How much to save in medical category (high deductible/HSA)?

My husband has a new job and we’re going to switch to a high deductible health insurance plan for 2018 ($3000 deductible  with $6000 out of pocket limit). We’ll also start building a HSA to total $6k in the first year.

We’ll have about $6k coming from his sick/vacation payout. I’m inclined to put it all into the medical category - that way if someone lands in the ER with something catastrophic on 1/1 we’d have the money to cover it without worrying even though our HSA wouldn’t be fully funded until the end of the year.

But - we have lots of other categories I’d have more fun feeding with this windfall and I’m wondering if my plan to top off the medical category with the full $6k  is overkill.  Has anyone else planned for a switch to high deductible plan and have thoughts/experiences on how to best prepare the budget?

Thanks!!

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    • Sara Mitchell
    • live a simple and happy life on a budget
    • saramitchell09
    • 2 yrs ago
    • Reported - view

    How much do you normally spend on medical bills throughout the year? I would use prior years as the starting point before I fully find it.

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      • robinhbl
      • robinhbl
      • 2 yrs ago
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      Sea Green Welder (25a6da8d7c7a) 

      We’ve had $35k this year for my daughter alone - a fluke neurologic episode. And last year $20k between a one-off surgery (me) and ER visit (daughter)  - we’re generally healthy  but random stuff has happened every year the last few years! We’ve had $5k - $20k plus in medical services in each of the past 5 years but none of it is  chronic, just accidents or one time scares. So although in theory we don’t need much, we somehow rack up the bills!

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      • annaraven
      • annaraven
      • 2 yrs ago
      • 2
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      Blue Leopard (7402cc4f6a47) Definitely fill that medical emergency fund then. "Fun" stuff can be filled with other money over time, but you're likely to be using this one. 

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    • WordTenor
    • I'm the oldest and the wittiest.
    • WordTenor
    • 2 yrs ago
    • 2
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    I think if you can afford to spare the money to fund fully, that's a great idea. I sink all my found money into my HSA because I can't quite spare the monthly amount to fund it fully every year. The safety net would be well worth it (and you can always treat the HSA as a backup retirement account.)

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  • For me, having enough cash available to fund up to my full deductible is a serious financial stress reliever.  That transitional year to an HSA is a little sketchy.  I would definitely put that cash into a medical category.  The good news is that if you are able to fully fund his new HSA account from paychecks, you will be gaining on that every month.  So you could potentially make a date in the future (3 or 6 months) to re-evaluate how much you've got in the HSA vs. what your out of pocket max is and then pull some of the money from the medical category then, if you haven't had any big medical expenses in the meantime.  

    I had a year when I was pregnant and on a crazy expensive drug the whole time.  A 30 day prescription cost as much as my entire deductible, so I did have to come up with something like $5k on the first day of my plan year (entire family deductible).  Thank goodness we had cash in our HSA from the prior year available, or it would have been a real issue.

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  • Put the 6k into the HSA. I know, not fun. But here's the thing, you'll likely want to start saving for next years 6k(or plus) this year so that on 1/1 next year you don't have any worries.

    I am in a similar type situation with my medical. I have an OOP of $3,750, I'm only $500 into saving for it for next year. I didn't expect to blow through the full amount a few months ago in the course of a month (routine surgery went poorly, spent 3 days in the hospital. A bill that should have been around 2k total ended up being something like 60k). So dummy me is now scrambling to have at least something of a cushion for next year.  

    My vote is, fund the whole thing, then keep giving it more money until get a nice buffer built in for next years potential bills as well.

    Like 2
  • HSA is a fantastic vehicle for savings.  I highly suggest maxing it out!  In fact, I'm starting a HDP with HSA in 2018 and our deductible is $4000k and our plan is to use savings and contribute to a category in YNAB.    Then if we have an expense I will use that and keep the money in the HSA growing and use the HSA as the ultimate retirement account. I will invest in low cost index funds and have it increase.    I will keep all of my medical receipts so that in the future 5 or 10 years from now I can use the receipts to take the money out.  

    When you contribute to your HSA via an automatic payroll deduction, you are able to avoid paying FICA taxes (i.e. Social Security and Medicare) on your contributions. Assuming your family maxes out an HSA, this could result in an additional $516 of tax savings per year.   Plus, my employer contributes $1200 per year.   There are no other retirement account contributions that are exempt from the 7.65% FICA taxes so this is yet another reason the HSA is the ultimate retirement account.   

    More details here: http://www.madfientist.com/ultimate-retirement-account/

    So here is the cost broken out.  I will have $4000 in YNAB medical category so if and when we need it is there.  HSA contribution limit for 2018 is now $6900 for a family.   My husband's company contributes the $1200 to the HSA on day one.   Then his company only does payroll deductions for the whole year on how much you want to contribute (each company is different on this so ask if you can change it during the year) - pay ourselves first is key.     He is MAXING it out so that $5700 over 26 pay periods before tax so that is $219 and since it is before tax it actually feels like about $200 taken out per pay check.  That's not bad!    Since dental is different then medical we might even use the HSA in the future for braces or dental work, if needed.  The best part it is there available and growing.   I hope this helps!

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    • Jenni
    • Salmon_Elk_c3ef1c05470e
    • 2 yrs ago
    • Reported - view

    My family picked an HSA eligable insurance plan for the first time in 2017. (No heath insurance through work - so off exchange but not through work.)  And, this week, I finally got around to deciding on who to use for the HSA and today, I fully funded it for 2017. I am viewing it as both a medical expense safety net and, if it isn't used, very tax advantaged retirement savings. I would put the "found money" into the HSA. It's not fun but it is the grown up thing to do. Alternatively, compromise. Maybe take $500 (or whatever) off the top for fun and put the rest into the medical category. 

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  • I fully fund ours when we can, but don't actually transfer the money into the HSA account until we need to spend it or it's tax time, whichever comes first. That way we still have flexibility with those fine if something else takes precedence.

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    • Frugalitarian
    • Optimizing spending, one purchase at a time.
    • Sky_Blue_Octopus_990955
    • 2 yrs ago
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    One of the reasons HSAs were made was to restrain people from spending savings on non-health expenses. If you've got good discipline with your budget, you already have that. The tax advantages are the other main benefit, but that also makes your HSA a great investment account for retirement. 

    So you might consider using your HSA primarily as a retirement account, like a 401k or IRA, and build up that medical fund in a regular savings account. If things ever really go south, you can always liquidate some HSA investments and use those for health expenses, but your dollars will be working harder if you pay most of it out-of-pocket. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • 2
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      Sky Blue Octopus (9909553a77bf) I would only recommend that if you could afford it or live in a state that does not tax HSAs like a regular investment account.

      We fully fund the HSA every year, withdraw what we spend, keep our max OOP in the HSA in cash and invest the rest in a US Treasuries fund (because we live in NJ which taxes HSAs like a taxable investment account). We are then able to redeploy our reimbursed funds anywhere we need them, including tax efficient investments in a taxable account where we have 100% control over the buys and sells.

      Also, delaying the reimbursements to retirement can be a losing proposition. $3000 reimbursed now will go further than reimbursing $3000 in a couple of decades.

      And finally, only a spouse can be a death beneficiery of an HSA account. Upon death the balance is 100% taxable to non-spouse beneficiaries.

      So these are all factors to consider in regards to whether to reimburse now or later.

      Like 2
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