Author Topic: Is an HSA a 20% instant return?  (Read 6121 times)

unflinching

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Is an HSA a 20% instant return?
« on: March 22, 2013, 03:11:31 PM »
Help a n00b,

Am I thinking about this correctly? Assuming:

1. I contribute to my HSA pre-tax via the cafeteria plan payroll deduction
2. I'm spending 100% of my contributions on eligible health expenses

Then:

I'm not paying income or social security or medicare (15% + 5.6% + 1.3%) = %21.91 on either end.

So did I just get >20% return on my money?


the fixer

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Re: Is an HSA a 20% instant return?
« Reply #1 on: March 22, 2013, 03:28:27 PM »
The tradeoff is you need a high deductible health plan. If you have a lot of eligible health expenses, a non-HSA eligible plan would probably provide more benefits at less cost, especially with an employer paying part of the premium. So for your alternative you should consider how much you'd pay for a more luxurious health insurance plan plus those reduced out-of-pocket costs after tax.

Rural

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Re: Is an HSA a 20% instant return?
« Reply #2 on: March 23, 2013, 06:18:40 AM »
I actually pay less for health care plus insurance if I pay the high deductible plan premiums and have enough expenses to meet my deductible than I would just paying the premiums on the next higher plan at my employer, so for me the HSA and HDHP are a no-brainer. Add in an employer match on$750 of HSA contributions and the tax advantrages and the deal just got sweeter.

I'd suggest running a best- and worst-case scenario for the year with both plans. That's how I figured mine out, and it was a very pleasant surprise.

EMP

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Re: Is an HSA a 20% instant return?
« Reply #3 on: March 23, 2013, 07:08:41 AM »
The premiums on the non-qualifying plan were so high it made the HDHP w/HSA the clear winner. And that was before my insurance went up over 13% in a year.

AccidentalMiser

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Re: Is an HSA a 20% instant return?
« Reply #4 on: March 23, 2013, 07:32:32 AM »
I will merely echo Rural's advice.  In our case, going with the HDHP and HSA was a no-brainer (healthy family, very low medical care usage).

We pay $1000 per year in premiums and get $1200 from my company each year into the HSA, then I get to save an additional $5250 tax free!! 

If you and your family are relatively healthy, the HDHP/HSA is the best deal going, IMHO.

the fixer

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Re: Is an HSA a 20% instant return?
« Reply #5 on: March 23, 2013, 08:18:42 AM »
I'll throw in a counter-example just to balance things out. If you have any kind of chronic condition that requires lots of prescription drugs or frequent doctor's visits a HDHP is a bad deal for you, compared to the subsidized higher-cost insurance. If it weren't for an employer footing most of the bill for higher cost insurance this probably would not be the case.

It also depends on how much your employer is willing to contribute to your HSA.

Accidental Miser, are you sure employer contributions to the HSA don't count toward the IRS annual limit? I thought they did for some reason.

TheDude

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Re: Is an HSA a 20% instant return?
« Reply #6 on: March 23, 2013, 10:26:17 AM »
I'll throw in a counter-example just to balance things out. If you have any kind of chronic condition that requires lots of prescription drugs or frequent doctor's visits a HDHP is a bad deal for you, compared to the subsidized higher-cost insurance. If it weren't for an employer footing most of the bill for higher cost insurance this probably would not be the case.

It also depends on how much your employer is willing to contribute to your HSA.

Accidental Miser, are you sure employer contributions to the HSA don't count toward the IRS annual limit? I thought they did for some reason.

Not necessarily true. My wife and I have the option of 3 plans from her employer and 2 from mine. One of my plan options is an HSA. It has a family deductible of 6K with 100% covered after that. Its also the cheapest option of the 5 plans. The next closest plan is about 1500 more  a year (plus the extra savings on HSA) It has a deductible of 3000 and opm of 9000 with a 20% copay after delectable. Even if you are to have a chronic condition I think when you do the math its cheaper to do the HSA than any other plan.  You may have to lay out 6K but then everything else is covered.

LizzyBee

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Re: Is an HSA a 20% instant return?
« Reply #7 on: March 23, 2013, 10:39:54 AM »
Wouldn't an additional benefit of the HSA be the large stash you could build now so that when you do retire early and have to self-insure you wouldn't have to worry so much about picking a cheap plan with a large deductible?

AccidentalMiser

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Re: Is an HSA a 20% instant return?
« Reply #8 on: March 23, 2013, 04:26:49 PM »
Accidental Miser, are you sure employer contributions to the HSA don't count toward the IRS annual limit? I thought they did for some reason.

The employer contribution counts toward the annual limit which is $6450 for this year.  5250+1200=6450

mikefixac

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Re: Is an HSA a 20% instant return?
« Reply #9 on: April 02, 2013, 10:08:11 PM »
What if you have a HDHP and HSA and then you have need of lots of medical attention in the ensuing years? Would you be able to go to a higher cost plan with lower or no deductable?

Hotstreak

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Re: Is an HSA a 20% instant return?
« Reply #10 on: April 02, 2013, 11:33:01 PM »
What if you have a HDHP and HSA and then you have need of lots of medical attention in the ensuing years? Would you be able to go to a higher cost plan with lower or no deductable?

Absolutely! You need a qualifying plan to contribute, but can use the funds later while under any plan.

trammatic

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Re: Is an HSA a 20% instant return?
« Reply #11 on: April 03, 2013, 01:25:40 PM »
But back to the original question, I just wanted to make sure I'm thinking about the tax benefit correctly, it really is like a 20% return on your money. For example, I'm thinking of replacing my dental plan with equivalent contributions to the HSA and paying out of pocket, but the only issue is I don't know if there is an hdhp-like plan for dental -- out of pocket dental prices are like 30% higher than insurance-negotiated prices...

Yes, you're thinking correctly.  Don't forget any state income taxes as well, since most of that is deductible under state tax laws also.  You only need the HDHP to qualify for the HSA, and you can use the HSA money to pay for dental and/or vision claims as-is.  In other words, you can keep your current dental plan (or not), and then pay co-pays from the HSA.  Vision is the same.

RadicalPersonalFinance

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Re: Is an HSA a 20% instant return?
« Reply #12 on: April 03, 2013, 06:44:13 PM »
Mad Fientist wrote a good article on these from an FI perspective: http://www.madfientist.com/ultimate-retirement-account/

teen persuasion

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Re: Is an HSA a 20% instant return?
« Reply #13 on: June 17, 2013, 08:51:39 PM »
It can be more than a 20% return.

We've got kids, and after maxing DH's 401k, we are eligible for the EIC.  The phase out rate is something like 21%, + our state matches EIC at 30% of federal EIC, for another 6.3%, state income tax is 4%, plus federal (for us) 10% and FICA 7.65% for a total of 48.95%.