Double check my health plan math

[Paul der Krake]

My wife got a new job and we’re trying to decide which health plan(s) to go on. We are both healthy with no near-term plans for pregnancy or any other major expense. Things could change, but we currently are in the 28% bracket, and can’t deduct FICA taxes from the HSA contributions.

Mr Krake (plan 1):
HSA eligible, $1,300/$2,600 deductible.
Cost: $30/month for me, or $170/month for both of us. If it’s just me, my employer puts $500 in the HSA. If it’s both of us, $1,000.

Mrs Krake (plan 2):
Normal plan, not HSA-eligible, $600/$1,200 deductible.
Cost: employer pays the entire premium for both of us.


Here’s my math:

Both on plan 1:
Premiums 170 * 12 = 2,040
Minus employer HSA contribution of 1,000 = 1,040
Minus tax savings of 28% of the remaining space in a family HSA:
1,040 – (6,750 – 1,000) * 0.28 = -$610
Minus tax savings of 28% on the premiums:
-610 – (2,040 * 0.28) = -$1,181

Each on our respective plans:
Premiums 30 * 12 = 360
Minus employer HSA contribution of 500 = -140
Minus tax savings of 28% of the remaining space in individual HSA:
-140 – (3,400 – 500) * 0.28 = -$952
Minus tax savings of 28% on the premiums:
-952 – (360 * 0.28) = -$1,053

Both on plan 2:
Premiums 0
No tax savings whatsoever: $0

What do you guys think? Am I overlooking something else? It feels weird to deduct the cost of tax that I would have paid if it weren't spent on the premiums…

Also, if there is a doubling of the HSA space by Congress, that's a ton more tax savings.

[rubybeth]

I'd want to know what the deductibles are--imagine worst case scenario, you're both in the car when hit by a truck and both need ER and hospitalization. What's the deductible and maximum out of pocket?

[Paul der Krake]

I wrote the deductibles on each plan description in my original post.

Both worst case scenarios, past deductible, are roughly equivalent in dollar amounts and can be cashflowed with almost no repercussions to our financial health. Less than one month of normal savings.

On the slim chance that we are in a bad car crash, having to work an extra month to be "made whole" will be the last of our worries.

[Spork]

Posting to follow.   I'm a huge fan of HSA's... but I'm also a huge fan of "pay no premium".  I'd like to see the math to justify one vs the other.

I think you might also want to quantify the savings compounding on the HSA with some assumptions like "expenses will be paid out of pocket while HSA nest egg grows for 10 years" (or whatever assumptions you have).

[Paul der Krake]

I think you might also want to quantify the savings compounding on the HSA with some assumptions like "expenses will be paid out of pocket while HSA nest egg grows for 10 years" (or whatever assumptions you have).

Yeah, putting a dollar amount on that is effin' hard. Because we'd just be investing the little health expenses we have in taxable, so really it's only the difference in the tax-advantaged space vs non-tax advantaged space, which has variable tax rates over the years, etc.

And then you have completely crazy stuff like trying to value having that money in an account typically not accessible to creditors...

[MDM]

You could try the 'HDHP Analysis' tab in the case study spreadsheet. 

Some other considerations:
- Out of Pocket Maximums for each plan
- How much you would contribute to a Flexible Spending Account if using the non-HDHP option

Good luck!

[Need2Save]

PDK - First, pretty generous employers for both of you - especially your wife! 
Assuming that you anticipate that neither of you or your wife will have any health expenses this year (other than preventive care covered at 100%) than to compare option 1 (both on plan 1) with option 3 (both on plan 2) - consider what your break even point would have to be.  Here is another way to look at it:

Both on Plan 1:   
You Pay in Premiums   $2,040
Tax savings on Premiums (28%)   ($571)
Your effective Premium Cost   $1,469
   
Your ER contributes to HSA   $1,000
   
You contribute to HSA   $1,674
Tax savings on HSA contributions (28%)   ($469)
Your effective HSA cost   $1,205
   
Your total net cost   $2,674 ($1,469 plus $1,205)
HSA money available to you in Pretax Savings   $2,674 ($1,000 + $1,674)

In other words, if you only contributed $1,674 - you would be even.  You paid just as much in premiums and HSA contributions (after tax) as you now have in your HSA.

Under Plan 2 - it is true that you have no premiums paid, and you also have no tax savings, but you also have missed the opportunity to shove $2,674 into a tax favored account.  Above, I used only the family contribution you would need to make personally to break even but you would come out ahead if you are so inclined to put in additional HSA contributions up to the family limit like you suggested in your OP. 

I would go with the HSA option.  I view it as an opportunity to protect those savings in a pretax vehicle for future use letting them grow tax free as well, whether that be 2017, 2018, or 2038. I also assume you know about using the HSA money after age 65 and paying normal income taxes at that point on withdrawals? If you contributed up to the full family limit you would likely be able to invest the HSA balance instead of earning piddly interest.

However, if you are more concerned about healthcare needs and out of pocket costs, than those are additional considerations to factor in (it doesn't sound like they are for you).   Below someone mentioned traditional FSAs, but if you aren't anticipating any health care expenses - you wouldn't be inclined to use a tFSA. 

A few interesting tid-bits in the proposal announced by the republicans this week. The new HSA contribution limits would mirror Out Of Pocket Maximums (not double) and the penalty for using withdrawals for non-healthcare expenses would be reduced from current 20% penalty.  It will be interesting to see if those stick around for final law.

[Paul der Krake]

Update:

After careful consideration, we went with option #2 (each on our own plan).
It turns out that my individual premiums were even lower than $30, and it made a grand total of $50 more compared to plan #1.

We will reconsider our options next year if the tax code/HSA incentives change in a meaningful way.

It also transpired that DW's company pays 100% of dental premiums for both of us. Dental insurance is usually not a good deal, but if it's free I'm not turning it down.