Health Savings Accounts

  • Thread starter Michael T Wing CPA
  • Start date

M

Michael T Wing CPA

Has anyone found a major no-load mutual fund or online broker
that is offering HSAs ("Health Savings Accounts") WITHOUT the use
of a completely independent trustee or administrator (as was done
with MSAs)???

MTW
 
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E

Ed Zollars, CPA

Michael said:
Has anyone found a major no-load mutual fund or online broker
that is offering HSAs ("Health Savings Accounts") WITHOUT the use
of a completely independent trustee or administrator (as was done
with MSAs)???
My own guess is that it will be awhile before we see how
these things are marketed. Since HSAs will be available to
a larger population (you don't need to be self-employed or
work for a qualified small business that opts in), I would
expect more options this time than with the MSAs. However,
that is going to depend on whether these accounts prove to
be popular or not, as well as how they are perceived.

My guess is that the first ones to show up will still be
closely tied to a health insurer, since the assumption will
be that holders of the account will want it to be treated
"like" an insurance policy--the medical expenses come out of
there once a claim is approved. Of course, that kind of
goes against the economic theory that supported this
device--that individuals would take more control over their
health control costs and negotiate their own discounts with
providers <grin>.
 
M

Michael T Wing CPA

Ed Zollars said:
My own guess is that it will be awhile before we see how
these things are marketed.
FWIW, I just received an email reply from Vanguard indicating
that they had no current plan to offer such accounts. As you
note, time will tell. <g>

MTW
 
H

HW \Skip\ Weldon

FWIW, I just received an email reply from Vanguard indicating
that they had no current plan to offer such accounts. As you
note, time will tell. <g>
Until the marketplace evolves to where major employers are adopting
jumbo group health insurance deductibles, there will be no incentive
for Vanguard et. al. to go to the expense of creating new products.

-HW "Skip" Weldon
Columbia, SC
 
C

Caroline

HW "Skip" Weldon said:
Until the marketplace evolves to where major employers are adopting
jumbo group health insurance deductibles, there will be no incentive
for Vanguard et. al. to go to the expense of creating new products.
Isn't there an incentive to create these simply to get the fees associated with,
for example, any mutual funds which the HSA would hold?

I don't recall the new law mentioning significant restrictions on or barriers to
where these accounts might be opened.
 
M

Michael T Wing CPA

Caroline said:
Isn't there an incentive to create these simply to get the
fees associated with, for example, any mutual funds which the
HSA would hold?
You are right, of course. But the ~real~ question is who will
"administer" the accounts (issue disbursements, maintain records,
etc.).

At the moment you generally have to hire a third party benefits
administrator to do this, thereby resulting in additional costs,
etc. So, the question is, will the mutual funds ever take over
this function directly (as they have with retirement/qualified
plans)?

MTW
 
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H

HW \Skip\ Weldon

Isn't there an incentive to create these simply to get the fees associated with,
for example, any mutual funds which the HSA would hold?

I don't recall the new law mentioning significant restrictions on or barriers to
where these accounts might be opened.
In order to participate in an HSA, an individual must be covered under
a "high deductible health plan", defined as a plan with a minimum
annual deductible of $1000. My point (above) was that until we saw
more high deductible plans, there wouldn't be enough demand to justify
the start-up costs.

Key in this is that setting up an HSA goes beyond merely furnishing
investment facilities - someone is going to have to ramp up to pay
claims, and perform related insurance tasks. Basically I see HSA as
another variation of a self-funded plan.

After that your point is well made - once the demand is there, some
capitalist - god love 'em - will find a way to make a buck. My guess
is that if it happens, the lead will come from the health insurance
side, not the investment side. But since a lot of the regs are still
in process, we can't say much for now.

-HW "Skip" Weldon
Columbia, SC
 
M

Michael T Wing CPA

HW "Skip" Weldon said:
In order to participate in an HSA, an individual must be
covered under a "high deductible health plan", defined as a
plan with a minimum annual deductible of $1000. My point
(above) was that until we saw more high deductible plans,
there wouldn't be enough demand to justify the start-up costs.
Unlike the old MSA rules that called for an oddball combination
of deductible and stop-loss limits that only a specially designed
(and not necessarily affordable) policy could meet, the new HSA
rules appear to allow a large number of CURRENTLY AVAILABLE
policies to qualify (mine does). This is a great improvement.
But, whether the new HSA will prove any more popular than the old
MSA remains to be seen.

MTW
 
T

Tad Borek

HW said:
Key in this is that setting up an HSA goes beyond merely furnishing
investment facilities - someone is going to have to ramp up to pay
claims, and perform related insurance tasks. Basically I see HSA as
another variation of a self-funded plan.

After that your point is well made - once the demand is there, some
capitalist - god love 'em - will find a way to make a buck. My guess
is that if it happens, the lead will come from the health insurance
side, not the investment side. But since a lot of the regs are still
in process, we can't say much for now.
I don't know why this point isn't talked about more, but I view the
MSA/HSA as another mechanism for addressing long-term care issues.
Personal example: given my age and the uncertainty with long-term care
generally I'm not even remotely considering LTCI. But I fund my MSA to
the max. If all continues as in the past, I'll rarely draw from it, so
it will be another source of dollars should my wife or I need LTC many
years from now. Viewed against 20+ years of contributions, the costs of
LTC don't seem as daunting. Tax-wise it's a great deal...the
contributions to the MSA are tax-deductible, as are our health insurance
premiums. The dollars grow tax-deferred and withdrawals will be tax-free.

Over time, I believe, LTCI will be priced more like a bank account and
less like pure insurance. As medicine improves, it becomes more likely
that people will end up needing end-of-life LTC. If that does happen,
then a fully funded MSA/HSA looks to be a viable alternative for the
same individual who, say, favors self-directed IRAs over variable
annuities. They're a decent mechanism for self-insuring LTC (and
late-life medical expenses generally) if begun early enough. And if you
reach a certain age and decide the HSA isn't enough, or you want to
supplement it, you can consider buying LTCI at that point.

This isn't without risks of course (insurability comes to mind). But an
MSA/HSA might become another tax-advantaged bucket in long-term
financial planning, alongside the IRAs that provide for basic living
expenses, and the college funds that provide for education. And if that
happens, then surely the Vanguards of the world will hop in.

-Tad
 
C

Caroline

HW "Skip" Weldon said:
In order to participate in an HSA, an individual must be covered under
a "high deductible health plan", defined as a plan with a minimum
annual deductible of $1000. My point (above) was that until we saw
more high deductible plans, there wouldn't be enough demand to justify
the start-up costs.

Key in this is that setting up an HSA goes beyond merely furnishing
investment facilities - someone is going to have to ramp up to pay
claims, and perform related insurance tasks. Basically I see HSA as
another variation of a self-funded plan.
After that your point is well made - once the demand is there, some
capitalist - god love 'em - will find a way to make a buck. My guess
is that if it happens, the lead will come from the health insurance
side, not the investment side. But since a lot of the regs are still
in process, we can't say much for now.
Michael W. and you are right to point out that somehow ensuring an owner of an
HSA is complying with the law will require some kind of administration. One way
or another, it is going to cost more in general than a person simply owning
shares of a mutual fund. The question to me is who will "shoulder the burden of
this cost."

I think one useful parallel (to those really interested in predicting how this
is all going to pan out) is the fact that one may draw on one's traditional IRA
for certain medical expenses. (I don't remember the regs. on Roth IRAs.) I had
some medical stuff come up a few years ago, and it made sense to take such a
distribution from my traditional IRA. All Fidelity wanted to know was whether I
wanted taxes (penalty and otherwise, I believe) withheld from the distribution.
They asked *me* and no other entity about the transaction. They also gave a
polite but firm caution about making sure it truly was an allowed distribution.
My sense was they were mostly concerned about me getting my taxes straight
rather than trying to enforce the law per se.

Since such a distribution does appear on one's taxes, and presumably Fidelity et
al. must provide info on IRA distributions to the IRS, I think a client's
self-regulation is pretty trustworthy. Dunno for sure.

In short, I don't know for sure but perhaps the IRS will "just" add one more
form that states what was put in and what was taken out of one's HSA, and why.
So the cost to mutual fund and other companies that offer an HSA will be
negligible.

I am surprised at Vanguard's response. It counters my sanguine view above.

Perhaps reviewing the history of IRAs and mutual fund companies might be
instructive.

Aside: I happen to think the HSA is probably a praiseworthy feature of the new
Medicare law. I think consumers do need to think more about the medical
procedures they get, how efficacious these are, what their insurance companies
are paying for these, and so how accepting anything a doctor recommends affects
the consumer's premiums. A mandatory high deductible for anyone with insurance
would tend to force I think largely benevolent market action that separates the
valuable procedure from the worthless one.

Of course, this new law isn't a mandatory high deductible but instead seeks a
partial solution through more capitalist means.
 
G

Greg Hennessy

But I fund my MSA to
the max. If all continues as in the past, I'll rarely draw from it, so
it will be another source of dollars should my wife or I need LTC many
years from now. Viewed against 20+ years of contributions, the costs of
LTC don't seem as daunting.
I thought you had to spend the contents of the MSA every year, or you
lost it. All the eye dr places around here run ads every december
saying "buy new glasses before you lose your MSA dollar" type ads.
 
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T

Tad Borek

Greg said:
I thought you had to spend the contents of the MSA every year, or you
lost it. All the eye dr places around here run ads every december
saying "buy new glasses before you lose your MSA dollar" type ads.
No, it rolls over indefinitely, and works a bit like a traditional IRA
after age 65 - you can withdraw money for any purpose without paying
penalties, but it's taxable at that point.

Some employer-sponsored plans do expire end of year, maybe it was that?
(FSAs - Flexible Savings Accounts - some are referred to as Medical FSAs)

-Tad
 
B

Brent D. Gardner, ChFC

HW "Skip" Weldon said:
Until the marketplace evolves to where major employers are adopting
jumbo group health insurance deductibles, there will be no incentive
for Vanguard et. al. to go to the expense of creating new products.
I'll wager a $1 that the No Help funds never get in this business.

Health insurance, despite being a demand product, remains primarily
distributed by licensed insurance agents (most of whom are registered reps
or RIAs). Funds with high minimums aren't likely to go after this market,
anyway, which is another penalty for the Vanguards of the world.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.
 
H

HW \Skip\ Weldon

I don't know why this point isn't talked about more, but I view the
MSA/HSA as another mechanism for addressing long-term care issues.
Personal example: given my age and the uncertainty with long-term care
generally I'm not even remotely considering LTCI. But I fund my MSA to
the max. If all continues as in the past, I'll rarely draw from it, so
it will be another source of dollars should my wife or I need LTC many
years from now. Viewed against 20+ years of contributions, the costs of
LTC don't seem as daunting. Tax-wise it's a great deal...the
contributions to the MSA are tax-deductible, as are our health insurance
premiums. The dollars grow tax-deferred and withdrawals will be tax-free.
Amen. Plus, unlike FSA, HSA and MSA allow for LTC premiums to be paid
from the account.

-HW "Skip" Weldon
Columbia, SC
 
C

cal-lester

I don't know why this point isn't talked about more, but I view the
MSA/HSA as another mechanism for addressing long-term care issues.
Personal example: given my age and the uncertainty with long-term care
generally I'm not even remotely considering LTCI. But I fund my MSA to
the max. If all continues as in the past, I'll rarely draw from it, so
it will be another source of dollars should my wife or I need LTC many
years from now. Viewed against 20+ years of contributions, the costs
of LTC don't seem as daunting. Tax-wise it's a great deal...the
contributions to the MSA are tax-deductible, as are our health
insurance premiums. The dollars grow tax-deferred and withdrawals
will be tax-free.

Well stated. I have voiced this opinion numerous times, but
to no avail. Unfortunately for me, I am not eligible for either,
in that I over 65. It was not around when I could have used it.

This isn't without risks of course (insurability comes to mind). But
an MSA/HSA might become another tax-advantaged bucket in long-term
financial planning, alongside the IRAs that provide for basic living
expenses, and the college funds that provide for education. And if
that happens, then surely the Vanguards of the world will hop in.

-Tad
An what IMHO is an excellent one.

Cal Lester CLU
 
C

cal-lester

Greg said:
I thought you had to spend the contents of the MSA every year, or you
lost it. All the eye dr places around here run ads every december
saying "buy new glasses before you lose your MSA dollar" type ads.

WHOA.......... Wrong.......
The primary benefit of MSA/HSA's is the income tax free
build up over time.............

Cal Lester CLU
 
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M

Michael T Wing CPA

Caroline said:
Aside: I happen to think the HSA is probably a praiseworthy
feature of the new Medicare law. I think consumers do need to
think more about the medical procedures they get, how
efficacious these are, what their insurance companies are
paying for these, and so how accepting anything a doctor
recommends affects the consumer's premiums. A mandatory high
deductible for anyone with insurance would tend to force I
think largely benevolent market action that separates the
valuable procedure from the worthless one.
I certainly agree as to the benefit of more information being
available to patients and premium payers. However, with that in
mind, I have been trying in vain for the past few weeks to get my
doctor's practice group (affiliated with the county's largest
hospital) to disclose their billing rates for 5 randomly selected
CPT codes, both the rates that would be charged to my current
insurer and the rates that would be charged to me if I had no
insurance. Regrettably, they come up with one excuse after
another as to why I don't need to know that and/or they shouldn't
be required to provide it.

IMO, it is impossible for people to make rational economic
decisions when information is withheld or unavailable. And, I
dare say, if any other industry tried to take this stonewalling
approach, I would expect the FTC to be all over them like a bad
smell.

No wonder our medical system is so screwed up!

MTW
 
M

Michael T Wing CPA

Caroline said:
Aside: I happen to think the HSA is probably a praiseworthy
feature of the new Medicare law. I think consumers do need to
think more about the medical procedures they get, how
efficacious these are, what their insurance companies are
paying for these, and so how accepting anything a doctor
recommends affects the consumer's premiums. A mandatory high
deductible for anyone with insurance would tend to force I
think largely benevolent market action that separates the
valuable procedure from the worthless one.
I certainly agree as to the benefit of more information being
available to patients and premium payers. However, with that in
mind, I have been trying in vain for the past few weeks to get my
doctor's practice group (affiliated with the county's largest
hospital) to disclose their billing rates for 5 randomly selected
CPT codes, both the rates that would be charged to my current
insurer and the rates that would be charged to me if I had no
insurance. Regrettably, they come up with one excuse after
another as to why I don't need to know that and/or they shouldn't
be required to provide it.

IMO, it is impossible for people to make rational economic
decisions when information is withheld or unavailable. And, I
dare say, if any other industry tried to take this stonewalling
approach, I would expect the FTC to be all over them like a bad
smell.

No wonder our medical system is so screwed up!

MTW
 
M

Michael T Wing CPA

Caroline said:
Aside: I happen to think the HSA is probably a praiseworthy
feature of the new Medicare law. I think consumers do need to
think more about the medical procedures they get, how
efficacious these are, what their insurance companies are
paying for these, and so how accepting anything a doctor
recommends affects the consumer's premiums. A mandatory high
deductible for anyone with insurance would tend to force I
think largely benevolent market action that separates the
valuable procedure from the worthless one.
I certainly agree as to the benefit of more information being
available to patients and premium payers. However, with that in
mind, I have been trying in vain for the past few weeks to get my
doctor's practice group (affiliated with the county's largest
hospital) to disclose their billing rates for 5 randomly selected
CPT codes, both the rates that would be charged to my current
insurer and the rates that would be charged to me if I had no
insurance. Regrettably, they come up with one excuse after
another as to why I don't need to know that and/or they shouldn't
be required to provide it.

IMO, it is impossible for people to make rational economic
decisions when information is withheld or unavailable. And, I
dare say, if any other industry tried to take this stonewalling
approach, I would expect the FTC to be all over them like a bad
smell.

No wonder our medical system is so screwed up!

MTW
 
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M

Michael T Wing CPA

Caroline said:
Aside: I happen to think the HSA is probably a praiseworthy
feature of the new Medicare law. I think consumers do need to
think more about the medical procedures they get, how
efficacious these are, what their insurance companies are
paying for these, and so how accepting anything a doctor
recommends affects the consumer's premiums. A mandatory high
deductible for anyone with insurance would tend to force I
think largely benevolent market action that separates the
valuable procedure from the worthless one.
I certainly agree as to the benefit of more information being
available to patients and premium payers. However, with that in
mind, I have been trying in vain for the past few weeks to get my
doctor's practice group (affiliated with the county's largest
hospital) to disclose their billing rates for 5 randomly selected
CPT codes, both the rates that would be charged to my current
insurer and the rates that would be charged to me if I had no
insurance. Regrettably, they come up with one excuse after
another as to why I don't need to know that and/or they shouldn't
be required to provide it.

IMO, it is impossible for people to make rational economic
decisions when information is withheld or unavailable. And, I
dare say, if any other industry tried to take this stonewalling
approach, I would expect the FTC to be all over them like a bad
smell.

No wonder our medical system is so screwed up!

MTW
 

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