Weekend update

Tomorrow is the beginning of the Federal Benefits Open Season for next year.  The Wall Street Journal this weekend emphasized the tax benefits of enrolling in a high deductible health plan with a health savings account feature. This option is only available to folks who have not reached the age for Medicare eligibiity (and a federal court has ruled that you can’t opt out of Medicare Part A in order to maintain enrollment in an FEHB high deductible health plan with an HSA.

The HSA “is the most tax-favored savings vehicle in the tax code,” says Leo Acheson, a senior analyst at Morningstar Inc. who wrote a recent report about HSA. 

As with a traditional 401(k) or IRA, an HSA allows you to set aside money without paying federal or state income taxes on it. Money in HSAs grows tax-free and, if used now—or later—for medical expenses, can be withdrawn tax-free. In contrast, with a traditional 401(k) or IRA, income tax is paid on withdrawals. (Alabama, California, New Jersey and New Hampshire don’t provide a state tax deduction for HSA contributions and Alabama, California and New Jersey also tax HSA earnings.) 

Because of the HSA’s triple tax advantage—the upfront tax deduction, tax-free growth and tax-free withdrawals for medical expenses—experts recommend that those who can afford to contribute to both an HSA and a 401(k) kick in the maximum to both. 

For a 401(k), the current annual limit is $18,000 for people under age 50 and $24,000 for older investors—numbers that will rise to $18,500 and $24,500 in 2018. The annual caps for HSAs are $3,400 for individuals and $6,750 for families in 2017 and $3,450 and $6,900 in 2018—with those who are 55 or older permitted to kick-in an extra $1,000.

If you have a spouse who is 55 or older and has no coverage other than your FEHB plan, he or she can create his or her own HSA into which your spouse at least can make the spouse’s catch up contribution. The details are found in this Kiplinger’s article. (Of course, please check with your tax advisor.)

The Journal also had an article on how to get the most out of your HSA.

If your goal is to leave your contributions in the account for retirement, it is important to have a system to keep track of the money you spend out of pocket for current medical expenses. By saving your receipts, you will be able to file for reimbursement from your HSA at any time and create tax-free income in retirement. 

Before resorting to a shoebox or file cabinet to store your receipts, check whether your HSA provider offers an electronic repository; many, including Fidelity Investments, do. And make sure your heirs know where you keep the information. Spouses who are named as beneficiaries can inherit HSAs tax-free.

The FEHBlog has a high deductible plan with an HSA (and Mrs. FEHBlog now has her own HSA) outside the FEHBP.

Congress is in session on Capitol Hill this week. Here’s a link to The Week in Congress report on last week’s activities there.

The FEHBlog nearly levitated out his Lazy Boy when he read in the Wall Street Journal that

[A] new study [in JAMA Cardiology] analyzed data for 115,245 Medicare patients hospitalized for heart failure at 416 hospitals between 2006 and 2014. Hospitals chosen for the study were part of a separate American Heart Association effort to reduce heart failure readmission rates. 

Researchers compared hospital readmission and mortality rates before the Affordable Care Act passed in 2010 and after penalties took effect in late 2012.

One in five heart failure patients returned to the hospital within 30 days before the ACA passed. That dropped to 18.4% after the penalties. Mortality rates increased from 7.2% before the ACA to 8.6% after the penalties, or about 5,400 additional deaths a year for Medicare beneficiaries not in managed care plans.

How do you like them apples? OPM also strong incents FEHB plans to avoid hospital readmissions for any cause.