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Best Health Savings Account Plans Question & Answers

2016 February 1
by Sarah Fields

Steven asks…

what are the rules of a health care savings account?

who is eligible for health care savings accounts?

Sarah Fields answers:

An HSA can only be contributed to in years you have a High Deductible Health Plan.

See IRS pub 969. Once you have the HDHP and HSA and contribute money to it, the money is pre-tax and is NOT use or lose like an FSA.

Many people have the HDHP through their jobs. This is not a requirement.

Michael asks…

What is a good health care plan for the United States?

This is for a project I am doing and real answers would be appreciated. I have to come up with my own health-care plan, but I would like to have a rough idea of what some everyday people want.

Sarah Fields answers:

1. Tort Reform – Frivolous lawsuits raise malpractice fees and increase “defensive” (unnecessary) tests/procedures
2. Electronic health care records AND a networked system to access the records from anywhere – This will decrease errors in treatment/medication and administrative time in filling out, filing, maintaining, and transmitting records
3. Health savings accounts – The patient is reimbursed for monies NOT spent at the end of the year which will increase patient self-care practices and appropriate utilization of the health care system
4. Standardized billing – The cost of a treatment should be the same whether it is self-paid or paid for by insurance. The discrepancy right now can be as much as 100%. That will drive down costs tremendously.

Thomas asks…

Should I keep my money in savings or pay for school up front?

I’m going back to school and have enough money in savings to pay for the first year up front. I got through my undergrad with absolutely no debt and am not a fan of taking out student loans. I also do not like the thought of wiping out a good portion of my savings though. I know that I will have to take out student loans eventually. I’m just wondering if most would pay up front or take out student loans and keep the money in savings. Thanks for any input!

Sarah Fields answers:

Good question, and difficult to answer. You need to factor in how much cash you are going to be making. First of all, regardless, I would only pay tuition when it’s due (unless you got some sort of discount for paying yearly — which I doubt you will).

From a technical standpoint, you are better off keeping the money in your savings account because your liquid assets are higher (you are safer in case of accident, injury, liability, disaster, disease — etc) and because you are earning interest. With interest rates being SO LOW right now, this is most likely not a material factor in your case. So, in all cases, a person is better off to pay semester-to-semester. Paying for a full year up-front would only be a good idea for a person who is a poor money manager. You sound like you know how to save, so I don’t think this applies to you.

Now, student loans are typically very low APR and payments on them can be deferred until your schooling is over. You will likely be better off taking out a student loan at some point than to deplete or significantly reduce your savings for the same reason that I said above about higher liquid assets.

Think about it: Bill Gates is a rich man, but most likely has more debt than most any other man on the planet. Why would a billionaire take out a loan or have a credit card?

I do not know how much you have in savings or how much your school is going to cost. Let me point out that you do not truly know how much your schooling is going to cost or whether you are going to finish! Those are assumptions, not givens. I also do not know how long your schooling will take, so I’m just going to assume 2 years.

For year 1, pay Semester 1 with cash from your savings, and then pay Semester 2 (when due) with cash from your savings.

At the beginning of Semester 2, start looking for cheap student loan providers. See if it’s an option. Make a plan. Finance all or part of your second year (semesters 3 and 4) with the student loan. When everything is said and done, you will be in a better position to know what to do. If you don’t need the cash, you can pay the loan off in full from your savings. If you realize then that you like having that cushion of savings (liquid assets/cash money), then you can start paying the loan off. Usually student’s defer their loan payments until school is over. It’s what I did. Your choice, but all I have to say is it’s typical for a reason. You’d have to have a really good reason to choose to get it and immediately start paying it back. Those reasons are usually due to the APR being high — but, the point is that if you think you need to start paying it back immediately, the loan idea is probably not so hot anyway.

Having cash in savings is a form of insurance called retention. A person who has enough money to pay for something up-front gets a loan to preserve this form of insurance. (That’s the answer about Bill Gates). You can pay for health insurance or put $500,000 in the bank and let it sit there. Most people choose to pay a premium and be done with it. You can buy life insurance or you can put $20,000 in the bank to bury you and funeralize you. :)

In this case, you would get the loan to RETAIN the ability to pay for unforeseen negative financial issues should they arise. The downside of the loan (having to pay interest) is minimal; interest rates are very low, and you have the ability to pay it off in-full. The upside of having the money in the bank is immeasurable. That could save you thousands; heck, it could save your life. You just can’t quantify (or even fully qualify) what cash-on-hand is worth. That sounds funny, but think about it.

If your car breaks down and you have to get a rental for 2 weeks and pay for it yourself, do you want to have to goto a payday loan place to finance that? Heck no! If you need some more tires, do you want to put those on a 23.99% APR credit card? If you get arrested with a $5,000 bond, would you rather pay some guy $500 to get you out or just post the $5,000 bond yourself? Worse yet, do you want to sit in jail because you don’t have the $500 to get out??? I doubt you’ll be going to jail, but you never know. It’s a colorful example, and I hope all of this helps.

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