use an HSA account if its available to you. Employers and the health insurance insurance carriers have done the actuarial work and there is little difference in the out of pocket expenses between high deductible plan offerings and the traditional plan offerings. The HSA allows you to save $6,900 per year for a family before income tax, medicare, and social security tax and before medicare and social security. This is the account that allows you to defer income prior to payroll taxes.
What is the underlying concept of saving your Health Saving Account receipts?
Health Savings Accounts do not have any limitations between when an expense is incurred and when an expense is reimbursed. Theoretically you can wait to reimburse yourself for an expense until you’re retired. The concept of saving your HSA receipts is to move money from a savings account exposed to taxes every year to an account that isn’t exposed to taxes.
When we go to the doctor’s office, we just make the payment through a rewards credit card instead of our HSA debit card. Then we charge that money to our monthly budget and/or transfer money from our regular Fidelity account to cover the expense. We’re still unfortunately incurring the medical expense expense, but chose to have the funds come out of an account that generates taxable income instead of an account that is sheltered.
This benefit has led people to call the HSA the ultimate retirement account.
Account Fee Structure and Investment Options – The Change
My employer offered a pretty slick Health Savings Account user interface but the investment options were expensive. The underlying mutual funds were charging half a percent annually for index funds which deteriorated the returns. The math worked out to these fees offsetting the tax benefit of the account. I couldn’t bring myself to pay 10x in investment expenses for something than generates no incremental value.
Six months ago my employer sent a letter about some account fund changes. Included in these changes were multiple Vanguard Admiral Share Index Funds. The fee debate was over! This immediately fixed the issue I had with high fees.
I’m a soon to be early retiree and I was uncertain if I could keep my current account. Would my employer make me roll this over? The answer is they probably would, but I couldn’t find this answer. If I needed to move the Health Savings Account, the major discount brokerage firms didn’t offer individual HSAs.
Fidelity broke through this barrier and on November 15th announced they would be offering individual Health Savings Accounts. This issue is not only resolved, it was resolved by my brokerage of choice! Another issue I was concerned about was gone.
I was concerned about how to keep the medical receipts. What happens if I ever lost them? This has always been a low probability issue, but became a real concern to me once I accumulated receipts in excess of five figures (and I have a propensity for loosing stuff).
I’m probably the last person in the world to figure this out, but I now use Google Drive plus a Google Sheets document inside the drive. I can take a picture or scan each receipt, log the expense into a google sheet, and upload a copy of the receipt to Google Drive. At any given time I can see the total amount I’ve saved if we ever need a distribution. Another issue resolved!
Will I Always Have Access to This Plan?
As a future early retiree, my biggest concern in the future is access to a high deductible health plan. Substantially all of the ACA plans now meet the financial threshold for a high deductible health plan, but small benefits inside these plans remove the access to an HSA. I can still use accumulated funds to pay for medical expenses, but it is unlikely I can continue funding the plan once I’m using the exchange. There is a plan summary description available when you’re reviewing plans that will indicate if a plan is HSA eligible or not. This eligibility only effects whether or not you can contribute this year, not if prior year’s savings can be used for expenses.
If you have access to a Health Savings Account, take advantage of this tax deferred account as soon as you can.