Author Topic: How much is an HSA plan worth?  (Read 1611 times)

NeonPegasus

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How much is an HSA plan worth?
« on: November 09, 2017, 09:48:47 AM »
I am trying to cobble together health insurance for next year. It is looking like it'll actually be less expensive for us to have a small business insurance plan and completely cover our employee's insurance costs than to have a personal plan that covers our family only. Pretty crazy, right?

Anyway, I have been focusing on HSA compatible plans. That is what I've always had. I like the tax deduction and max it out. I track my expenses and don't reimburse myself so that I can use it as a savings vehicle.

That being said, HSA compatible plans aren't always the least expensive. So, what is the value of getting an HSA plan versus not?

For example, I can get a United Healthcare Bronze HMO plan with $6600 individual deductible and 60% coinsurance for $1370.44/mo. This plan has a really good network and has my doctors. It has 60% coinsurance so it is not HSA compatible. It is the cheapest plan I can get and would allow me to cover our employee at our cost.

OR, I could get a Kaiser Permanente plan. It would have a $6550 individual deductible and no coinsurance for $1373.73/mo. That plan also covers our employee at our cost. I'd have to switch doctors for me and my family and drive further to see them. BUT it is HSA compatible.

For comparison, the cheapest personal policy I can get is from KP and has a $6200 deductible but costs $1538.47/mo and doesn't cover our employee.

Anyway, we're talking about paying $3 extra a month for an HSA compatible plan that would require me to drive further and change my docs. How would you do that math to calculate the tradeoff (it'd be $6900 times our highest tax bracket, right?). I'm guessing our bracket would be 25 or 28%, so that's $1725-1932 of tax plus not being able to set aside that much in a tax advantaged account. OTOH, I expect to have healthcare costs other than preventative so 60% coinsurance could mean a 40% savings, which would amount to several hundred dollars at least.

What would you do?

NeonPegasus

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Re: How much is an HSA plan worth?
« Reply #1 on: November 10, 2017, 07:33:37 AM »
Bump.

Seriously, no opinions on this? I can't be the only one in this boat, trying to debate between health insurance plans!

terran

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Re: How much is an HSA plan worth?
« Reply #2 on: November 10, 2017, 08:47:45 AM »
I suppose you could say it's worth the difference in your marginal tax bracket now vs expected marginal tax bracket in retirement. So if you're in the 25% bracket now, expect to be in the 15% bracket in retirement, and have a family plan, then it would be worth $6900 x (25% - 15%) = $690.

Since you own a business, if you could figure out how to set up a section 125 cafeteria plan you could also make contributions exempt from FICA, so that's another 15.3% savings for you, and 7.65% for the business on any contributions you could convince your employees to make. I have no idea how hard it is to set that up or how much it would cost. I would probably start with your payroll processor.

*edit, not sure why I was thinking you'd have to pay tax on the way out (although that's the minimum you'd save even if you don't have medical expenses), since as long as you have medical expenses to support the withdrawals you'll actually be saving your whole current marginal tax bracket.
« Last Edit: November 10, 2017, 08:50:39 AM by terran »

MDM

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Re: How much is an HSA plan worth?
« Reply #3 on: November 10, 2017, 12:01:02 PM »
Might be worth putting your numbers into 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.

NeonPegasus

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Re: How much is an HSA plan worth?
« Reply #4 on: November 12, 2017, 08:54:36 AM »
Thanks for the calcs and spreadsheet referral. Both were helpful.

I got another business quote back for a HDHP that was HSA compatible. It is a UHC PPO plan and it costs only $42/mo more than the cheapest KP HMO plan but it has a much better network. I think it's worth it to me to maintain our network and doctors while still getting to us an HSA.

miniwrite

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Re: How much is an HSA plan worth?
« Reply #5 on: November 13, 2017, 06:21:29 PM »
I'm sorry you haven't gotten more responses! I have been noodling this question, too.

My husband and I are both self-employed and I think the HSA is worth a LOT to business owners. Why? First, you can deduct the premiums no matter what plan you choose, as a business expense. Whichever bronze plan you have, you'll also have a deductible to meet. Without an HSA plan, you won't get any tax benefit for any expenses you pay up to that deductible.

However, if you run your out-of-pocket expenses through the HSA, they are tax free. So the plan is worth:
Your combined tax rate (federal + state + self employment) x Your expected out-of-pocket medical expenses for the year.. That's your extra $$ for choosing an HSA.

Someone please correct me if I'm misstating the math/ dollar value here.

I actually compared a bronze plan with HSA and a silver plan without. Amazingly, the bronze plan was cheaper whether we barely used it, used it an average amount compared to previous years, or maxed it out on one or two people. (we have a 4-member family). The HSA tax-savings was an added bonus!

What I also like about the HSA (compared to an FSA for medical) is that you can just put money it in as needed. If you have a $300 doctor bill, you can deposit that amount into the HSA, then claim it and take it right back out. However, if you have NO medical expenses (Ha! Right!), you don't have to put any money in the HSA.

Also, you don't lose your HSA money at the end of the year if you haven't used it.

Singularity

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Re: How much is an HSA plan worth?
« Reply #6 on: November 13, 2017, 06:31:27 PM »
Additionally you have tax free money going both into and out of HSA accounts.  Its the only option with those double tax benefits.

Beyond your tax rate savings, run the numbers for paying out of pocket and then reimbursing yourself 5 years later when your HSA is invested in Vanguard Total Market (VTI).  You have 5 years or more of say 6% growth compounded.
Your literately paying a faction of the price for healthcare.

Check this analysis out: https://www.madfientist.com/ultimate-retirement-account/