Health Savings Accounts (HSAs) can be a great way for people to save money on health insurance, especially if you are young and healthy. I looked at compatible high-deductible plans last year but missed some deadlines, and need to start again. I found quotes online as low as $80 a month at eHealthInsurance, whereas I currently pay about $200 a month as part of my wife’s plan. I could even stay with the same company (BlueCross/BlueShield), just with different deductibles.
Now, HSAs are great mainly due to the fact that earnings grow tax-free, and when used for healthcare expenses withdrawals are tax-free too. (I list additional HSA pros and cons here). I think of it as a Health Roth IRA. Accordingly, the ideal way to take advantage of this is to max out the HSA (up to your deductible) when you are young, and not use it. You want to pay out-of-pocket now, and leave the HSA money in some mutual funds to compound away until retirement (when you’ll really need it).
The main problem with this setup is that the last time I looked, there were very few administrators with good mutual fund options. You were usually stuck with just a bank account earning tiny interest, or with some obscure mutual funds with high fees. But I just found out that HSA Administrators now offers Vanguards funds. Some of them are even their Admiral class funds, with even lower expense ratios. For example, Vanguard 500 Index Fund Admiral Shares (VFIAX) has a 0.09% expense ratio.
Unfortunately, there are some fees, like a $35 annual fee and a what amounts to a 0.5% extra annual maintenance fee. I would hope that competition will make this go down in the future.
There are other administrators that allow you to invest in a variety of mutual funds, but I’m not sure what kinds of transaction fees they charge. Sterling HSA says that you can use “any broker or dealer”, while HSA Bank lets you open up a TD Ameritrade Corporate account to trade with.
Of course, I have yet to actually meet a person who has an HSA. Is there something I’m missing or why aren’t these things more popular?