Author Topic: HSA vs. HMO Help  (Read 398 times)

cheapinsd

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HSA vs. HMO Help
« on: August 07, 2018, 03:11:48 PM »
Hey everyone, not sure if investor alley is the best location for this post so if you know the forum better than I do, please let me know if it would be better suited in a different topic.

A little background info: In September of this year my wife and I will be having our first child and need to move into our own insurance plan for both of us and the kiddo. We have each been on our parents' insurance until this point (only 25) so I will have to be paying for insurance for the first time. We have a fully funded emergency fund (~$40k, I live in SD and am self employed so I keep it high), we max out 401k's and IRA's, and contribute to a 529. I am trying to figure out the best option for health insurance, but am not sure what the best route would be. I like the low monthly cost out of pocket for an HMO, but also like the tax advantages of the HSA. The issue I'm running into is that the HSA payroll deduction for coverage is 2x that of the HMO per year.

Coverage Information:

Payroll Deduction:

HSA:$336 bi/weekly
HMO: $179 bi/weekly

Plan Coverage details for both are attached.

I'm not really sure how to weigh out the benefit of reducing taxable income now with the HSA, and if that justifies the higher price for coverage. Essentially if I do the HSA I will max out the allowed contribution every year ($7,900) plus the yearly coverage fees ($8,070), totaling ~$16k out of pocket - half of which I have nothing to show for. Any deductible amount I have to cover comes out of the HSA and at least I have something to show if it's not used.

However, if I do the HMO it will cost me $4,300 per year and then if I invest that same $12k into a brokerage account, it will add up pretty quickly even without the tax advantage.

Any insight to all of this or recommendations would be greatly appreciated! If I need to provide more information, let me know and I can do that too!

dandarc

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Re: HSA vs. HMO Help
« Reply #1 on: August 07, 2018, 03:47:14 PM »
Most of the time, the HSA plan is a lower premium, then with the tax deduction, you're likely to come out pretty far ahead if you're healthy. I'm seeing $6900 as the maximum HSA contribution - was $7900 a typo?

Your case is a bit of an odd duck with the premium being higher for the HSA plan - that will eat up a lot of the tax savings you can get by funding the HSA.

Assuming the HMO has providers you find acceptable, I'd probably go that route if it were me.

dandarc

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Re: HSA vs. HMO Help
« Reply #2 on: August 07, 2018, 03:51:01 PM »
One other thing - a lot of times the employer will put some money into the HSA for you. Are you sure that with the HSA plan is just giving you the insurance and you have to fund the HSA fully yourself?

Example - my wife's last employer would put $1,000 into the HSA if you went that route.  If your HSA plan comes with coverage and a couple of thousand or more in the account, then maybe the math swings the other way.

capitalninja

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Re: HSA vs. HMO Help
« Reply #3 on: August 07, 2018, 03:59:51 PM »
Same here. My employer funds the first $1,500 of the HSA if it's a family plan. The contribution limit for this year is $6,900.

I invest as much of my HSA contributions as possible. You have to figure that when you get older that money will come in handy to cover healthcare expenses. If you remain healthy then you end up with a nice IRA.

cheapinsd

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Re: HSA vs. HMO Help
« Reply #4 on: August 07, 2018, 05:49:45 PM »
One other thing - a lot of times the employer will put some money into the HSA for you. Are you sure that with the HSA plan is just giving you the insurance and you have to fund the HSA fully yourself?

Example - my wife's last employer would put $1,000 into the HSA if you went that route.  If your HSA plan comes with coverage and a couple of thousand or more in the account, then maybe the math swings the other way.

That was a typo - it is $6,900.

The question about the employer is a great question and likely what I need to get answered next. I have been working with my wife's HR person, but she seems to know less about all this than I do.

Thanks for the feedback and thoughts!

cheapinsd

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Re: HSA vs. HMO Help
« Reply #5 on: August 07, 2018, 05:52:22 PM »
Same here. My employer funds the first $1,500 of the HSA if it's a family plan. The contribution limit for this year is $6,900.

I invest as much of my HSA contributions as possible. You have to figure that when you get older that money will come in handy to cover healthcare expenses. If you remain healthy then you end up with a nice IRA.

I definitely get what you are saying. However, with the fact that the monthly premium is so much higher I could likely invest and make a much greater amount if I invested the $11k in a brokerage account than I would the $7k in a tax deferred HSA?

I don't really have any evidence to back this up. Any thoughts on how I could run those numbers?

cheapinsd

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Re: HSA vs. HMO Help
« Reply #6 on: August 07, 2018, 05:55:27 PM »

I break down the strategy I use in my blog post on the subject: https://ron-henry.com/why-an-hsa-is-awesomesauce/

Hope it helps.

Great blog post - and definitely makes sense for most people. I think what I am confused with on my wife's insurance is why the premium for this HSA is higher than the HMO... Doesn't make any sense. How can I run the numbers with this specific situation to see which makes more sense?

capitalninja

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Re: HSA vs. HMO Help
« Reply #7 on: August 07, 2018, 06:52:39 PM »
I would double check with HR. I've never heard of the premium for a HDHP being higher than an HMO. It's less expensive for your employer so it doesn't make sense that they're asking a higher premium. The HMO and PPO options have always been more expensive for me and this was at different employers.

Perhaps check to make sure that they're not forcing you to contribute to it as part of the premium? That's the only thing that comes to mind.

It sounds like possibly a mistake on the HR side.

cheapinsd

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Re: HSA vs. HMO Help
« Reply #8 on: August 07, 2018, 07:06:04 PM »
I put together an excel spreadsheet breaking down the different costs for each and long term investment value. Maybe others can use it as a resource or suggest changes that need to be made.

I have an email out to clarify the question on whether part of the HSA premium goes to the actual investment or not. Seems like that will determine what the best option is because if it stands as is, HMO is the clear better option.

MDM

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Re: HSA vs. HMO Help
« Reply #9 on: August 07, 2018, 07:43:54 PM »
I put together an excel spreadsheet breaking down the different costs for each and long term investment value. Maybe others can use it as a resource or suggest changes that need to be made.
You could compare those results with a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the case study spreadsheet as a double check.

cheapinsd

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Re: HSA vs. HMO Help
« Reply #10 on: August 07, 2018, 08:06:04 PM »
I put together an excel spreadsheet breaking down the different costs for each and long term investment value. Maybe others can use it as a resource or suggest changes that need to be made.
You could compare those results with a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the case study spreadsheet as a double check.

Wow... That spreadsheet is AWESOME. Thank you for sharing!