Date: Thu, 26 Jul 2007 11:36:24 -0500
From: wyu@talisys.com
Newsgroups: misc.invest.financial-plan
Subject: Re: converting from FSA to HSA
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On Jul 26, 5:56 am, "idp"  wrote:
> while we file a joint return, one of our children is claimed as dependent (under 24)
> and is currently covered by our HMO and FSA as he is a full time student while working
> part time at the university. does that mean he would not be covered by the HSA ?

I think the issue here is people throw around HSA to mean the health
plan also. But in reality, it's a combination of HDP (high deductible
health plan) + HSA (health savings account). The HSA is under your
name -- the HDP plan covers you and your kids. So the rule would be
the owner of the HDP + HSA cannot be claimed as a dependent. For the
people you cover with this plan and use the HSA to pay the
deductibles, their only requirement is that they are not covered by
another health insurance plan.

> the other part the literature mentions is that the money grows in the HSA like an IRA
> but does one have investment choices on this money? or does that refer to just some
> money market like interest paid on the balance?

This is dependent on each HSA administrator. Again, not the health
plan but the people at the bank/mutual fund company that manages the
account. Typically, most HSA administrators will require you to have
about $2000+ or 1 years worth of deductibles before you can transfer
the overage to mutual funds. Some HSA administrators don't have limits
but will charge fees for low money market/savings account balances.
And rare few don't care.

For example, my company is going with Patelco Credit Union. They only
have savings accounts paying 5%+. However, they have no minimum
balance requirement. Since I'm in complete control of the account, I
can at any time transfer any amount I want to Health Saving
Administrators (the company) to buy Vanguard mutual funds. Health
Savings Administrators (the company) is designed to be an add-on
account to your regular HSA account so they don't have any balance
minimums for investments.

> would it also make sense to pre-load a larger contribution to the HSA for the 1st year
> one enrolls and then use that as a "bank" while reducing future years contributions
> slightly ? anything else to consider about HSA rules ?

Part 1: No, you can pay out of pocket and have until forever to repay
yourself out of HSA contributions. So it terms of paying deductibles,
it doesn't matter if you pre-fund or post-fund.

Part 2: Yes, you want as much tax-free growth as soon as possible.
Change your view of the HSA -- it's a super-IRA so fund it before
anything else. It may very well be even better than a 401K w/ matching
(depending on how much match and the quality of investments). When
spent on medical, it's the only tax vehicle that is free from taxes
both on contribution and withdrawal -- hence you are getting matching
from the federal+state government equal to your combined tax bracket.
Employer matching on funds would make it the ultimate retirement
account. Hence, plan your investments around the HSA and aim for fully
funding the HSA every year.