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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: kms on November 01, 2018, 08:18:44 AM

Title: To HSA or not to HSA
Post by: kms on November 01, 2018, 08:18:44 AM
Like every year between early November and mid December I'm on the prowl for health insurance. Quick facts: self-employed, pre-tax income of around $120,000, and no health issues whatsoever. Married filing jointly, no kids this year but our first daughter is due in Januar. Our 2017 joint tax rate after all deductions, contributions, etc. was around 22%.

My 2018 plan is $283/month with a $4,500 deductible and a $7,900 out-of-pocket maximum that is going to increase to $312 for 2019. Unlike last year, however, there are some HSA-eligible plans available to me as well, and I'm a bit torn.

Option 1) Keep my current insurance plan for $312 a month
Option 2) Change to a slightly cheaper $303 plan with a $7,900 deductible
Option 3) Change to an HSA-eligible insurance plan for $334 with a $5,500 deductible and a $6,650 out-of-pocket maximum

A fourth option might be to add myself to my wife's health insurance. She's covered through work, however so far it would have been much more expensive than getting coverage through the marketplace. She pays $85/month for herself, adding me as her spouse would have cost an extra $415/month. They did also have an HSA-eligible plan that was less interesting last year but might be given the impending birth of our dauther might become interesting for all three of us. Since her firm is notoriously unreliable when it comes to health insurance information I don't expect to learn any details for 2019 before... well, January 2019. That's what happened in 2017, that's what happened in 2018, and I fully expect this to happen for 2019 again. Thus, let's ignore Option 4) for now until I get the final numbers in.

As far as I can tell my maximum contribution to the HSA would be $3,500 for 2019. Given last year's tax rate I would save around $800 in taxes but spend an extra $300 on insurance premiums. Sounds like a no-brainer to me, so what am I missing?
Title: Re: To HSA or not to HSA
Post by: MDM on November 01, 2018, 10:57:42 AM
If you put your numbers into a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan (https://www.dinkytown.net/java/HSAvsTraditional.html) and the 'HDHP Analysis' tab of the case study spreadsheet (http://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/) and get the same answers, you are probably good to go.
Title: Re: To HSA or not to HSA
Post by: diapasoun on November 01, 2018, 12:25:51 PM
Wait, your 2018 plan had a $4500 deductible and $7900 out of pocket for a single person? If so, you're already on a high deductible plan and are HSA-eligible.
Title: Re: To HSA or not to HSA
Post by: SimpleCycle on November 01, 2018, 01:35:12 PM
Wait, your 2018 plan had a $4500 deductible and $7900 out of pocket for a single person? If so, you're already on a high deductible plan and are HSA-eligible.

The plan must be otherwise HSA-eligible.  For example, my family plan has a $3k deductible, which meets the definition for a HDHP, but it also pays for some services without having to satisfy the deductible, which makes it ineligible for an HSA.  I'm guessing this is the case with the OP's current plan.
Title: Re: To HSA or not to HSA
Post by: terran on November 01, 2018, 03:35:07 PM
Wait, your 2018 plan had a $4500 deductible and $7900 out of pocket for a single person? If so, you're already on a high deductible plan and are HSA-eligible.

The plan must be otherwise HSA-eligible.  For example, my family plan has a $3k deductible, which meets the definition for a HDHP, but it also pays for some services without having to satisfy the deductible, which makes it ineligible for an HSA.  I'm guessing this is the case with the OP's current plan.

Right, be VERY careful before deciding you're on an HSA plan that doesn't say it's an HSA plan. For example, if it pays for ANYTHING (other than the preventive care that all ACA plans have to pay for), then it's not an HSA plan. My understanding is that HSA plans often cost more than other plans just because they're HSA plans, so I very much doubt that an insurer wouldn't make damn sure you knew it was an ACA plan as a marketing tactic.
Title: Re: To HSA or not to HSA
Post by: kms on November 02, 2018, 05:53:47 AM
Yes, my current plan is definitely not HSA-eligible. Health plans purchased through the marketplace are marked accordingly, that's how I know for sure.

The problem with all these comparison tools and calculators is that they all require input data that I don't have. I don't know how often I will go to see a doctor next year, and I have no idea how many prescription drugs I'll need. How am I supposed to know all that? Just because I only went to see my doctor once this year and didn't need a single prescription doesn't mean it'll be the same next year. That's where it all falls apart.
Title: Re: To HSA or not to HSA
Post by: MDM on November 02, 2018, 09:26:55 AM
The problem with all these comparison tools and calculators is that they all require input data that I don't have. I don't know how often I will go to see a doctor next year, and I have no idea how many prescription drugs I'll need. How am I supposed to know all that? Just because I only went to see my doctor once this year and didn't need a single prescription doesn't mean it'll be the same next year. That's where it all falls apart.
Often enough, the differences between the HDHP/HSA and non-HDHP plans are great enough that one's medical expenses don't matter: one is always better than the other.

For some, there can be expense amounts at which the HDHP/HSA is better and expense amounts at which the non-HDHP is better.  Life doesn't come with a guarantee - you pays your money and takes your chance. ;)
Title: Re: To HSA or not to HSA
Post by: skuzuker28 on November 02, 2018, 09:52:10 AM
With a kid coming in 2019 it might be worth considering the HSA plan.  You can use YOUR HSA funds to cover her out-of-pocket costs, even though she is covered under her own plan, allowing you to effectively deduct your delivery costs.  Of course, since the child is due early in the year you would need to be able to make the max HSA contribution in January.
Title: Re: To HSA or not to HSA
Post by: letired on November 02, 2018, 10:37:29 AM
With a kid coming in 2019 it might be worth considering the HSA plan.  You can use YOUR HSA funds to cover her out-of-pocket costs, even though she is covered under her own plan, allowing you to effectively deduct your delivery costs.  Of course, since the child is due early in the year you would need to be able to make the max HSA contribution in January.

Not really, as long as you have the receipts, you can 'reimburse' yourself whenever. But since you are self-employed, its probably easier to be flexible with funding the account than it would be for someone who has to go through their employers payroll system.
Title: Re: To HSA or not to HSA
Post by: kms on December 13, 2018, 12:24:31 PM
So, to everybody's surprise we got the numbers for my wife's health insurance plan in two days before the open enrollment period ends, so this year we are able to make an informed decision.

Please stop/correct me if I'm wrong, but here's my understanding.
Assuming that instead of getting my own insurance through the marketplace I participate in her plan, would the following work:
Title: Re: To HSA or not to HSA
Post by: Scandium on December 13, 2018, 12:39:27 PM
   
  • Do we need to put $5,000 into this combined HSA account before our daughter is born and before we pay the hospital bill so we can then reimburse ourselves immediately? Or can we fund our HSA account over the course of the year and then reimburse ourselves at any given time once we've reached $5k?
  • Will these $5,000 still be tax deductible even if we used them to reimburse ourselves for our daughter's birth?

1) no. You can reimburse yourself for qualified health care expenses years/decades after the fact, with money you just put in.
2) if the spending is for qualified health care expenses it's deductible, and you pay no tax to pay yourself back.

Of course if you can it's best to deposit into an HSA, pay out of pocket, save receipts and invest the money. That way you can get say 300% growth on the money over decades then take it all out for the birth of your daughter, when she's 20..
Title: Re: To HSA or not to HSA
Post by: MDM on December 13, 2018, 12:47:43 PM
Do we need to put $5,000 into this combined HSA account before our daughter is born and before we pay the hospital bill so we can then reimburse ourselves immediately?
No, as Scandium explained.

But, you must have established the HSA on a date prior to incurring the medical expense, otherwise you can't use that medical expense to justify an HSA distribution.  As Pub. 969 notes, "State law determines when an HSA is established," but for most that means at least $1 has actually been placed into the account.
Title: Re: To HSA or not to HSA
Post by: terran on December 13, 2018, 12:55:31 PM
Since you have a known high medical spending year coming up with the birth, have you done the math on your wife staying on a non-HDHP and you going with the marketplace plan for another year.

Double check on this, but the birth should also be a qualifying event, so you could possibly switch plans at that point. I don't know how that would interact with the expenses incurred from the birth though -- probably depends on how long after you can make the switch.
Title: Re: To HSA or not to HSA
Post by: kms on December 13, 2018, 02:12:49 PM
I did do the math for various plans, and the only option that was even close to me participating in her HSA plan was me getting my own HSA plan from the marketplace (Oscar Saver HSA), albeit with a higher deductible and out-of-pocket maximum of $6,650 vs. $5,000. Worst case (aka we both use up our OOPM) both options will end up costing us slightly north of $18k total ($18,079.74 vs. $18,197.50), which includes child birth ($5k). Best case scenario would result in slightly lower costs for the split HSA plans instead of the joint family plan through her employer (~$13,500 vs. ~$12,000), which includes my wife using her OOPM to the max and me only paying premiums + dental + two consultations, one PCP and one specialist each.

The problem is that her employer pays a huge portion of her premium but nothing for the spouse nor any children. Which means that her monthly premium is between $60 and $200, depending on plan, whereas adding a spouse will cost between $400 and $620 extra per month, adding a child between $300 and $480 extra per month, and adding the entire family between $720 and $1,160 extra per month.
Title: Re: To HSA or not to HSA
Post by: seattlecyclone on December 13, 2018, 02:47:36 PM
When in January is your baby due? I say this as someone whose first child was due in the second week of January, but ended up being born in late December. These things happen. Don't (for example) make a use-it-or-lose-it FSA contribution for 2019 expecting to of course use it up on your 2019 hospital bills, when it's still possible you won't have any 2019 hospital bills at all.

Also be aware that when you have a child in a hospital the kid will get some hospital bills in their own name, so you should probably expect to be spending closer to the full $10k family deductible rather than the $5k individual deductible. The HSA limit for family coverage next year is $7,000. Between you and your wife's employer you should probably budget to max that out.

And as said above, if you have never had an HSA before you will want to make sure you have the account open with a few dollars in there before you set foot in that hospital, otherwise you won't be able to use your HSA for that childbirth.
Title: Re: To HSA or not to HSA
Post by: robartsd on December 13, 2018, 03:09:28 PM
Should baby come before the end of the month, baby's arrival is qualifying event so you won't be locked into your 2019 choices made assuming January 2019 birth.
Title: Re: To HSA or not to HSA
Post by: kms on December 14, 2018, 06:43:07 AM
Good to know, thanks. Baby girl is scheduled to be evicted from her current apartment on January 7/8.

I'll have to do the math once again, but as we speak these are the two most viable options:

All other options are going to be much more expensive, both best and worst case, so they're out. It's a bit of a gamble since it will be completely unpredictable how often I will have to see a doctor next year (my wife won't matter because she will hit her oopm limit in early January already) but I am leaning towards the save option for next year because of the new-born baby.


Am I missing anything or does that make sense?