Author Topic: Need help on deciding on what healthcare plan...  (Read 1684 times)

psychomaggle

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Need help on deciding on what healthcare plan...
« on: October 30, 2017, 10:31:39 AM »
My company offers two health plans I'm interested in. One would cost me $1300 per year out of pocket and comes with an HSA. The other plan would cost me $460 per year out of pocket with no HSA option.

I'm young,healthy, and single, so I don't need much in a health plan. I was excited about dumping pre-tax money into an HSA, but I'm not sure it's worth it now. My math:

HSA Plan
1300 /yr
- 250 employer contribution
1050 per year

Non HSA Plan
460 /yr

That's a $590/yr difference in plans.

If I max out the HSA, I'm looking at a tax savings of $552/ yr using my marginal tax rate of 16%. Of course that's just tax savings now. At some point, if I withdraw from the HSA, I will then get taxed, so obviously I'm not saving $552 a year in reality.

Does this math check out? Anything I'm missing? I was just excited to finally grasp the concept of HSAs and was fully intending to max mine out next year, but with this math, it doesn't really seem like much of a difference. It's odd that the company offers a high deductible plan that has such a low cost per month and than the HSA plan with significantly higher out of pocket cost. The higher cost of the HSA plan seems to cancel out the lower cost of the non-HSA plan.
« Last Edit: October 30, 2017, 10:35:34 AM by psychomaggle »

MDM

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Re: Need help on deciding on what healthcare plan...
« Reply #1 on: October 30, 2017, 11:28:30 AM »
If I max out the HSA, I'm looking at a tax savings of $552/ yr using my marginal tax rate of 16%. Of course that's just tax savings now. At some point, if I withdraw from the HSA, I will then get taxed, so obviously I'm not saving $552 a year in reality.
Is 16% a typo for 15%, or is 16% your effective rate, or is that a federal+state+local rate?  Also, withdrawals from an HSA for medical expenses are not taxed.

Quote
Does this math check out? Anything I'm missing? I was just excited to finally grasp the concept of HSAs and was fully intending to max mine out next year, but with this math, it doesn't really seem like much of a difference. It's odd that the company offers a high deductible plan that has such a low cost per month and than the HSA plan with significantly higher out of pocket cost. The higher cost of the HSA plan seems to cancel out the lower cost of the non-HSA plan.
Don't understand the part about "a high deductible plan that has such a low cost per month" vs. "the HSA plan with significantly higher out of pocket cost".  Being covered by a high deductible plan is a requirement for HSA contributions.  What are the differences in deductible between the "high deductible" and "HSA" plans?

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.

psychomaggle

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Re: Need help on deciding on what healthcare plan...
« Reply #2 on: October 30, 2017, 11:45:55 AM »
16% is my effective rate.  I just used this and put in my salary of 80k.  https://smartasset.com/taxes/income-taxes

And yeah, that part doesn't make sense either. I understand only high deductible plans qualify for HSAs, but we have a plan at work that is called "High Deductible" that doesn't have an HSA option. Then we have the "Health Savings Plan (HSA) PPO Plan" with an HSA. The "High Deductible" plan is ~$20 per check and the "Health Savings Plan (HSA) PPO Plan" is ~$75 per check.

Just seems I'd rather pay $40 a month for health insurance than $150. And sock away the extra $110 a month in investments than mess with all this HSA stuff for little to no benefit.

Thanks for those tools. I'll check em out.

rugorak

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Re: Need help on deciding on what healthcare plan...
« Reply #3 on: October 30, 2017, 12:15:53 PM »
Something doesn't really add up to me. As the previous posters said the HSA plan should be cheaper than the non-HSA plan. Double check with HR to see if there isn't a typo or that you are missing something. But yeah without a super big crunch of the numbers it seems like the high cost of the HSA plan outweighs the tax benefit. Which again is why it seems wrong to me.

Acastus

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Re: Need help on deciding on what healthcare plan...
« Reply #4 on: October 30, 2017, 12:28:54 PM »
As long as you use your HSA for future medical bills, the money will never be taxed. So your tax savings are real. Single filers are in the 25% tax bracket starting at roughly 45k gross income. The tax savings are probably bigger than you think. It does seem odd that the lower coverage HSA is higher cost, but ACA plans are structured that way, too.

One area to investigate is how the HSA can be invested. This is a poorly regulated area, and many plans have high, hidden fees. If that is true, you may do as well saving outside the plan. This can be hard to get answers on.

MDM

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Re: Need help on deciding on what healthcare plan...
« Reply #5 on: October 30, 2017, 01:24:27 PM »
16% is my effective rate.  I just used this and put in my salary of 80k.  https://smartasset.com/taxes/income-taxes
Never use effective rate to analyze any of your individual financial decisions.  See Marginal Vs Effective Tax Rates And When To Use Each.  Always use your marginal tax rate.

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And yeah, that part doesn't make sense either. I understand only high deductible plans qualify for HSAs, but we have a plan at work that is called "High Deductible" that doesn't have an HSA option. Then we have the "Health Savings Plan (HSA) PPO Plan" with an HSA.
See 2016 Publication 969 - p969.pdf for what makes an HDHP qualified to allow HSA contributions.  If your low cost HDHP meets those criteria, you may open your own HSA.  You won't get the FICA tax break an employer-sponsored plan allows, but that's just the icing on the cake.  The main benefit is saving 25% and not paying any tax on withdrawal.

And yes, do have a conversation with HR and/or Benefits.  Even Megacorp's Benefits department has made mistakes with HDHPs.

dandarc

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Re: Need help on deciding on what healthcare plan...
« Reply #6 on: October 30, 2017, 01:36:06 PM »
You haven't listed all of the relevant info for each health plan.

Are the deductibles the same? Copays? Coinsurance?  Out of pocket max?

Maybe the high-deductible plan has a much higher deductible than the HSA plan.  Perhaps the "non-HSA" plan here has a $15,000 annual deductible for an individual.  That would cost less than a $6350 deductible, which is the highest a deductible can be for an individual while still being HSA-eligible.  Or maybe the HSA plan is at the low-end - $1300 annual deductible.

HSA-eligible does not automatically mean "lowest premium".

bacchi

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Re: Need help on deciding on what healthcare plan...
« Reply #7 on: October 30, 2017, 01:38:27 PM »
Something doesn't really add up to me. As the previous posters said the HSA plan should be cheaper than the non-HSA plan. Double check with HR to see if there isn't a typo or that you are missing something. But yeah without a super big crunch of the numbers it seems like the high cost of the HSA plan outweighs the tax benefit. Which again is why it seems wrong to me.

On the marketplace, I've never found the HSA plan to be cheaper than the non-HSA plan.

rubybeth

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Re: Need help on deciding on what healthcare plan...
« Reply #8 on: October 30, 2017, 01:43:51 PM »
You haven't listed all of the relevant info for each health plan.

Are the deductibles the same? Copays? Coinsurance?  Out of pocket max?

Maybe the high-deductible plan has a much higher deductible than the HSA plan.  Perhaps the "non-HSA" plan here has a $15,000 annual deductible for an individual.  That would cost less than a $6350 deductible, which is the highest a deductible can be for an individual while still being HSA-eligible.  Or maybe the HSA plan is at the low-end - $1300 annual deductible.

HSA-eligible does not automatically mean "lowest premium".

I was going to post to say the same. It's impossible to compare without knowing the following for each:

1) Annual premium cost (to you, I guess, since it sounds like some of the plan cost is subsidized by employer, and the other part comes out of your paycheck pre-tax)
2) Annual deductible
3) Info. about co-insurance or percentage the plan pays after you meet the deductible (sometimes this is written as 80/20 or something similar)
4) Maximum out of pocket limit with the plan. You are saying "out of pocket" in your first post, but I think you mean the cost of the premium that comes out of your check, not the maximum out of pocket limit that the plan would cover.
5) Compatibility with an HSA

For example, one plan I'm looking at for next year has a deductible of $2,600 and then the plan pays 85% until the out of pocket maximum of $5,200 is reached. I personally prefer 100% plans where, once the deductible is met, the plan pays the rest.

dandarc

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Re: Need help on deciding on what healthcare plan...
« Reply #9 on: October 30, 2017, 01:53:17 PM »
Something doesn't really add up to me. As the previous posters said the HSA plan should be cheaper than the non-HSA plan. Double check with HR to see if there isn't a typo or that you are missing something. But yeah without a super big crunch of the numbers it seems like the high cost of the HSA plan outweighs the tax benefit. Which again is why it seems wrong to me.

On the marketplace, I've never found the HSA plan to be cheaper than the non-HSA plan.
That's been my experience on the exchange as well - HSA plan tends to be 2nd or 3rd lowest premium of about 12 options that we have available here.

psychomaggle

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Re: Need help on deciding on what healthcare plan...
« Reply #10 on: October 31, 2017, 02:13:57 PM »
Thanks for all the replies. Some good info. I talked to HR today and confirmed what I though, the more expensive per month plan is the only one with an HSA option. I'd probably rather save the ~$100 a month and invest that myself and just forget about the HSA.

terran

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Re: Need help on deciding on what healthcare plan...
« Reply #11 on: October 31, 2017, 03:09:35 PM »
As others have said, use your marginal rate, not your effective rate. Also look into whether your employer offers payroll deducted contributions to an HSA and if so whether those contributions are exempt from FICA. They often are, but your employer must have set things up appropriately. That would be another 7.65% savings.