How does an Health Savings Account help in my relative's situation?

Question

I suspect that my relative's situation is not unique. He is 60 years old, living alone, has a full time job that pays 10.15/hour (annual earning about 20,300). His take home pay is about 1300 per month, his health insurance (ACA subsidized) is 90.00/month. After paying his car insurance, rent, food, gasoline, phone, and incidentals he has about 50-60 dollars at the end of the month for bowling and movies. How would an HSA (as proposed by the HC reform plans) really help him?

Answer 1

HSAs as they exist today allow a person to contribute tax deductible money (like a traditional IRA) to a savings account. The funds in the savings account can be spent tax free for qualified expenses. If the money is invested it also grows tax free. This means a discount on your cash health expenses of the amount you would have paid in taxes, which given your relative's income isn't likely to be very much.

As HSAs exist today they must be paired to a qualified High Deductible Health Plan (HDHP). Many plans have a deductible that meets or exceeds the level set by the regulations but many plans waive the deductible for things like X-Rays; waiving the deductible causes most "high deductible" plans to not qualify for HSA accounts.

There are other qualified HSA expenses like Long Term Care (LTC) insurance premiums that can also be spent tax and penalty free from HSA funds.

At age 60 with low income an HSA serves little purpose because the tax savings is so marginal and an HDHP is required. That does not however mean that the scope of HSA availability should not be expanded. Just because this is not a silver bullet for everyone does not mean it is of no use to anyone.

Answer 2

It wouldn't. An HSA is essentially a tax shelter (emphasis mine):

For those that can afford it, the HSA is a powerful tax shelter

It helps anyone that has money, and can put it into an HSA, but if the money isn't there, the HSA serves no real purpose.

Answer 3

I disagree with those that claim an HSA is only useful for those that can afford it. An HSA is useful for anyone that is eligible to contribute to one and also pays their medical bills. This is true even if you are living paycheck to paycheck and have no money left over to contribute! Here's how you do it:

1. You have a qualifying HDHP plan and are eligible to open an HSA account.
2. You open an HSA account and put a small amount of money in it ($5 for example).
3. You wait until you get a medical bill, let's say you get a bill for $100.
4. Instead of just paying the bill, put the $100 into your HSA account.
5. Once the money is in the account, you can either pay the $100 bill directly using your HSA debit card, or if you prefer, take the $100 back out of your HSA and pay the bill with your personal credit card or debit card, etc. (This way you can still get the points on your preferred credit card.)

This way even if you don't have enough money to make regular contributions to the HSA, you still get the tax advantage anytime you make a payment. It's effectively the same thing as regular contributions but without having to guess how much you'll need. You only contribute exactly the amount you need.