It’s almost annual health care benefit enrollment time and I’ve been mulling an HSA (Health Savings Account) post for just this occasion. I’ll lead with my heavily reworked HSA spreadsheet and graph. Story follows.
My first HSA experiment began in 2011 and lasted all of 2.33 years. This experiment was doomed from the start but I still learned a bunch from it. My employer was going to incentivize a high deductible HSA medical plan with a $500 annual match. I took the bait and signed myself and two children up for the plan. I understood the basics of the HSA value proposition: a significantly lower monthly insurance cost for me and my employer (hence the match bait) offset by a significantly higher family deductible before insurance paid anything. With family HSA plans there are no individual deductibles to meet. Whether one of us or all three of us needed medical care, we had to hit that higher combined family deductible. I liked that the HSA balance didn’t have to be used by year end (plus grace period) as it does in a medical flexible spending account. Any unused funds would carry over to future years. However I didn’t have the cash flow to maximize my contributions and took frequent withdrawals to reimburse myself. I had zero thought of investing my contributions and made all of $4.44 in interest over those 2.33 years. I lost $10.50 in HSA bank service charges that weren’t communicated until they appeared on my statements. And I despise bank service charges.
The children were heavier users of medical care than I forecasted and I punted and returned to a traditional HMO (health maintenance organization) plan for 2013 and 2014. Back to higher monthly insurance costs out of my paycheck but significantly lower medical deductibles and coinsurance. Alimony and child support were still consuming a large portion of my monthly budget and there was no maximizing anything other than my Roth IRA contributions.
2015 brought about the beginnings of my HSA renaissance. Monthly HMO medical insurance costs were soaring and my employer tripled down and offered an annual $1,600 family HSA match. The $800 annual individual HSA match was 1.6x but also didn’t apply to me. The kids were a bit older and in school. Alimony stopped and cash flow improved to fill my 401k tax deferred contribution limit and start some small monthly 529 contributions. I was also able to maximize my family HSA contributions and my employer had switched HSA administrators to wash away the distasteful bank service charges. Never forget.
I still gave zero thought to investing my HSA funds in 2015 and 2016 and they sat entirely in cash earning $1.39 over 2 years. On the plus side we were lucky and healthy enough not to make any withdrawals.
2017 rolled around and I was ready to invest. I had been reading personal finance blogs and books and pulled the trigger on 85 shares of VTI trying to time a sale in the market. One of the children had an unexpected ER bill and I had to withdraw $3k to cover tight cash flow. Mrs. Dress Pockets and I were in an unmarried collaboration but not one where she’d float me cash. Or at least I was too proud to ask. I’m saving my early retirement gold digger chips for a later date. 2017 also brought child number 3 and they landed on Mrs. Dress Pockets’ far superior medical insurance.
2018 and a second purchase of 70 VTI shares and attempt to time the market. Stop doing that. Quarterly dividends began to kick in and crush the minuscule cash balance interest. I did some further research and learned I couldn’t auto invest into VTI from this particular HSA brokerage account but I could into FSKAX. All future paycheck HSA contributions would roll into FSKAX. 2 cents remained for an uninvestible cash balance and I administratively disabled HSA withdrawals and never renewed my expired HSA debit card.
2019 – Child number 4 also on Mrs. Dress Pockets’ insurance.
2020 – Mrs. Dress Pockets’ and I formalized our collaboration with elopement at the beginning of the global pandemic.
2021 – I optimized annual enrollment to cover only 1 of 4 children with my HSA family plan. Hopefully the least accident prone and lowest consumer of medical care. This maximizes the HSA family contribution limit but minimizes monthly insurance cost and high deductible insurance risk. Mrs. Dress Pockets’ medical insurance charges the same monthly premium for 1 or more children. There is a hotly debated spousal insurance surcharge for spouses that decline insurance from their own employment.
The HSA balance grew and I hatched a plan to try to get the balance to $100k before I pulled the early retirement parachute. It’s a completely arbitrary number and when invested in the US total stock market would return an annual average of 10% or $10k. I could harvest that $10k in annual capital gains to have a perpetual medical expense covering machine. With a $70k balance today, $7k in contributions and $7k in growth in an average year, that’s approximately 2 years of employment away or 4 years of unemployment away
Two last things I’ve learned about HSAs. One is you don’t have to reimburse yourself in the year the medical expense occurred so you can use the HSA as an early retirement account if you pay medical expenses out of after tax cash flow then strategically take HSA withdrawals against those prior year medical expenses in future years. Tax free in, tax free growth, tax free out. Triple win and no early IRA withdrawal penalties to avoid. Secondly most of the HSA high deductible insurance limitations are on contributions. Should I quit and join Mrs. Dress Pockets’ insurance, now without spousal surcharge, we can make HSA withdrawals for eligible medical expenses without needing to keep high deductible insurance. We just can’t make further HSA contributions without switching the entire family over to high deductible insurance.
