Author Topic: Should I particapte in high deductible insurance plan?  (Read 2397 times)

Eric9064

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Should I particapte in high deductible insurance plan?
« on: June 06, 2016, 04:29:16 PM »
I am struggling with whether to participate in my employer's high deductible health insurance plan in order to take advantage of the HSA. The plan falls on the higher end of the permitted deductible ($5000). Additionally, my employer covers 100% of health insurance so I will not see any direct benefit (in my paychecks) from electing the high deductible plan over the low deductible plan. I am 31 and currently have no health problems, so I may be overthinking this but would appreciate hearing how others on this forum would proceed. Thanks!

La Bibliotecaria Feroz

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Re: Should I particapte in high deductible insurance plan?
« Reply #1 on: June 06, 2016, 04:51:40 PM »
Are they going to put $$ in the FSA for you?

If not, then you would be taking on an enormous risk just to get access to an investment vehicle, which seems dumb to me.

GrOW

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Re: Should I particapte in high deductible insurance plan?
« Reply #2 on: June 06, 2016, 05:00:50 PM »
Is the following correct?
Your employer pays 100% of the monthly premium regardless of plan chosen
The HDHP option has a $5,000 deductible
Other options do not qualify for an HSA

A few other questions for you
What is the deductible for other option(s)?
Are you insuring just you or family? Kids?
Have you already maxed all available tax deferred saving options?
How much could you contribute annually to an HSA?
Any employer contribution or match?

Paul der Krake

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Re: Should I particapte in high deductible insurance plan?
« Reply #3 on: June 07, 2016, 06:20:46 AM »
For healthy people in a mid-to-high tax bracket, the tax benefits alone (especially if on a family HSA) are worth the increase. Lower premiums are good too, but that doesn't apply to you since they are 100% covered. If you are on the fringe of where other tax goodies are being phased out, e.g. where traditional IRA contributions are no longer deductible, shaving off $3,300 of taxable income can result in even better tax optimization.

You know your situation best. Run the numbers in an ideal, then likely, then worst case scenario. If you have an awful year where you hit the max deductible, how long would it take for you to recoup that money using the tax optimization freebies?

Then there is also the fact that you can elect to leave money in the HSA grow tax free for decades. Tax-advantage space is scarce and limited. That's harder to put a price tag to, but it has a ton of value.

Eric9064

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Re: Should I particapte in high deductible insurance plan?
« Reply #4 on: June 07, 2016, 07:15:28 AM »
Thanks for the responses.

GrOW, your assumptions regarding the situation are correct. W/R/T to your specific questions: the deductible on the other plans are negligible; at this point I am insuring only myself as my wife is insured through the plan provided by her employer (no kids); I will have maxed out my 401(k) and IRA (via a back door IRA) in ~2 months; I would contribute the max to the HSA once I have maxed out the 401(k) and IRA.

Even if I had a bad year health wise and had to pay the full $5000 deductible, I could cover it. At this point, I am leaning towards participating in the high deductible plan.

With This Herring

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Re: Should I particapte in high deductible insurance plan?
« Reply #5 on: June 07, 2016, 07:49:32 AM »
Thanks for the responses.

GrOW, your assumptions regarding the situation are correct. W/R/T to your specific questions: the deductible on the other plans are negligible; at this point I am insuring only myself as my wife is insured through the plan provided by her employer (no kids); I will have maxed out my 401(k) and IRA (via a back door IRA) in ~2 months; I would contribute the max to the HSA once I have maxed out the 401(k) and IRA.

Even if I had a bad year health wise and had to pay the full $5000 deductible, I could cover it. At this point, I am leaning towards participating in the high deductible plan.

You may already know this, but make sure that your HSA contribution is run through payroll, even if it takes multiple paychecks to max the HSA.  HSA contributions through payroll are exempt from FICA taxes and income taxes, but HSA contributions you send from your checking to your HSA are just exempt from income taxes.  Your payroll person at work won't be thrilled with the frequently changing deductions, so be sure to bribe him/her with chocolate.  Also, keep a sharp eye on your pay stub to be sure the HSA amounts are being coded properly.

GrOW

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Re: Should I particapte in high deductible insurance plan?
« Reply #6 on: June 10, 2016, 01:15:51 PM »
I think it is a healthcare cost risk call. $5k deductible risk vs ability to make a $3,350 HSA contribution.

Now cost to you of the $3,350 contribution may be just $2,093.75 using 25% federal tax rate, 5% state tax rate, and 7.5% fica tax rate (Herring mentioned this below so definitely use payroll deduction if at all possible).

If about $2,093 to get $3,350 into an HSA is worth the risk of up $5,000 in possible healthcare costs is a good bet, go for it.

AlwaysLearningToSave

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Re: Should I particapte in high deductible insurance plan?
« Reply #7 on: June 10, 2016, 03:19:26 PM »
I think it is a healthcare cost risk call. $5k deductible risk vs ability to make a $3,350 HSA contribution.

Now cost to you of the $3,350 contribution may be just $2,093.75 using 25% federal tax rate, 5% state tax rate, and 7.5% fica tax rate (Herring mentioned this below so definitely use payroll deduction if at all possible).

If about $2,093 to get $3,350 into an HSA is worth the risk of up $5,000 in possible healthcare costs is a good bet, go for it.

I think this is on the money. 

Situations where the employer pays all or almost all of the premium really distort the HDHP+HSA versus traditional insurance question.  If the insured person pays most of the premium, HDHP with HSA usually wins because of the tax advantage of the HSA and the opportunity to keep your money if you don't consume healthcare services.  But in your situation you could very well find that pursuing the tax benefit is potentially detrimental to your overall financial well being.  Don't let the tax tail wag the dog that is your overall financial condition.  Taxes are only one piece of your finances. 

You say the deductible on the other plan is "negligible" but that doesn't really help with the comparison.  Does negligible mean $500?  $1000?  What is the coinsurance percentage after you hit deductible?  What are the copay costs? 

The way I would analyze your situation is to analyze it with the assumption that you hit your out of pocket maximum.  How much are you on the hook for in that instance?  How much in medical bills would you have to accrue to reach the out of pocket maximum?

If you take the HDHP/HSA, you get $1250 in tax savings by taking on $5000 of risk with no additional premium savings.  One year hitting the OOPM would wipe out four years of tax benefits.  If you go the traditional plan route, your maximum out of pocket exposure will be significantly less and you will get financial assistance with the medical bills sooner in the form of copays or coinsurance at no additional premium cost. 

My guess is that you would be better off with the traditional plan.  If your out of pocket costs are truly negligible, it makes no sense to take on the extra financial risk of the HDHP.  If so, be thankful that you work for an employer that provides a low-deductible plan at no cost to you and forget about the HSA's tax benefits.

Does your employer offer a flex spending account where you could set aside some tax-free use-it-or-lose-it money to pay for medical bills under the traditional plan?  This may be a way to get the best balance of tax advantages and limited potential liability.
« Last Edit: June 10, 2016, 03:27:05 PM by AlwaysLearningToSave »