The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FreelanceToFreedom on December 09, 2018, 09:54:34 PM
-
I'm trying to select a health insurance plan through the ACA marketplace and am looking for advice on the most financially sensible option. I like the idea of getting a HSA for long-term savings and for more tax advantaged space, but I'm not sure if it makes sense in this case. I'd appreciate any input!
The basics:
- Mid-20's, overall healthy
- Don't go to the doctor much
- Mostly want insurance against a worst-case scenario situation
- Self-employed, no employer insurance option
- Income 50-65k, so marginal tax rate will likely be 12% after IRA contributions and deductions.
- No state income tax
- Unlikely to qualify for any subsidy
The options:
- Debating between bronze w/ HSA compatibility, bronze w/o HSA, or catastrophic
- Details summarized in the image
- Wondering if the HSA eligible plan is worth the extra premium and worse benefits
The yearly premiums are as follows:
Catastrophic - $2760
Bronze/Bronze HSA - $3420
So right off the bat, that's $660 more for the HSA plan. Which more than negates the tax break from a $3500 HSA contribution, particularly given my low tax bracket and no state income tax.
Plus, this HSA plan does not cover anything before the deductible, while the catastrophic plan and non-HSA bronze plan give the first 3 primary care visits before deductible. That could be easily another $300+ difference in out of pocket costs.
On the other hand, the HSA plan has a lower deductible and out of pocket max, and obviously comes with the benefit of tax-free growth in a HSA.
Any thoughts or input? I appreciate it!
-
You have the same problem I ran into.
In the past, HSA plans were a good deal because premiums were low. Now with premiums so high, not really worth it anymore.
As a self-employed person, you also get to deduct insurance deductibles which is nice.
You could do an HSA plan for 6 months, then switch over the catastrophic plan. Best of both worlds. You get to contribute some to your HSA, then you can save on premiums on the 2nd half of the year.
The catastrophic plans make sense now that the ACA is required to cover pre-existing conditions, so if you have something really bad happen when you're on the catastrophic plan and your close to hitting the maximum they'll pay out, just switch over to the ACA plans during the next open enrollment period.
-
@pmac
Did you mean you get to deduct insurance premiums? I dont believe you can deduct money spent on deductables (as stupid as that sentence sounds)
Interesting, I hadn't thought of switching plans. How does that work? Do you have to do it in 6 month chunks? Would that make HSA eligibility weird if you dont hold an eligible plan all year?
-
You're right, I meant to say deduct insurance premiums, not deductibles. If only!
You couldn't switch plans in 2018 without paying a penalty for having non-ACA health insurance.
Now with the individual mandate (tax, penalty) gone, you can switch halfway through the year (or earlier) to a non-ACA plan (short term health insurance plan).
I believe if you only have your HSA plan for 6 months, you only get to contribute half the allowable amount.
It's important to make sure you have the HSA eligible plan starting in January, and pick it out before the December 15 open enrollment deadline.
With the short term plans, you can pick them whenever you want. They have plans for 3, 6, 9, and 12 months (possibly more).
The way I see it, if you have any HSA plan starting in January for 6 months, and nothing comes up where you have to pay some of the deductible, jump on to a short term plan that's 6 months.
The short term plan will be lower monthly premiums, PLUS if you have something really bad happen during that 6 month period you're close enough to the open enrollment period to jump back on the ACA plans (covers pre-existing conditions).
I think this strategy is the best of both worlds. The HSA plans are more expensive, but you get them during the beginning of the year when you have 12 months ahead of you of something bad happening. Once you're 6 months in, given that you've been healthy, you switch to the short-term plans because now you're closer to the open enrollment period for the ACA plans that cover pre-existing conditions.
I don't recommend going without health insurance, but for self-employed, healthy people this seems to be the best route to get covered, make some HSA contributions and not pay too much in premiums.
Hopefully somebody else can chime in if the plan above isn't a good idea....
-
@pmac
Great, thanks for the information! While it sounds like a good strategy, to be honest it seems a bit complicated for the relatively minor savings/benefits. I think I'll probably just stick with one plan for simplicity's sake.
At this point I'm leaning towards just going with the catastrophic plan, but still open to any input from the community!
-
Yeah, a bit more complicated.
Our HSA Bronze plan is $700/month for a couple and the short term plans are $200/month for a couple, so worth switching halfway through the year.
-
- Self-employed, no employer insurance option
- Income 50-65k, so marginal tax rate will likely be 12% after IRA contributions and deductions.
- No state income tax
- Unlikely to qualify for any subsidy
How much do you expect your AGI after deductions to be? Looking at the state health exchange I can tell that subsidies would start to kick in once you get your income below about $37k, with more subsidy available the lower your income goes below that. Get your income below about $33k and the subsidy makes the bronze plan's premiums cheaper than the catastrophic plan (catastrophic plans are not eligible for the premium tax credits). If you have a $50k gross income, subtracting $3,420 insurance premiums and $3,500 HSA contribution and $5,000 IRA contribution, plus half of self-employment tax, you're getting to be right around $37k. If you can afford to add in some more pre-AGI deductions on the business side such as a SEP IRA or solo 401(k), you could easily dip into the range where the bronze plan might be better in every way. Look into it.
-
- Self-employed, no employer insurance option
- Income 50-65k, so marginal tax rate will likely be 12% after IRA contributions and deductions.
- No state income tax
- Unlikely to qualify for any subsidy
How much do you expect your AGI after deductions to be? Looking at the state health exchange I can tell that subsidies would start to kick in once you get your income below about $37k, with more subsidy available the lower your income goes below that. Get your income below about $33k and the subsidy makes the bronze plan's premiums cheaper than the catastrophic plan (catastrophic plans are not eligible for the premium tax credits). If you have a $50k gross income, subtracting $3,420 insurance premiums and $3,500 HSA contribution and $5,000 IRA contribution, plus half of self-employment tax, you're getting to be right around $37k. If you can afford to add in some more pre-AGI deductions on the business side such as a SEP IRA or solo 401(k), you could easily dip into the range where the bronze plan might be better in every way. Look into it.
I'm not sure what my income will be. Hopefully higher than this year!
Initially I was thinking along the lines you are suggesting. However, turns out it's a bit more complicated.
Also, the calculation for subsidy is complicated, I believe. I think it may be based on the health premiums as a % of your income or something like that. Because I'm young and my premiums are fairly low, I don't qualify for much of a subsidy.
Based on the calculations from my state's exchange website, I'd get a $0 subsidy at anything over $34,000. At $32k I'd get a $27/mo tax credit, and at $30k I'd get $54/mo.
It would be quite difficult to get my AGI that low. And as a freelancer, I certainly don't want any reason to try to make less money!
-
The calculation for the subsidy is based on how expensive the second-cheapest silver plan is as a percentage of your income. The exchange website should calculate it accurately based on the income estimate you provide. I'm not suggesting that you try to earn less money, but I am suggesting that with contributions to a solo 401(k) and IRA and potentially an HSA, you should be able to get your reportable income down to right around what you actually spend minus health care spending because self-employed people can deduct their premiums. How much do you expect this to be?
-
The calculation for the subsidy is based on how expensive the second-cheapest silver plan is as a percentage of your income. The exchange website should calculate it accurately based on the income estimate you provide. I'm not suggesting that you try to earn less money, but I am suggesting that with contributions to a solo 401(k) and IRA and potentially an HSA, you should be able to get your reportable income down to right around what you actually spend minus health care spending because self-employed people can deduct their premiums. How much do you expect this to be?
Understood. I honestly have no idea. Gross income next year could be 50k or could be 75k, and deductions could be 10k-20k+, depending on the mix of roth/traditional and other factors.
I'm also wary of making a lot of pre-tax IRA contributions because that lowers the deduction under the new 199a pass-through deduction.
While I'm not sure what my income will be, it seems unlikely that I'll be able to get it down to a level where the ACA subsidies would be significant.