Concerns about HSAs and healthcare inflation

Just looking for people's thought on this...

So, I have an HSA with Alliant with about $10K in it, currently earning 3-ish percent (though that rate has been dropping steadily). I'm in my mid-30s, relatively healthy, and don't have any recurring healthcare expenditures (other than HDHP premiums, which I pay for separately), so for the most part that money is just sitting in my HSA earning interest.

Here's the question: Given the pace of inflation of healthcare costs (far greater than 3%), what's the best thing to do with the money in my HSA?

Options to consider:
- I can keep it in the highly liquid non-volatile savings account, which is good if I end up needing to withdraw money for healthcare expenses. But if I don't need to withdraw it anytime in the near future, inflation of healthcare costs will slowly eat away at my HSA savings until they're worthless, if the current rate of healthcare inflation persists.
- I could use some or all of my HSA to buy a healthcare mutual fund or ETF (like VHT). This, I suppose, would help me keep better pace with healthcare inflation in the long run, but given short-run volatility of stocks, it could be disastrous if I end up needing to withdraw from my HSA for healthcare expenses anytime in the next 10 years...
- I could, I suppose, consider my HSA to be identical to be an IRA, and nothing more. That is, pay for healthcare expenses out of my regular (non-HSA) savings, and plan on using my HSA exactly as I will my traditional IRA. This, though, would prevent me from benefiting from the tax-free w/drawals for healthcare expenses. (I'm not sure this makes any sense; it's kind of a mental budgeting trick, that maybe doesn't make any difference in the long run.)

[I'll ignore for now the fact the that the idea of investing in a healthcare ETF makes me want to vomit, given my disgust with the way that industry (overall) operates in this country these days. No desire whatsoever to own, support, condone, .... though I suppose as long as I end up buying their products/services in the end, it amounts to the same thing, or at least a similar thing. But that's a topic for a different thread, if anyone wants to have that discussion. For the time being, I don't, so let's steer clear?]

You can also invest other money (such as your IRA, etc) in investments that will benefit from health care inflation.

Or just not worry too much about it.

nergui77 said:
- I could, I suppose, consider my HSA to be identical to be an IRA, and nothing more. That is, pay for healthcare expenses out of my regular (non-HSA) savings, and plan on using my HSA exactly as I will my traditional IRA. This, though, would prevent me from benefiting from the tax-free w/drawals for healthcare expenses. (I'm not sure this makes any sense; it's kind of a mental budgeting trick, that maybe doesn't make any difference in the long run.)
This is the best way if you have the money to pay for on-going expenses.

nycll is correct on how to invest it.

But Rayout has the absolutely key post. Just hold onto all those health care expenses and pay out of pocket for health care costs and then use those receipts to provide tax free income at retirement.

Health care stocks don't keep up with health care inflation. Health care inflation is a boon to health care companies.

There is only one way to lock in health care costs that I know of and its a new product only a few years old. Plus you would probably need to get a lot of buddies together to purchase one of these contracts. http://www.answers.com/topic/health-insurance-futures -- Health insurance futures contracts.

SummerSoFar said: dshibb said: But Rayout has the absolutely key post. Just hold onto all those health care expenses and pay out of pocket for health care costs and then use those receipts to provide tax free income at retirement.

That would work fine and dandy if congress doesn't muck with HSA rules and regs between now and when you retire.

As I am in my late 20's, I am not holding my breath...

If this bill doesn't pass and I'm 90% sure it wont, than I bet HSA rules will only get better.

If the bill doesn't pass, its likely that midterm elections will trend towards the GOP. The Dems don't care much a ton about HSAs and the GOP does. That means that better HSA rules is in play for backroom bargaining. Doing damage to HSA rules is only in play when Dems think they completely run the show(they treat that like an extra bonus). That is what is happening now they think they think they have complete control. They wont make a primary concerted effort on destroying them and throw out there other plans. The care more about public option, subsidies, ending pre-existing condition, etc.

This discrepancy between one party really caring more about expanding them and the other party only mildly disliking them poses a good political future for them if they can get through the next couple months.

If any healthcare bill gets passed years down the road, it will have buried in it provisions that change HSA rules; even if it is a narrow bill. It seems like something the entire GOP agrees on--making tax advantaged accounts better. And they don't stir a huge media controversy when they do it. (Not saying that a media controversy on tax cuts doesn't benefit them, it does)

mshen11 said: if one aleady has a huge HSA, would it be advisable to max out every year going forward given the fact one wont be withdrawing from the account?It depends on 2 things: if you will accumulate enough qualified expenses to withdraw HSA money tax free after you retire, and if the rules will be changed prior to you reach your desirable age to withdraw. To me either one posts a real issue to my strategy. I am sure even if they phase it out in coming years, they will not retroactively change the rules applicable to the money already in the accounts. Just my 2cents.

nycll said: I am sure even if they phase it out in coming years, they will not retroactively change the rules applicable to the money already in the accounts.

They already have proposed to change what qualifies as an HSA qualified expense. Someone who planned out HSA contributions based on $X worth of OTC drugs needed has now "overfunded" their account in a sense. Thus the rules CAN be retroactively applied. Only freeloaders who don't want to pay their fair share of taxes have HSAs anyway.

nycll said: You do know that at age 65 you can make non-medical withdraws penalty free, right?

This provision is subject to change by congress at any time as demonstrated by the House bill to modify HSA qualifying purchases. For all we know at age 65 the HSA will have a RMD with a 99% tax. Congress created a special 90% tax on executive compensation last year so that could be on the table for HSAs as well. The future is uncertain.

tripleB said: nycll said: You do know that at age 65 you can make non-medical withdraws penalty free, right?
This provision is subject to change by congress at any time as demonstrated by the House bill to modify HSA qualifying purchases. For all we know at age 65 the HSA will have a RMD with a 99% tax. Congress created a special 90% tax on executive compensation last year so that could be on the table for HSAs as well. The future is uncertain.LOL, you mean that special tax I said it had no chance of passing after it passed house? Wasn't there a thread on it? My posts are still there.

The sky is blue, the future is uncertain, we all need our own crystal balls.

Xnarg said: tripleB said: nycll said: You do know that at age 65 you can make non-medical withdraws penalty free, right?This provision is subject to change by congress at any time as demonstrated by the House bill to modify HSA qualifying purchases. For all we know at age 65 the HSA will have a RMD with a 99% tax. Congress created a special 90% tax on executive compensation last year so that could be on the table for HSAs as well. The future is uncertain.That's an excellent point.

Congress can indeed reneg on any deals that were created by themselves or by an Administration.

Another example would be how in the 90s, the Administration gave oil companies incentives to develop multi-billion dollar technology to drill for and produce oil in deep-water reserves in the Gulf of Mexico. Just recently, Congress reneged on that agreement, taking back the incentives that were previously guaranteed by contract.

Or consider how the current bill is going to reduce Medicare payments by hundreds of billions of dollars, forcing the elderly on fixed incomes to either go without previously approved medical treatments or to buy their own insurance.

Yes, nothing at all is guaranteed.

Congress giveth and Congress taketh away. Blessed be the members of Congress.