HSA and market volalitity

Health Savings Accounts (HSA) can be invested in the stock market. Over a long enough time horizon, stocks have better rates of return than other investment classes as they have more risk. The idea is that in most years, most people barely touch the medical system so savings can be built up during good years to pay for rare but expensive years in the future.

This same type of logic applies if one is savings for college for a fourth grader or if one is saving for retirement as a mid-career professional. In both cases, the time horizon is long enough that a bad dip is probably going to be long run noise on an upward sloping line of returns. In both cases, the end date is fairly predictable and far enough in the future for intermediate and long run trends to dominate short run swings. As that predictable end-date gets closer, people will often rotate their assets into lower risk and lower return sectors.

Most people who have been diagnosed with cancer today were not planning to be told that they are facing the chance to max out their deductible and incur thousands of dollars of non-covered out of pocket expenses due to lost wages and non-medical accomodations.

Most people who have been hit by a car today were not intended for that to happen.

So what happens when the HSA that was sufficient to cover the deductible a week ago is in the middle of a bad short run swing down?

For the people who ex-ante are lucky and healthy, this does not matter as long run trends will probably dominate. For the people who have consistent high cost chronic diseases, this does not matter either as an HSA is merely a tax device for current income. For people who had no savings, it does not matter either, but for people who had some small assets in an HSA and had bad luck., their luck just got a whole lot worse due to timing issues outside of their control.

Funding CSR and getting something back
What insurers want CSR funded?






10 replies
  1. 1
    David 🎅🎄Merry Christmas🎄🎅 Koch says:

    What are the tax advantages of an FSA account?

    Asking for a friend.

  2. 2
    MP says:

    The strategy we’ve used is to make sure we have enough in cash to cover max out of pocket. Once we get beyond that point, we dollar cost average HSA contributions as dollar cost averaging avoids trading fees for purchases. Over time, if things go well and we don’t need to tap HSA funds, we can increase the aggressivenss of the allocation.

    Bottom line – if I thought I might need the funds this year, I wouldn’t invest them, and if I had high utilization, an HDHP probably wouldn’t make sense unless I was in a really high tax bracket.

  3. 3
    MP says:

    @David 🎅🎄Merry Christmas🎄🎅 Koch: The ability to contribute pre-tax dollars to an FSA is a nice way to lower taxes, but the use-it-or-lose it requirements for FSAs can be a real problem. There are FSAs that can be used for childcare expenses, and those can make a lot of sense since childcare expenses are a lot more predictable than healthcare expenses, so the use-it-or-lose it requirement is less likely to be an issue.

  4. 4
    David 🎅🎄Merry Christmas🎄🎅 Koch says:

    @MP: Makes great sense. Thanks.

  5. 5
    dr. bloor says:

    Particularly since I am self-employed and don’t get any employer contributions, I would never look at an HSA as anything but a pass-through account. If I run up $6500 in medical expenses during any given year, I get to deduct all of it. If I run up $3500 in medical expenses, I get to deduct all of that and throw the extra $3000 into the retirement account, where the year-over-year volatility isn’t much of an issue.

  6. 6

    Over a long enough time horizon, stocks have better rates of return than other investment classes as they have more risk.

    Nitpick: that’s not the reason; they *need* a higher rate of return, because they have more risk – why buy stock, if you can get the same rate of return, with less risk?

    Still, yes, US stock market indexes tend to rise faster than other investments, but especially with frequent bubbles, there’s a lot more risk, especially for people nearing retirement age.

  7. 7

    For people who had no savings, it does not matter either, but for people who had some small assets in an HSA and had bad luck., their luck just got a whole lot worse due to timing issues outside of their control.

    The concept of an HSA is fine if you are an independent contractor, and have the luxury of stashing away some cash specifically to pay for health-related services.

    The way Republicans spoke of it, it also seemed like a backhanded “fuck you poor person, you’re on your own” manner of device.

  8. 8
    Kelly says:

    Our HSA is in a low interest paying account at the credit union. Between deductibles, dental and vision we expect we’ll spend most of this year’s contribution this year.

  9. 9
    Villago Delenda Est says:

    HSAs are bullshit.

    Rethuglicans who propose this are monsters and should be dispatched.

    Tax the living shit out of parasites, and provide health care for all.

  10. 10
    catclub says:

    volalitity

    reminds one of the frenchwoman with five breasts…. sanctity.

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