Getting a HSA Account?

It’s the open enrollment season again and next year my wife’s employer will start to offer a high deductible health insurance plan (HDHP). This means we will have the chance to take advantage of the Health Savings Account.

From the material my wife received last week, the high deductible option has $1,000 deductible for a single person and $3,000 for family, meeting the requirement to be eligible for an HSA account, which has a family deductible limit of $2,200 for 2006. The way that an HSA account together with a HDHP can save money in the long term is quite simple: pay less premium with a high deductible health plan and contribute pre-tax money to an HSA account to cover future medical expenses (check out my previous post on how to save money and profit from HSA). For my wife’s high deductible plan, the bi-weekly employee contribution is $33.85. Meanwhile, a basic plan that requires $1,200 in-network annual deductible has a contribution of $70 per paycheck per family. Though we could potentially pay $1,800 more in deductibles, the $940 annual saving on premium is real.

While everything looks good so far, the only catch is having an HSA may mean we can’t use the flexible spending account, according to the Treasury:

My employer offers an FSA, can I have both an FSA and an HSA?
You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a “limited purpose� (limited to dental, vision or preventive care) or “post-deductible� (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

However, this shouldn’t be a serious problem as, if we opt to the high deductible plan, we can contribute up to $5,650 to the HSA and use only a small portion of it to pay our current medical expenses while investing most of the money.

Another concern is the cost of using an HSA and whether it actually financial sense. Before comparing HSA providers, I checked the HSA Administrators’ website (which is recommended by Kiplinger) and found the following fees it charges for HSAs:

• Account setup fee: $ 20.00
• Annual administration fee: $ 39.00
• Mutual Fund custodial fee: .0009 times the account balance per quarter, deducted from account balance
• Resource Bank Debit Card Customers (not mutual funds)
  • $2 per month
  • Checks: $8.25 for 25 checks
• Transfer to Another HSA Custodian: $25.00

While the account setup fee and administration fee seem to be fine, the problem is the quarterly custodial fee which is proportional to the account size. It’s not a big deal at the beginning when the account is simple, but we contribute to the maximum allowed every year and hold the money in the account till we retire, the fee could be significant.

There are still some homeworks to be done before we decide on which plan we want to use and some clarifications from my wife’s employer are also needed. Assuming no big surprises, we are likely to use the high deductible option next year.

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