How My Vasectomy Bought Me a Round Trip Flight to Italy
*Or: why you really really should have an HSA account*
If you already have an HSA that you max out and use as a triple-tax-proofed investment vehicle, you can feel free to skip this article, because you already know the goodness that is an HSA. If not, please read on.
Back in 2011 our lovely second child was born. We both knew that two kids were enough — sleepless nights and exhausting days with a newborn helped confirm that — so I agreed to go under the knife.
One could naively assume that health insurance would be willing (eager even?) to protect against future costs by getting their enrolled members spayed and neutered, but I had assumed incorrectly. Because we had a High Deductible Health Plan+HSA (HDHP), the charge for this 7-minute procedure was $988 out of pocket. Ouch, the charge was more painful than the actual procedure.
Luckily we had enough cash on hand, so we put that bill on the credit card and moved on with life and changing diapers. In other words, I could have taken $988 out from our HSA to pay the bill, but instead I let that money ride. After all, those HSA funds are invested in a mutual fund that tracks the stock market, and dividends automatically reinvest.
Fast forward to 2019: I’m working less but parenting more, our daughter is 8, and we want to take a trip to Italy. Reaching into the file cabinet I pull out the dusty red folder labeled “HSA Receipts” and there it is, the $988 vasectomy bill, more than enough to cover my roundtrip flight to Rome. Important point #1: You can redeem HSA receipts at any time — now or in the future — so I figured that 8 years after the procedure was as good a time as any.
But here’s the magic of the HSA at work. That $988 had been sitting in a mutual fund for 8 years. Point #2: HSA money in a mutual fund grows: Dividends have been getting reinvested, values have compounded and grown, and time has smoothed the market ups and downs into a steady appreciation. In fact, that $988 had grown to be $2,035! After taking out the tax-free disbursement that covered the surgery cost, I was left $1,047 of earnings still in the account. The money is still there, growing, waiting to offset a future healthcare expense. That is $1,047 of money that I never put into the account, $1,047 that sprouted and grew there through the tax loophole that is an HSA, and that continued to grow while I sipped Campari on the Amalfi Coast.
Please put money into your HSA every year, because point #3: the contribution is tax-deductible. If you have a big medical bill and the only way to pay it is with your HSA, I totally get it, and you totally should use the account that way. But if there is a way for you to pay out of pocket instead and leave that money in your HSA, please do so. Keep the healthcare receipts, let them get dusty for 8 or 10 years, and let the money compound in your HSA, tax-free. Your future self with thank you for it!