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Comment by i80and | Hacker News Reader

FSAs are insane, conceptually.

"Guess how much money you're spending in a year on healthcare! But beee caaareful: if you guess too high, YOU LOSE IT"

I still used mine while I still had access to one, but it was grumpy-making and was usually almost more trouble than it was worth.

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FSA makes no sense. The money should just go into an HSA and be available whenever needed. Nut just this year. It should just be abolished.

FSA exists in this strange no-mans land of many insurance plans where HSAs cannot go.

I lost some money, or at least had a hard time using it, because I was quoted a price for something, set the FSA for the next year based on that, and then the billing ended up where only some of the price was eligible for FSA.

Combined with the PITA level, there's no way I'm doing it again. I can't see how it's worth my time. One of these three options is very likely:

a) my income level is low, so every dollar counts, but my marginal tax rate is also low, so spending a ton of extra time on this is not worth saving ~ 15% on taxes for health care

b) my income level is high, so my marginal tax rate is high, but saving 40% of taxes for health care is not worth the time, because health care is not a meaningful amount of income

c) my health care spending is high relative to income, and I can deduct health care costs on my tax return. Then I can deduct a lot more than the FSA will reimburse for, and the records don't need to satisfy a third party, unless I'm audited by the IRS.

There are a few caveats with the medical expense deduction.

* It's only a deduction for income tax. FSAs let you save on FICA as well.

* It's an itemized deduction. You only benefit after your total itemized deductions exceed the standard deduction. Fewer people are itemizing nowadays because the federal standard deduction is large.

* There's a 7.5% of AGI floor: you can only count medical expenses that exceed this fraction of your income.

It is a relatively easy fix tbh. You spend on medical bills through the account like you do right now, but the way you fund it is your post tax contributions. At the end of the year the account sends you a statement of what you used and you can use it to get the tax paid on the money back when you file the taxes.

> At the end of the year the account sends you a statement of what you used and you can use it to get the tax paid on the money back when you file the taxes.

If you underestimate the amount you spend by more than the rollover limit, you can't get that money back.

So on top of the broken employer-tied health insurance system, we have gamified the financing of out of pocket medical expenses.

On top of that, if you lose your job part way through the year, you lose the balance of any FSA funds remaining (they belong to your employer - I found that out the hard way).

The comment was about how to fix the current FSA. Instead of funding it with pre tax dollars and then losing it if you don’t use it, you fund it with post tax dollars and then get a reimbursement on your tax filing annually. That way, you can fund it as you need, spend it and then get back the tax because you spent it on medical expenses.

I misread that. Thanks for the clarification.

And if you're wrong on your medical expense paperwork it could be a felony!

Why shouldn't the institutions that do this all day and claim it as their special expertise handle all of this? Why should I even be /capable/ of losing money due to my lack of experience with the system?

The money is forfeited back to the employer. There should be a law that money is now taxed and forwarded to the employee in their regular payroll.

This system is designed to screw over regular consumers.

Like I said, you don’t have to do anything. It’s would be like your W2 as long as you use your account.

What do you mean by 'use the account'? Spend the money? That's the problem. If you don't have enough expenses you just lose the money. That's why I've never used one of these.

Please read the entire thread for the full context which you are missing.

If by "the entire thread", you mean all the ancestors of this comment, I already have.

I'm not sure which of these is supposed to be the context I'm missing. It may be the "It is a relatively easy fix tbh..." comment. I couldn't understand the wording of accounting procedure there.

It’s not great for everyone but if you have kids with braces, family members who need yearly glasses, consistent prescription costs, etc then it is pretty easy and worthwhile.

FSA does have the concept of rollover of up to $600 but its up to the employer to decide. I imagine that full rollover is not allowed because otherwise people would use the FSA to defer some tax payments to end of year. But there are ways they could have handled it better.

I don’t understand why any decision maker in any business in the USA chooses to offer their employees (and hence themselves) health FSAs at all, especially when the much superior in every way Fidelity HSA is available.

All the FSA money in your account is available immediately at the beginning of the year. Ironically that would make it a better choice for anyone with a lot of medical expenses on an HDHP if it wasn’t for the fact that FSAs are capped by law.

As someone who does deal with enough medical stuff to clear the deductible (and sometimes the OOP max) on their normal health plan annually, it’s still much more convenient, again because the money is all there at the beginning of the year when the expenses are highest

My HSA money is also available in the first pay period of the calendar year. It’s up to the employer to decide when they want to contribute it.

That assumes your employer does any contributions to your HSA. And if your employer is sticking you with an HDHP, that’s not always a given. Your own payroll deductions are pay-as-you-go

I think he is saying that if you want your FSA to be $5000 then it’s funded immediately but it gets taken out of your paycheck every pay period.

HSA is funded as you go

FSAs are limited in scope if you have a HDHP by law. Only LPFSAs are allowed. HSAs don’t have that restriction other than you have to be on a HDHP to get it

HSA requires a high deductible health plan, not everyone could afford that deductible.

"To contribute to an HSA, you'll need to be enrolled in an HSA-eligible health plan, also called a high-deductible health plan (HDHP)."

Yup, I agree HSA is superior but depending on your situation (and plans offered), the HDHP can be much more expensive out of pocket[1], even if you're paying with after tax dollars. Sweet spot I think is using a good low deductible plan when it makes sense but having a spouse with an HSA which both spouses can use for expenses.

[1]: or so it seems, I tried to figure this out earlier in the year and the data is just lacking in order to make a perfect decision.

HSAs are only available alongside high deductible plans (HDHP), which aren't necessarily ideal in all situations. FSAs are the only option like that if you don't have an HDHP.

Surely, that is offset by having to forfeit or waste any FSA money not needed by the end of the year. It really only makes sense if you have a minimum amount of guaranteed healthcare expenses every year.

What is the point of having a low deductible when you could put the premium difference in a HSA and use it on either the deductible or something uncovered?

The math on whether you are ahead with the HSA or not is non trivial, especially if you are married and neither employer offers any subsidy when you put your spouse in your plan. HSAs are often better, but it's a very unfortunate math problem, where you carry quite a bit of risk. The HSA contributions from your employer are often nowhere near enough to make it win all the time. If your employer's does, consider yourself lucky. On any given open enrollment, my household has at least 30 combinations of healthcare plans to consider, and that's ignoring dentals, visions and the like

There are some cases where an HSA is unavailable. I've had an employer not offer a high deductible plan. I've had an employer offer a high deductible plan, but the insurer not supply it in my home state.

There are cases where it doesn't make fiscal sense. One employer covered 1x premium/employee(spouses and kids were full rate).

I've never seen the point of HSAs, either. The only benefit is the tax difference. There are (usually unknown, unstated upfront) plan fees that eat into that, and coupled with the higher deductibles and worse plan coverage, you're going to pay more out of pocket. It's never been clear to me if (higher OOP + plan fees) < (tax savings) is true, like they want you to believe.

And it's a time suck.

An employer sponsored HSA is the single most tax advantaged account in the US, and Fidelity HSA have no fees. No FICA tax, no income tax going in, on investment returns, and coming out. Worth tens of thousands of dollars over 20, 30, 40+ years.

If your employer is shitty and doesn’t offer Fidelity HSA, you can also easily rollover the HSA funds to Fidelity every year to avoid the fees.

The coverage for HDHP plans is the same, since it’s the same insurer. The only change is deductible/copay/oop max, which is offset by lower premiums and higher cash flow for younger/healthier/higher earners shouldn’t matter.

HSAs are one of the best accounts and last until death.

Cue that tuba/horn motif from "The Price is Right" (famous for "guess as close as you can without going over")

lol totally agree. At my first job I had one, and totally misjudged. I ended up with an extra thousand dollars left and then had to read the fine print on what to spend it on - ended up buying a 10 pack of acupuncture sessions that I didn’t need but were very relaxing

> FSAs are insane, conceptually.

Indeed. I don’t understand why they cant just make medical expenses tax-deductible up to a certain amount. The effect would be the same. Why do I need a separate account for it, and why do I have to guess how much I’ll need every year (as you pointed out)?

I guess at least part of the answer is that the companies administering FSAs make money out of this system. Sigh.

> I don’t understand why they cant just make medical expenses tax-deductible

We have that, although the deduction only starts after a certain amount which makes it useless to almost everyone.

The issue is that it only kicks in when you itemize your deductions and it has something like a $10k cap. The standard deduction is 15k for a single and 30k married.

Unless you have a bunch of other things to deduct, it's often the right choice to just use the standard deduction.

Unless your a homeowner with a mortgage, then it's almost always better to itemize

Not so much anymore. The standard deduction for a married couple is now above 30k. It would take a large mortgage to pay that kind of interest in a single year. (Principle is not deductible; only interest)

That's going to skew towards blue states and metros.

I’ve only used HSAs. Can you reimburse prior year expenses from an FSA? If so, allocate the amount you sent last year, reimburse on Jan 1st.

HSAs are your money regardless once you have it (except management fees). So you can spend it until it is gone. FSAs are a very specific set aside for a single year of billing, you can neither spend it on a bill for say, December the year before, nor use it for medical care in January the year after.

Unless you have an approved gym membership for which it can be used for ! With 30% discount !!

where "approved" means approved by the FSA plan administrator, not by your doctor, even with prescription? Which gym was this? a large chain? IME very few gyms are approved. (which is bad health policy, considering how good they are at preventative medicine.)

Yea, FSAs are dumb. Luckily nobody forces you to have one. Just get an HSA like a sane person.

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