Math on HSA vs. Higher Deductible

[arebelspy]

Need you all to check my math/assumptions.  :)

Right now I have a plan that costs $965, has an annual deductible of 1k.

To qualify for an HSA, I'd need a high deductible plan with a deductible of at least $2600.

So I could change my plan to have a $5k deductible (then the premium would only be $675), but then I'm obviously risking an extra $4k OOP if I have a major medical issue (going from 1K deductible to 5K).

It looks like the math to me is: $6350 contributed to an HSA in a 25% tax bracket = almost $1600 in tax savings.  Plus the ~300 in premium savings leaves just under 2 grand saved annually, versus paying a 1k premium and no tax savings (I'm rounding for easy math, it's more like $1868.50).

If I save ~2k/yr, but then have to come out of pocket 5k instead of 1k, I'm risking spending an extra 4k when a medical issue does happen.  To make 2k worth of savings save me 4k, I'd have to have a major incident happen no more than every other year (because if it happened every 3rd year, for example, I'd have saved 6k in the meantime, which more than pays for the extra 4k in deductible).

I'm guessing most people have a major medical issue less frequently than every other year, right?  So in that case, it would make sense to go with the higher deductible.

I think the math is right, but let me know if I missed any assumptions on my thinking.  :)

[seattlecyclone]

The math looks right. I would agree that people who are generally healthy tend to have major medical issues rarely. If you or a family member became diagnosed with a chronic condition that required regular care, the math would change.

[Gin1984]

You may need more time in between major medical though, I spend about $1600 in medical during an average year under my high deductible plan with drugs and tests etc.  Granted that is still much cheaper comparing the cost of my PPO vs the HDHP but still a consideration.

[boarder42]

math is correct. HSA is 6750 for 2016 so you're gonna be another 100 to the HDHP side.  and having a major event that will cost you 5k out of pocket is few and far between.  have to re-evaluate when you get ready to make babies though obviously.

also if you're in the 25% bracket.  how are you getting obamacare that cheap in retiremetn?

[Tjat]

I'm assuming those are monthly premiums?

Regardless, I sign off on the math as well. Plus, once you consider the impact compounding and tax advantages have on the HSA value, there's considerably more long-term benefit you aren't accounting for. Being young and of assumed good health, betting on yourself to stay healthy is a logical investment/"gamble".

[boarder42]

I'm assuming those are monthly premiums?

Regardless, I sign off on the math as well. Plus, once you consider the impact compounding and tax advantages have on the HSA value, there's considerably more long-term benefit you aren't accounting for. Being young and of assumed good health, betting on yourself to stay healthy is a logical investment/"gamble".

not monthly or this would easily be a no brainer at 3600 saved annually in premium difference plus the 1600 in tax savings.

[arebelspy]

Thanks for the confirmation everyone!

math is correct. HSA is 6750 for 2016 so you're gonna be another 100 to the HDHP side.

Good to know.

and having a major event that will cost you 5k out of pocket is few and far between.

That's what I'm thinking.

have to re-evaluate when you get ready to make babies though obviously.

Doing that now.  But we're paying those expenses out of pocket, and even a baby shouldn't have 5k healthcare issues every year or two, I wouldn't think.

also if you're in the 25% bracket.  how are you getting obamacare that cheap in retiremetn?

It's an international plan, not an ACA plan.

ACA plan costs ~5k/yr (and we get almost no subsidies, sadly), but as expats we are exempt.  We'll pay for an ACA plan once we're back in the states (if and when).

[PathtoFIRE]

Don't forget that not all major medical expense episodes fall in one calendar year. Car accident at the end of December could mean you are out 10k in deductibles under the HDHP plan. I don't think it changes much from what everyone has said above, but can't entirely forget that possibility.

[arebelspy]

Good point.

[boarder42]

Don't forget that not all major medical expense episodes fall in one calendar year. Car accident at the end of December could mean you are out 10k in deductibles under the HDHP plan. I don't think it changes much from what everyone has said above, but can't entirely forget that possibility.

a major car accident should have car insurance covering the deductible costs related to health care either yours or whoever caused it.

[arebelspy]

Don't forget that not all major medical expense episodes fall in one calendar year. Car accident at the end of December could mean you are out 10k in deductibles under the HDHP plan. I don't think it changes much from what everyone has said above, but can't entirely forget that possibility.

a major car accident should have car insurance covering the deductible costs related to health care either yours or whoever caused it.

The idea applies to any sort of issue where treatment is over several months.

[arebelspy]

I'm trying to do similar calculations, but am amazed at how low your premiums are -- is that due to estimated subsidies?

It's due to this:

It's an international plan, not an ACA plan.

ACA plan costs ~5k/yr (and we get almost no subsidies, sadly), but as expats we are exempt.  We'll pay for an ACA plan once we're back in the states (if and when).

Health insurance out of the states is much cheaper than in the states, cause our medical system sucks.  :P

[TheDudeReturns]

Haha! Not a single plan offered via ACA for 2016 offers a HSA in my area, even though the deductibles are just as high, especially on the bronze plans.

[Cookie78]

I'm trying to do similar calculations, but am amazed at how low your premiums are -- is that due to estimated subsidies?

It's due to this:

It's an international plan, not an ACA plan.

ACA plan costs ~5k/yr (and we get almost no subsidies, sadly), but as expats we are exempt.  We'll pay for an ACA plan once we're back in the states (if and when).

Health insurance out of the states is much cheaper than in the states, cause our medical system sucks.  :P

What are the restrictions, if any, on coming back to the states to visit? Does your insurance cover short term trips to the US?

[TVRodriguez]

I'm trying to do similar calculations, but am amazed at how low your premiums are -- is that due to estimated subsidies?  The un-subsdized exchange plans I am looking at for our family (can't take the subsidy if we sell our apartment next year) are coming in at around $850-1000/month for bare minimum bronze plans (including an HDHP with HSA option, which is actually the most expensive in that range), or $1300/month for a PPO with a 6000 family deductible and 8200 family OOP limit.  The lower deductible plan I am on now (2000 family deductible and I think 4000 family OOP) is $1700/month for a family of four.  Won't be staying on that one....

lhamo, we are on a similar plan to you now ($2000/$4000 single/family deductible at $1967/mo) and I'm currently looking at higher deductible plans ($6500/$13000) for our family with an HSA option and a monthly premium of $1200-1500.  So your $850-1000 looks good from here!  (We don't qualify for any subsidies.)

[arebelspy]

Haha! Not a single plan offered via ACA for 2016 offers a HSA in my area, even though the deductibles are just as high, especially on the bronze plans.

Can't you just sign up for your own, as long as your plan qualifies as a HDHP?  You'd probably rather not have them managing it, but using something like HSABank so you can invest in good funds with low ERs.

What are the restrictions, if any, on coming back to the states to visit? Does your insurance cover short term trips to the US?

Can't be in the US more than 35 days/yr. (need to be out of the U.S. 330 days/yr to qualify as an expat).

It does not, currently, but we could have gotten that coverage for just a bit more.

[Cookie78]

What are the restrictions, if any, on coming back to the states to visit? Does your insurance cover short term trips to the US?

Can't be in the US more than 35 days/yr. (need to be out of the U.S. 330 days/yr to qualify as an expat).

It does not, currently, but we could have gotten that coverage for just a bit more.

Good to know! Thanks.

[Red Beard]

Agree with your numbers

When would open enrollment be?

Assuming international plans function similarly to those in the US, this is a way that further reduces risk of a long term illness eating an entire deductible. If you have an illness or accident that stretches over your open enrollment, you could switch to a more comprehensive coverage with a lower deductible - one that you might have already met for the calendar year.

We have open enrollment in June and there are usually multiple people who make the switch to a lower deductible after finding out they are pregnant or have already paid $2500 towards a $5000 deductible plan and know they have more expenses coming up.

[Brilliantine]

Remember that even after satisfying the deductible, you may have to pay some sort of co-pay until you meet the max-out-of-pocket-per-year number, based on your plan. For instance, my plan has a high deductible of $5000 and a max out of pocket of $7000. After the deductible, I still have to pay a flat fee or 0, 5, or 10% or more co-pay per provider/procedure/service.

[seattlecyclone]

Don't forget that not all major medical expense episodes fall in one calendar year. Car accident at the end of December could mean you are out 10k in deductibles under the HDHP plan. I don't think it changes much from what everyone has said above, but can't entirely forget that possibility.

a major car accident should have car insurance covering the deductible costs related to health care either yours or whoever caused it.

Sure, if someone else is liable for the crash I would hope to be made whole by the other person (or their insurance company). If I caused the crash? No. I don't pay extra on my car insurance for this coverage. I already have health insurance for that, with a deductible that I have already decided I can afford to pay in the unlikely event that I need hospitalization. I don't buy supplemental insurance to pay my health insurance deductible in the event that I get cancer or a heart attack or a non-car injury; why should I buy it for this situation?

[bacchi]

$5k/yr for an ACA plan? Wow. I pay $2700 (no subsidies) and I'm almost 10 years older than you.

You can live anywhere. Change your residence.

[letired]

This post had an interesting comparison of heath insurance plans: http://forum.mrmoneymustache.com/welcome-to-the-forum/i-made-a-spreadsheet-that-graphically-compares-insurance-plans

I'm not sure how much of it applies, but I thought it was a nice way of looking at it.

[arebelspy]

$5k/yr for an ACA plan? Wow. I pay $2700 (no subsidies) and I'm almost 10 years older than you.

You can live anywhere. Change your residence.

I like the no income tax of my state. Do you live in WA or FL, or another state with no income tax?