I’ve been a huge fan of Health Savings Accounts (HSA’s) since I started working full time 5 years ago. It didn’t take me long to realize that the HSA/HDHP combo is a great plan for young and healthy people like myself who rarely visit a doctor. Over the years, my HSA balance has grown to about $15,000 with the help of employer contributions, premium savings and my own contributions.
During that time, I’ve racked up a couple thousand in various reimbursable expenses (acupuncture, massage, OTC meds, contacts stuff, etc) and since I paid for it all in cash I’ll be able to re-imburse myself at any point in the future. Meanwhile, I’ve got my HSA fully invested in an aggressive mix of stocks and bonds that will one day come back to me triple-tax free.
Just Don’t Get Sick (Or Injured)
That sounds like a pretty sweet deal doesn’t it? Well it is as long as you don’t get sick or have to see the doctor. Unfortunately for me though, I had a little incident at a bachelor party where my knee collided with a paintball from about 15 feet away. Within a day, my knee was the size of a balloon, I could barely walk and I was in a lot of pain. Drinking seemed to help though.
I’ve seen people tear ligaments and although my injury hurt, I was fairly sure it wasn’t a tear. If you don’t hear blood-curdling screams, it’s probably not a tear fyi and yes that is my medical opinion. Even though I technically had insurance, my deductible was $1,250 so there was no way I was going to the ER – just a cheek swab in there would have wiped out my deductible.
I’ll Tough It Out
I thought about visiting an urgent care facility but in the end I decided to just tough it out. I was in a lot of pain but there wouldn’t be much a doctor could do anyways until the swelling was completely gone. So I iced, rested and in general, just tried to take it easy. After a couple weeks, I was still in pain but things were getting better. I kept telling myself as long as things were getting better I didn’t need to see a doctor.
Eventually a couple weeks turned into a couple months and my recovery had pretty much plateaued. I was at about 70-80% but my knee just wasn’t getting any better.
Help Me Find An Orthopedist
At this point, I decided it was time to see a doctor. I went on Yelp of course and found a few good orthopedists in the area. I thought to myself: Ok this should be fun, time to negotiate some prices.
But every single place I called quoted me in the range of $250-$600 just for a first visit! I might have been able to stomach $200 but what could a doctor possibly do in 30 minutes that could warrant $600? This didn’t even include the cost of x-rays and/or an MRI which would have added another $100-$750.
The thing that irked me the most though was that they couldn’t give me a specific price – every receptionist I talked to all said that it depends on the services performed. Which of course means we get to charge you however much we want and you can’t do sh*t about it. In my book, that was just unacceptable so I refused to make an appointment.
Let’s Try A Physical Therapist
After some google-ing and recommendations from two different people, I decided to see a physical therapist. The problem with doctors these days is that they don’t have much incentive to make treatment affordable for patients. It’s in their best interest to order un-needed x-rays and MRI’s in order to cover their ass in case they get sued. I don’t blame them, I blame the system of incentives that is placed upon them. Doctors don’t have the right monetary incentives to make treatment affordable and for patients to get better.
I ended up finding a great physical therapist who charged me $100 for the initial consultation and treatment plan and $75 for subsequent sessions. The pricing was transparent and since I paid with my HSA, I was able to pay with pre-tax dollars. I’ve only done two sessions so far with this physical therapist but my knee is already seeing a ton of improvement.
I wish I would have seen this guy sooner since he was still able to do all the ligament, stability and pain checks that a normal orthopedist would have done. If my injury would have been more serious, I would have had to bite the bullet and pay an orthopedist but the PT doctor ended up working out pretty well.
Your Money Matters
Most people don’t understand the point of the HDHP/HSA combo and I’m sure there are lots of people out there who would say this is the perfect example of why you want ‘real’ health insurance. But I couldn’t disagree more. If I would have had PPO/HMO health insurance I would have gone to the first orthopedist I could find and probably spent over $1,500 when it was all said and done. That sounds like a great system until you think about who will ultimately bear that cost.
Doctors and insurance companies sure as hell aren’t going to take a loss so the inflated cost of my hypothetical treatment and MRI will be passed on to subscribers. That’s me! Now imagine if everyone that gets injured does the same thing. And that right there is the reason why health insurance is so damn expensive and premiums are always going up!
The problem with our current health insurance system is that there is no consumer choice. Prices aren’t transparent and we never have to pay a direct cost. That means that we’re free to spend the insurance company’s money on whatever damn doctor we want but in reality that is our money. We’re just taking a loan from our insurance companies that we’re going to have to pay back next year with higher premiums.
HSA’s will always have their naysayers but anyone who truly cares about the money they spend should see that it is the best health plan on the market. If everyone cared about how much an initial consultation with a doctor cost I wouldn’t get these bullshit $250-$600 range answers. Doctors would have to list their pricing on their website like a normal business and then there would be a healthy level of competition.
I don’t think HSA’s will ever catch on but for now I’m going to take advantage of them for as long as I can and do my part to reduce the cost of healthcare.
Readers, what do you think about my knee injury and how I handled it? What would you have done differently and what do you think about the HSA/HDHP combo?
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Hi Harry,
I feel your pain. I have been able to get cost transparency by involving BCBS. I get a commitment up front on the cost, compare it to the “self pay” cost and then pay the lesser cost. I also strike any language that says I will pay all costs not reimbursed by the insurance company. Balance Billing is prohibited in Fla, but many carriers will try to bill you anyway. So far so good. This was a great read. I’m sticking with my HDHP/HSA too.
Hey Paula, yea it’s definitely getting better. Most people can’t do math so they don’t realize that even if you have the occasional high medical costs, HSA’s are still a better deal 90% of the time. I have 15k in my HSA right now and only about half of that is my money so even if I have to spend 1250 on my deductible one year I’ll still be way ahead.
I did the math once (though it was with a previous plan) and found that because HDHPs don’t have co-pays, and have lower premiums, they could be the better deal even if you had really huge medical costs. I made a graph (with lots of assumptions, of course) and there was only one smallish range of medical costs around $6000 where the traditional plan was cheaper than the HDHP+HSA.
I totally agree that the lack of transparency in pricing. Furthermore, the ridiculous “sticker price” that, as I just recently read, may even be enforced or encouraged by the insurance companies to coerce people into buying their product.
That said – I think you got lucky. It was a… choice I wouldn’t have made, to wait to get your knee looked at for so long after the injury.
You hit the nail on the head! Most people don’t know how to do math though haha so they rarely choose HSA’s. I did the math in a prior article too and found only a very small sliver of a scenario where the ppo plan would come out ahead..
https://yourpfpro.com/annual-enrollment-2014-companys-hsa-vs-traditional-plan/
Yea probably not the smartest thing I’ve ever done but I feel like I know my body pretty well so I was ok with the choice. It’s all about listening to your body 🙂 Things get better you’ll probably be ok, things get worse you go to a doctor. Keep it simple.
Harry sounds like something I might have done at your age. As I recall didn’t you just get married to a med student no less? LOL My wife works for a Fortune 150 company and we have a similar plan. Yes the out of pocket until you hit the deductible can be high but that is also a valid use for the money in the HSA. Our coverage is via Blue Cross so quite often the actual price of the services is greatly reduced due to the rates they negotiate so the “bite” may not be quite as bad. Ah bachelor parties and drinking what fun combination, brings back memories.
Yea I did, great memory 🙂 If everyone thought like me, doctors would get paid a whole lot less but the world would be a better/more efficient place haha.
It’s funny how our brains work. Even though I’m basically getting $1,000 from my employer every year (contribution + premium savings), once it’s in my account I don’t want to spend it and I’ll basically refuse to go to a doctor unless I’m close to dying. But if I had a PPO, I would have gone to a doctor immediately and freely spent the ‘insurance company’s’ money.
Yea bachelor parties are pretty fun haha. It’s not too late for you though, ever seen Last Vegas?
Wow, you behaved like such a stereotypical man in avoiding seeing a doctor!! 🙂 I would not have done what you did no matter what the insurance situation – I would have gotten care right away even if it did cost the whole deductible. I think you were being cheap, really. It’s not like you didn’t have the money. I hope you make a full recovery.
I would love to have an HDHP and an HSA but we’ve never really had an opportunity to get one. But with that choice I know I’m also accepting that there will be a certain fraction of years where we would meet the deductible.
People always wonder how the rich get their money, it’s by not spending it on stuff like this. If I would have seen an ortho, I would have been out $1250 in one visit. The ONLY thing a doctor would have been able to do at that point is diagnose my injury, they can’t operate until the swelling goes down if it’s something serious and other than that you just need to stay off it, rest and ice. Doesn’t take a doctor to figure that one out.
That being said, for some people the peace of mind is worth it to them. For me it isn’t and that’s why I think the HSA worked perfectly in this situation. It allows someone like me to prioritize money over peace of mind and someone like you could do the opposite. If you and I shared an HMO plan, now I have to pay for your choice that I don’t agree with, that isn’t fair for me. I am subsidizing your health care, which I don’t want to do 🙂
Bud, your deeply confused about where wealth comes from, It’s not created by efficiently spending money and penny pinching. Hell, with that much pinching going on, anyone with wealth would begin to consider opportunity costs … That;s right! Their capital works for them, and their time is worth ALOT more than a “one time” doctor bill. They dont waste money, but they make money at a rate which changes the equation.
I’m not saying you shouldn’t treat things efficiently, but then again… it only makes sense when you are a regular jackass, and not a capitalist who’s time lost is worth more than the money saved.
Great Post!! I myself am an avid HDHP plan and HSA user. My former employer used to pay me to have such a plan so I was making more money with the caveat that It worked if I didn’t need to use it.
My current employer does not recognize the HSA, but fortunately they have a plan that does quality me for HDHP and I don’t actually have to pay any premiums into it so I have that benefit.
Call me a typical male because I don’t go to the Dr. unless I’m dying.. (Basically when I actually NEED to go get help) They human body if very resilient when it comes to most injuries. But, it does take time to heal and as we age it can take on average a little longer. I do have a major people for people that go to the doctor for any and everything little thing because it just what they do. It is a mentality that people get into.
When I was growing up and I was under my parents insurance we would go to the doctor for EVERYTHING because it was just the $10 copay. Most of the time for things that would have healed in a week or two anyway. The doctor would say rest, ice, compression etc.. and it’ll be fine. This practice has caused premiums to explode because of unnecessary procedures for things that would have healed on their own. MANY old people on Medicare / Medicare are the worst abuser of this practice… There have been several episodes of 20/20, dateline, 60 minutes about this..
If people followed even the minimum standards for being healthy and strenuous physical activity atleast 3 days a week for 30 minutes or more.. A LOT of people would in general be much healthier…. However, Americans are way to damn lazy and want to take a magic pill for everything to be healthy. It doesn’t work that way… Muscles deteriorate when not used to the potential, ligaments contract when not stretched, cardio systems clog up, lungs get weak.. It is a vicious thing to age, but people really could help by doing their part. This really is a whole different topic… but it is one of the root causes that impact healthcare premiums in the in…
I simply am very in tune with my body and I am a pretty good gauge of the things I have put my body thru over the years and know when I actually need professional help to fix something… I let me body take care of self with Strenuous exercise and physical fitness, eating properly, and resting when I need it.
Harry you and I are in the same boat with about $15k in our HSA… Based on my deductible I could have 4 really bad years of accidents or illnesses and I could still be coming out ahead since that $15k is basically my own insurance I have diverted from paying the premiums that I otherwise would have paid to the insurers and saving that in my HSA… granted I max out the contributions as well so it has added up even more. When those investments are 35% too that helps and they pay dividends.. It is a sweet deal. Just have to remember to keep $2k in case to cover immediate expenses if something happens.
If enough people start doing the research when it comes to medical expenses and start refusing services because they are not worth it that would help to change that medical billing and insurer mentality when they start losing money because few people are using their services.. but that will NEVER happen.. It would take a Significant shift in methodology from our culture and well its just not going to happen. I guess those people will continue to price themselves out of other fun life activities due to driving up healthcare premiums and I will continue to keep myself healthy and to not depend on the over inflated high priced screwed up healthcare system our culture has created.
As for your situation… I probably would have started with self healing… added some more stretching, yoga, ice packs, and heat packs after the swelling had gone away.. In your case it doesn’t hurt to check around on some prices at different offices.. but I’ve been the road once myself just to have to decline any services due to not being able to isolate a price window. I have been told things like well it could be between $100 and $800. umm ok?? I’m ok if you tell me between $100 – $150.. I get that math… How you can jump to some number that is 8x the low end estimate.. Just crazy.
Happy Labor Day Stay Safe and healthy this weekend!!!
Wow most epic comment ever Tim, thanks! Sounds like we are pretty much on the same page. Things won’t ever change in the health insurance arena, there’s just too much money at stake. But that doesn’t mean that people like you and I can’t take advantage of HSA’s.
I’ve been saving all my HSA receipts and paying cash since I max everything else out. Like you, my HSA is invested in an aggressive mix of stocks and tips (tax free in ca) and I can’t wait until I get to start taking money out in 20-30 years triple tax free. HSA’s are the only investment in the world that are triple tax free, I don’t think people realize the value of this.
Ok now we just need to convince people not to spend the money in their HSA’s so carelessly too 🙂
Yeah it doesn’t do much good to just spend the HSA money freely after years of socking it away.. I will still use diligence when spending it. My plan is to probably keep in in there still I’m 62 then just save my accumulated receipts and cash it all out at one time. With good growth it could be worth $250K by then… But that will be determined by contribution limits if they change or market factors..
I would then maybe buy an annuity with it if I feel I need it.. or use it to pay medical premiums going forwards after I retire.
That is my long term plan for that money. So it seems to be a solid investment now and thru life that will cover most if not all of my medical in retirement. I think I read somewhere to anticipate budgeting $180K for healthcare after retirement so I should cover all of it and the rest can be used if anything major happens.
Haha yea good point, I like to think that it would be fun to blow all that money but I know I won’t. I think it’s going to turn out to be my best investment ever. When I get older, I’ll probably start withdrawing the amount I’ve spent (and saved receipts for) and just use everything else for future medical care.
I don’t think most people realize how expensive health care is going to get as they get older and I plan on using this like my 401k but for healthcare. Annuity would be a great idea too, just make sure you get a good one ie single premium inflation adjusted, none of that crap tied to stock market or anything like that 🙂
I’m with Emily 😉 I hurt my knee last fall and it did end up being quite expensive. I don’t think the ortho was worth it and I should have just gone to physiotherapy. The ortho actually made it worse in fact. Physio alone cost me about $200 a visit, so about $1,000. I had spent about $2,500 out of my HSA last year when it was all said and done and I don’t regret it. I’ll let the money grow that I don’t need, but I’ll spend what I do need. Health is important and you can’t put a price on it to me.
Hey Leigh!! Also very true. We only get 1 body so taking care of it also equally important.
But, I still say that the body is very very adaptive and resilient and can recover most all the time.. We have been getting injured and bouncing back for centuries.
I’m a man so take my opinion with a grain of salt 🙂 But I think everyone is a little too over-sensitive these days about food, injuries, etc. As Bill Maher would say, “When I was growing up we would beat the sh*& out of a kid who said they have a gluten allergy” or something like that haha. I had a work event the other day and we couldn’t buy bars with nuts because someone ‘might’ have a peanut allergy. Maybe they should just not eat the peanut then!
As for your situation, that’s the exact reason why I didn’t want to go to an ortho. If I went and they told me everything was going to be ok, just needed rest and rehab I just wasted $1000. Going to a PT was less risk and significantly cheaper. Health is super important to me too but at the same time there are certain things that aren’t life threatening. If my knee would have been getting worse, I would have seen an ortho but it was actually getting better so I waited.
We really like our HSAs. They definitely are great for people that are healthy, wealthy, and young! The key in my opinion is to not spend a dime of the HSA funds as best you can and to fund all medical expenses through your regular cash flow or from your emergency fund if needed. That way, you can really let the funds defer for even longer and really maximize that tax advantage.
Yes although if you don’t max out other retirement accounts first, the mathematical benefit to paying for your HSA expenses with after tax dollars is negated.
Yeah, to some extent. Even if you haven’t fully funded your retirement account goals and accounts, it can still be better to pull from regular cash flow or temporarily reduce pre-tax or after-tax account contributions potentially. The HSA benefits on both sides of the tax equation, so the longer you can defer those monies compared to other sources, the better the deferral power.
Yea I think you’re right and I’m wrong – it does happen haha. I seem to recall reading something about not wanting to pay for hsa expenses with after tax dollars if you weren’t maxing out 401(k)/roth but now that I think about it, I think HSA is always best to max out first because of the tax savings.
Either way, I know my HSA investment is going to be one of my greatest triumphs in life when it’s all said and done 🙂
Indeed! They’re a great tool and a great addition to a well-balanced savings plan!
Ok this is the reason why I said you should use your hsa if you don’t max out other retirement accounts.
Copied from below:
If you max out all your retirement accounts including HSA, paying for your medical expenses out of pocket is a way to squeeze even more tax advantaged space. Since you’re basically investing after tax dollars but you won’t have to pay any taxes on the capital gains earned.
Ex 2: If you have $100 in your HSA and you get a doctor’s bill for $100. You can a) pay that with your HSA and invest $100 on your own. Or you can b) pay it with your after tax dollars and you’ll have $100 invested in your HSA. Either way, you have $100 invested but in option a you have to pay taxes on the gains from that $100 and with option b you don’t have to pay any taxes on the gains as long as it’s used for medical expenses.
So let’s say you aren’t maxing out your roth ira, that $100 can be invested in a roth (or 401k) and it would be the exact same treatment as the hsa, but you wouldn’t have the requirement that you have to spend it on medical expenses. And that is why if you don’t max out your retirement accounts, you should pay for your med expenses with hsa money and not after tax dollars.
FYI, this was the article I was looking for all along! I finally found it haha
http://www.bogleheads.org/wiki/Health_savings_account#How_to_use_the_plan
great Write up! Thanks.
Good for you if HSA works for you. But your article smacks of arrogance. “Beat the shit out of a kid who had a gluten or peanut allergy”. Bet you believe in Karma and I’ll bet it’s gonna come back to bite you. My grand daughter suffers from a rare disease called eosinophilic esaphogitis (EE or eoe for short). Google it and learn. In it’s extreme form kids can eat nothing but a special formula, usually thru a tube in their stomach. Not all people who need a great deal of on-going medical treatment are hypochondriacs.
Jim,
You raise a GREAT point. I am sorry to hear about the condition that your grand daughter was given. God works in good ways but also in bad some times. It is unfortunate to the individuals and families in which chronic illness and disease conditions are inflicted upon. I will certainly stand up and say that I can not speak for the other side of argument because I have been very fortunate to not be directly affected by such a condition. I do have friends with various conditions in which case an HDHP and HSA may or may not being their best option for the long term. This is reflective of ones one insurance as well.
At my former employer it worked out that having an HDHP and HSA most benefited those who were really healthy and none users of it AS WELL AS those who had chronic conditions and were extreme users of it. They ones that got screwed by it were the normal working families who were just average users of it going maybe 4 to 5 times a year. This may not be the case for many insurers but that goes policy by policy and not much can be done with that except on the negotiation end.
I was really glad my insurance at the time benefited those same folks I worked with who did have ongoing treatments for serious medical conditions as well as myself who is a very light user of medical care products.
Any arrogance in the matter I have would be towards those folks who do not have such chronic conditions and utilize the system in such a way that is not beneficial. For those who do have such ailments and challenges I recognize that completely and their real need to get such treatments.
You’ve been reading my site for years, you should already know that I’m pretty arrogant 🙂 Who else do you know that refuses to clean their house and retire from their day job by the age of 30?
Btw, I’m not talking about rare forms of diseases – that is something completely different, you would make a good politician bringing up things that help your point but have nothing to do with what I said (it was a quote btw). And no I don’t believe in karma or God either, because I believe in math, science, logic and reason. All the real big boys 🙂
You really are an engineer I can tell..
Math, science, logic and reason go a long ways.
Cheers!
Great article Harry. I like HSA plans combined with the high deductible plans. The one thing I don’t like about them is what do you do when you don’t have much or any money in the account and you get hit up with something big. I don’t mind going this route but a $5000 deductible is a lot to swallow if you don’t have the money to cover it.
On the other hand I like how your employer contributes towards your HSA account and helps you build it up. I’ve often suggested going this route with my companies health insurance plan but none of them ever seem interested in it.
The value of your account actually doesn’t matter when it comes to your expenses. So let’s say you have 2k in your HSA and you spend 5k (2k from hsa, 3k after tax money) to hit your deductible this year. Over the next two years you could contribute 3k and pay yourself back tax free. That is the great part about HSA’s! They are super flexible.
Yeah that is an issue if you don’t have the money banked up somewhere to just pull $5k out to cover the deductible. You can always pay with you own money just you lose the tax savings. If you want to use it for a real long term investment tool the idea would be to max out the contributions and not put money from the HSA even when you have medical bills.. To pay them out of pocket and track the receipts for a future withdrawal.
Remember here one of benefits is tax free growth so allowing the account to work over time is the only real way to attain that benefit.
If you goal is simply to lower your costs a bit, then there is an incentive to save up enough to cover you deductible in your HSA so that it is there when you need it. Once you have saved that much in your HSA you can cut your contributions WAY back just to build a little cushion… I did this back when I first got my HSA and didn’t know what I wanted to do with it. The 2nd and 3rd year I had it I didn’t contribute to it nor did I have premiums since I was on the HDHP and my employer covered that plan fully… So my medical premiums were nothing for 2 years so I could save in other places..
Hey Tim, actually that is not true. Even if you don’t have the money saved up in your HSA at the time, you can pay with after tax dollars and then pay yourself back later.
Ex: Let’s say year 1 you contribute 2k to your HSA. On Jan. 1 of year 2 you have 6k worth of expenses and hit your deductible. You pull 2k out of your HSA and then pull 4k out of your bank account to pay for the rest. Year 2 goes by and you replenish your hsa with 2k. Year 3 goes by and you replenish your hsa with 2k more for a total of 4k. You can now take that 4k out 100% tax free since you still have 4k of reimbursable expenses form the beginning of year 2. So you can effectively pay yourself back, that is the beauty of HSA’s and something that most people don’t realize/know about.
If you max out all your retirement accounts including HSA, paying for your medical expenses out of pocket is a way to squeeze even more tax advantaged space. Since you’re basically investing after tax dollars but you won’t have to pay any taxes on the capital gains earned.
Ex 2: If you have $100 in your HSA and you get a doctor’s bill for $100. You can a) pay that with your HSA and invest $100 on your own. Or you can b) pay it with your after tax dollars and you’ll have $100 invested in your HSA. Either way, you have $100 invested but in option a you have to pay taxes on the gains from that $100 and with option b you don’t have to pay any taxes on the gains as long as it’s used for medical expenses.
So let’s say you aren’t maxing out your roth ira, that $100 can be invested in a roth (or 401k) and it would be the exact same treatment as the hsa, but you wouldn’t have the requirement that you have to spend it on medical expenses. And that is why if you don’t max out your retirement accounts, you should pay for your med expenses with hsa money and not after tax dollars.
I had thought about an HSA account many years ago, but I’m too willing to go to the Doctor when I have something bothering me (and because I hurt myself playing sports, working out, and running races far too much), that I determined the savings in healthcare premiums wouldn’t be worth the additional out-of-pocket to meet the higher deductible of an HSA. This is a timely article because open enrollment is about to begin at my office, and I’m sure it is the same for many readers. Just a reminder to consider ALL of the costs, not just the immediate savings in premiums.
This is true but remember that insurance is pooled risk. I actually like paying for all the little things/feel responsible for all of them. Insurance is there though if I need a 50k surgery and that’s how it should be.
The problem with PPO is that everyone on it thinks like you do so they are always trying to get the most they can out of their insurance. But ultimately, these costs will have to be paid by the subscribers the very next year in higher premiums. Why do you think your premiums/your employer’s premiums have gone up for the last 20 years? Just think of all the raises you would have gotten if your employer didn’t have to spend all that money on increasing premiums.