Author Topic: Is an HSA worth it w/o the deduction and 2 Rx?  (Read 4047 times)

karaishere

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Is an HSA worth it w/o the deduction and 2 Rx?
« on: November 02, 2015, 01:17:02 PM »
To start, I buy my own health insurance because I am self-employed. I'm a generally healthy 28 year old, but do get sick about once/year (sometimes that results in antibiotics, sometimes it's just a regular cold). I have outdoor allergies and crappy lungs (not a smoker). I do take three medications: allergy nasal spray, symbicort inhaler (expensive brand; alternative generics don't work for me, unfortunately), and birth control (free).  This year has been a little unusually expensive for me, which I'll get into later. Oh, and my husband has insurance through the VA, which I cannot be added to, and he does not currently get good family insurance through his job contract (secondary for him, primary for me, but I digress). Anyway, I recently found out as a self-employed person that I can set up an HSA. I'm thinking this sounds like an awesome way to save up money for future medical costs, lower our tax bill, and also lower my premium. It sounds like lots of wins.

Here's the catch, I read on this FAQ that I might not be allowed to deduct my contributions due to my self-employment.
Quote from: BlueKC
May a self-employed person contribute to an HSA on a pre-tax basis?
Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.

I've read quite a bit of this IRS publication trying to confirm if this is true or not. Maybe I'm just missing the section that talks about it. Does someone here with more experience know?


Moving on from the tax deduction part, I also want to compare my current 2015 plan, to its version for 2016, and the HDHP I'm looking at to get some feedback/advice. Originally, after I moved back to Missouri, I chose a Silver level plan because the cost difference between that premium and Bronze level premium was outweighed by the cost of my prescriptions. The Silver plan has pharmacy co-pays and the Bronze would be OOP. Now that I'm comparing to a HDHP, the Rx costs would be very expensive until I meet my deductible, then a pharmacy co-pay kicks in. I'm having trouble deciding because of all of the unknown healthcare costs.

Plan:                                     2015 silver       2016 silver      2016 HDHP
Deductible (individual):        4200                 5100               5000
OOP Max:                             4200                 5100               6500
Coinsurance:                        0%                    0%                 10%
PCP visits:                            4 free, then Deductible            Deductible, then 10%
Urgent Care:                         "                        "                      "
Specialist visits:                    "                        "                      "
Hospital/ER/Imaging:           Deductible       Deductible       Deductible
Routine Preventative Care:    0                       0                    0
Maternity/Newborn:              Deductible       Deductible       Deductible
Rx copay:                             $4/$65/$120/Deductible         Deductible, then $10/$50/$80/$100

Premium Cost:                     $321                  $352               $266

The first thing that stood out at me was that my deductible will just at high as the HDHP for the cost of nearly $100 more, that's approximately $1000/year difference, which seems like a no-brainer. However, then I considered the cost of my Rx. With the co-pays on my current/roll-over plan, I could expect to pay $828 ($4x12 for the nasal spray, $65x12 for the inhaler). In reality, I spent about $540 this year due to using mail order pharmacy, which saved me more money (and even included some "extra" antibiotics when I got a sinus infection this spring). Using the same mail order pharmacy, my inhaler really costs $865 for 3 months and my nasal spray is $225 for 3 months...that's $4360/year and what I'd expect to pay OOP on the HDHP. That's nearly the whole deductible; one extra illness with medicine would likely hit that deductible. It seems like a pretty bad deal now.

What's making me unsure, is that this year was kind of an odd year for me because it was unusually expensive. I had a sinus infection this spring and injured my knee (on vacation, hiking...), so I've been in physical therapy to avoid surgery. Due to that, I've spent $3063/4200 and I will likely hit my deductible before the end of the year. When I add my Rx costs (doesn't count toward the deductible because of the co-pays) and my premiums that's over $7500 spent (gross) this year. If I compare that to the total premium cost + deductible Rx costs for the HDHP, I would also reach around $7500 without me getting sick or needing any extra care. However, it probably wouldn't be good to hit my deductible faster, if I knew that I wasn't going to get sick/injured like this every year (which I don't expect to). Right?  Of course, I wonder if the tax benefit is possible, then would it be worth it? Am I missing out on not having the HSA growing for the next 40+ years? I mean, I do have other retirement accounts.


I think I'm going to stop here. You and I can both see that I'm kind of confused. Thoughts? Advice? Face-punches?

Malum Prohibitum

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #1 on: November 02, 2015, 01:58:01 PM »
You can still deduct it.  You need to read that answer more carefully.   It is saying that it is not something you can use to avoid SECA (Self Employed Contributions Act) taxes.  It is still a deduction on your income taxes.  An above the line deduction means it is deducted as part of calculating your AGI.  In other words, you do not need to itemize to take this deduction.
« Last Edit: November 02, 2015, 02:04:24 PM by Malum Prohibitum »

Spork

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #2 on: November 02, 2015, 02:29:06 PM »

And my reading (not a lawyer, not a tax accountant) is that the HSA deduction counts towards your MAGI.  In other words: a married couple gets $6,750 closer to the various magical FPL levels of the ACA subsidies by maxing out an HSA.

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #3 on: November 02, 2015, 05:54:40 PM »
You can still deduct it.  You need to read that answer more carefully.   It is saying that it is not something you can use to avoid SECA (Self Employed Contributions Act) taxes.  It is still a deduction on your income taxes.  An above the line deduction means it is deducted as part of calculating your AGI.  In other words, you do not need to itemize to take this deduction.

Thanks for clearing that up and for confirming my own assessment of HSA contribution deductibility!

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #4 on: November 02, 2015, 10:15:29 PM »
We have an HDHP family plan and an HSA. We bought it ourselves on the exchange.
We can still deduct our contributions on our taxes, but we still pay taxes on it as income first.
Still worth it- absolutely.

As someone said, it brings your MAGI down, which can be good for your income taxes, but also any subsidies you might qualify for on the exchanges are based on your MAGI.

When you do the application, it asks you what your last year MAGI was, and you can subtract what you intend to put in your HSA for the upcoming year. Does that make sense?

Ex. last year MAGI was 65K family maximum HSA contribution for 2016 is$ 6750. Use $58250 as estimated income for application. That can help if you qualify for subsidies.

another benefit, you can invest the HSA contributions, and reimburse yourself anytime in the future for medical expenses, or spend them as you go. 

IME, with our HSA, there is a separate deductible for prescriptions. We dont pay full price for the 3 my husband takes daily. He takes 3 heart medicines, and we paid about 300$ for all of our prescriptions this year, and that includes ear infections (2) and maybe another antibiotic or something. and they dont go towards our deductible.

Hope this helps.

johnny847

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #5 on: November 02, 2015, 11:10:26 PM »
I've got nothing to say with respect to the HSA, but since you mention you're buying health insurance from the marketplace as a self employed individual:
http://forum.mrmoneymustache.com/welcome-to-the-forum/some-tax-humor-for-you-guys-(and-of-actual-interest-to-some-self-employed)/


mandy_2002

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #6 on: November 02, 2015, 11:51:12 PM »
I know that worth my HDHP I get a negotiated rate for any prescriptions that I purchase. Are you certain that these would be your negotiated rates? My pharmacy benefits take into account the difference in effectiveness with some brand / generic choices. Yours may possibly do this as well?

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #7 on: November 03, 2015, 07:14:28 AM »
Thank you everyone! I really appreciate the responses and patience with my questions.

You can still deduct it.  You need to read that answer more carefully.   It is saying that it is not something you can use to avoid SECA (Self Employed Contributions Act) taxes.  It is still a deduction on your income taxes.  An above the line deduction means it is deducted as part of calculating your AGI.  In other words, you do not need to itemize to take this deduction.

Thanks for clearing that up and for confirming my own assessment of HSA contribution deductibility!

Yes, thank you for clearing that up! That definitely explains when when I was googling I was getting two different answers.


And my reading (not a lawyer, not a tax accountant) is that the HSA deduction counts towards your MAGI.  In other words: a married couple gets $6,750 closer to the various magical FPL levels of the ACA subsidies by maxing out an HSA.

That's what I was hoping to hear. ;) However, my insurance will be individual, so I can only contribute $3350 to my HSA, right?

We have an HDHP family plan and an HSA. We bought it ourselves on the exchange.
We can still deduct our contributions on our taxes, but we still pay taxes on it as income first.
Still worth it- absolutely.

As someone said, it brings your MAGI down, which can be good for your income taxes, but also any subsidies you might qualify for on the exchanges are based on your MAGI.

When you do the application, it asks you what your last year MAGI was, and you can subtract what you intend to put in your HSA for the upcoming year. Does that make sense?

Ex. last year MAGI was 65K family maximum HSA contribution for 2016 is$ 6750. Use $58250 as estimated income for application. That can help if you qualify for subsidies.

another benefit, you can invest the HSA contributions, and reimburse yourself anytime in the future for medical expenses, or spend them as you go. 

IME, with our HSA, there is a separate deductible for prescriptions. We dont pay full price for the 3 my husband takes daily. He takes 3 heart medicines, and we paid about 300$ for all of our prescriptions this year, and that includes ear infections (2) and maybe another antibiotic or something. and they dont go towards our deductible.

Hope this helps.

Yes, that makes sense. I did put our MAGI into their calculator yesterday and we didn't qualify for any subsidies...and we still don't this morning even removing the extra contributions. Oh well, I can't really complain about that problem. I think I'll have to research/call up my insurance to understand the prescription part better. I know that my current insurance doesn't count the Rx toward the deductible.

I know that worth my HDHP I get a negotiated rate for any prescriptions that I purchase. Are you certain that these would be your negotiated rates? My pharmacy benefits take into account the difference in effectiveness with some brand / generic choices. Yours may possibly do this as well?

You make a good point. I know that my insurance currently negotiates rates for other medical things that come straight from my deductible, so why would it be any different for Rx? So, to answer your question, no I don't know for sure that those would be my rates. I also know that the PBM/mail order pharmacy has a list preferred Rx to use and I do save based on that. Not to mention, that my Rx costs were lower than my co-pays this year, which might mean I would get the same rates paying out of pocket too. I'll have to call and find out more because that would really awesome.

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #8 on: November 03, 2015, 07:15:21 AM »
I've got nothing to say with respect to the HSA, but since you mention you're buying health insurance from the marketplace as a self employed individual:
http://forum.mrmoneymustache.com/welcome-to-the-forum/some-tax-humor-for-you-guys-(and-of-actual-interest-to-some-self-employed)/

Thanks for the read. :)

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #9 on: November 03, 2015, 08:04:15 AM »
OMG. Can I face-punch myself? I missed out on the self-employment health insurance deduction every year I've been self-employed since 2010. Well, shit. At least I can make the right choice on my 2015 taxes. :(
« Last Edit: November 03, 2015, 09:12:07 AM by karaishere »

Malum Prohibitum

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #10 on: November 03, 2015, 08:55:36 AM »
OMG. Can I face-punch myself? I missed out on the self-employment health insurance deduction for 2014 and now 2015 because I didn't purchase my insurance through the marketplace exchange.

We moved to Missouri in November 2013 and I didn't replace my Nebraska insurance to something local until May 2014 and I didn't use the exchange. Of course, until now, I was happy with my insurance so I let the plan continue into 2015 (and obviously didn't use the exchange again).

Well, shit. At least I can make the right choice going forward into 2016.
  I do not understand.  I purchase outside the exchange.  I am self employed.  I deduct the cost of premiums.  Would you please explain?

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #11 on: November 03, 2015, 09:10:53 AM »
I do not understand.  I purchase outside the exchange.  I am self employed.  I deduct the cost of premiums.  Would you please explain?

I just came back to edit my post. When I posted I thought that was a newer type of deduction (since ACA went into effect), but I've read more about it this morning and can see it's been around longer than that.

I've never taken that deduction and it seems I should have been since 2010. :(

Malum Prohibitum

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #12 on: November 03, 2015, 09:16:05 AM »
I do not understand.  I purchase outside the exchange.  I am self employed.  I deduct the cost of premiums.  Would you please explain?

I just came back to edit my post. When I posted I thought that was a newer type of deduction (since ACA went into effect), but I've read more about it this morning and can see it's been around longer than that.

I've never taken that deduction and it seems I should have been since 2010. :(
  Then go back and amend your returns.  Time to cash in!

Malum Prohibitum

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #13 on: November 03, 2015, 09:18:32 AM »
Look here: https://www.irs.gov/uac/Newsroom/IRS-Offers-Tips-on-How-to-Amend-Your-Tax-Return

There are three year and two year timelines, so do not delay!

Get those multiple year refunds and throw them into your FI savings!

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #14 on: November 03, 2015, 09:21:40 AM »
I do not understand.  I purchase outside the exchange.  I am self employed.  I deduct the cost of premiums.  Would you please explain?

I just came back to edit my post. When I posted I thought that was a newer type of deduction (since ACA went into effect), but I've read more about it this morning and can see it's been around longer than that.

I've never taken that deduction and it seems I should have been since 2010. :(
  Then go back and amend your returns.  Time to cash in!

I guess it's time to learn how to do that! Annnd now I must track down proof of my insurance payments from 2010-2013.

Malum Prohibitum

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #15 on: November 03, 2015, 09:39:54 AM »
now I must track down proof of my insurance payments from 2010-2013.
  I do not think you can go back to 2010, so this might not be as hard as you think.  You can only go back so far.  There are three year and two year timelines, meaning that is as far as you can go back.  This is bad news for you, as older years are lost.  The good news, however, is that you will not need to go track down evidence of 2010 payments.

Anyway, take a look at the IRS link, and it explains how far back you can go.

karaishere

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Re: Is an HSA worth it w/o the deduction and 2 Rx?
« Reply #16 on: November 03, 2015, 10:15:47 AM »
now I must track down proof of my insurance payments from 2010-2013.
  I do not think you can go back to 2010, so this might not be as hard as you think.  You can only go back so far.  There are three year and two year timelines, meaning that is as far as you can go back.  This is bad news for you, as older years are lost.  The good news, however, is that you will not need to go track down evidence of 2010 payments.

Anyway, take a look at the IRS link, and it explains how far back you can go.

Good to know. I will look at the link. Thanks.