HSA arbitrage opportunity

Submitted by solepropquestion t3_z7hw91 in personalfinance

Background: I have a medical account(MA) similar to an HSA from the pension system that I used to work in. When I left that role, it allowed me to start using the funds for health insurance payments and other medical reasons. The downside is that (MA) grows very slowly with no choices of investments, fixed 2.0% per year, which doesn't keep up with inflation.

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Healthcare coverage historically has been light and I can choose for near equal cost (less than $10 difference monthly) a bronze plan or a bronze HSA eligible plan. I'm considering arbitrage with free cash in choosing the HSA plan and fully funding it, planning to pull health costs out of the (MA) with hopes of the HSA investments (VTI/VXUS mix) growing faster. I've got enough runway in the (MA) for 3-5 years of max out of pocket in the worst case scenario. It gives another lever for MAGI reduction to stay in the desired subsidy band besides solo 401k, profit share, trad ira, qbi, 1/2 se tax, and health insurance costs- if my sole prop work is greater than expected. if it's less, i'll do roth ira conversions to stay above the medicaid band.

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Does this make sense? or am i missing something that blows a hole in the theory?

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Werewolfdad t1_iy6nuqp wrote

>or am i missing something that blows a hole in the theory?

> When I left that role, it allowed me to start using the funds for health insurance payments and other medical reasons.

What does the medical account cover? It sounds like "other coverage" that could potentially disqualify you from contributing to an HSA

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solepropquestion OP t1_iy6vbnh wrote

Covers medical, prescriptions, dental, vision premiums. also covers co pays, deductibles, coinsurance. it does not provide coverage, only a banked pool of money to reimburse medical expenses from

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Werewolfdad t1_iy6vr97 wrote

> tibles, coinsurance. it does not provide coverage, only a banked pool of money to reimburse medical expenses from

That’s essentially what an fsa does, and an fsa restricts your ability to contribute to an hsa.

I’d really consider consulting with a cpa or other professional before enrolling in an HDHP

Edit: This is a 401(h) plan right? I can’t find an answer either way but would really suggest consulting with a professional

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solepropquestion OP t1_iy8bxx8 wrote

as handymanpat referenced, i'm thinking this is an HRA.. though my side keeps calling it a RMA and saying they are not the same.

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TwoTenths t1_iy6o9zl wrote

Arbitrage is maybe the wrong term, you are just expanding your tax deferred space which is a great strategy.

Are you able to rollover the medical account to a personal account with better investment options?

If you are young, the best strategy is to fully fund the HSA, invest it all, and hold on to medical receipts without reimbursing until you hit retirement.

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solepropquestion OP t1_iy6vl1j wrote

unable to roll it over, asked that question. not a young sprout, going into the wrong end of the 40's. it is arbitrage of sorts in my mind. i'm more or less trying to spend down the low interest (MA) while funneling fungible money into the potential higher interest gaining one.

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HandyManPat t1_iy86xjg wrote

You should clarify specifically with your employer/pension contacts, but I suspect what you are describing is a Defined Contribution HRA or a Retiree HRA. (My mother-in-law has one of these as a pension benefit from her prior employer).

HRAs and HSAs have specific interactions that must be coordinated to ensure you can be eligible to participate in both simultaneously. Absent coordination, you can enroll in a qualifying HDHP, but would be ineligible to make HSA contributions due to the HRA availability.

https://datapathadmin.com/hras-and-hsas-at-the-same-time/

Unless your "pension" HRA supports a suspend mode (see #4, in the link above), I don't see how you can become eligible for HSA contributions while the HRA is still funded.

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solepropquestion OP t1_iy8bro6 wrote

thanks for the reply-- werewolf dad's earlier response got me digging this morning. and your links are very helpful as well. now i'm trying to narrow the field as the (MA) calls itself a retirement medical account which they claim is different than an HRA. I'm trying with the pension system to see what they say in terms of classification. also trying to figure out how HRA's are tracked, there's no 1099-sa.

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I'm almost positive i have an HRA based on definition but doing more due diligence, quite possibly looking for a cpa.

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i'm kinda now thinking to go down the path of taking aca subsidies at tax return, to request full premium cost reimbursements from the (MA) and drain it quicker. when empty, possibly doing HSA depending on health.

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