ACA Plans for 2019: Value of HSA Eligiblility

[Acastus]

I am reviewing ACA options for next year, and the choice is not straightforward. I boiled my 20 options down to 2 silver plans. The HSA eligible plan costs more, and I do not see much reason. What is the catch? What is the value of getting access to an HSA for someone in the 12% tax Bracket?

The plans are compared below.

2 special costs - I need a routine outpatient procedure that costs about $1.5k, and we spend about $1k on Rx.
Our track record for the last decade is about $3k - 10k in overall medical services and medicine. We are generally healthy, but we both have things to monitor, and something bad happens occasionally. (e.g. 2 crowns in 1 year)
Prescription costs are the same for both plans.
We qualify for the CSR subsidy, which reduces the max out of pocket by about 5k. I have not seen any other advantage so far, as we did not meet the deductible this year.


 Silver HSA
$ 365/month net premium (4380/yr)
 12,700 max out of pocket
4500/4500 deductible
prescriptions count toward the deductible
20% copay for all services after deductible
Large selection of doctors


Silver, no HSA
$315/mo premium  (3780/yr)
13,700 max out of pocket
2500/4500 deductible
prescriptions not counted toward deductible
Copays are set dollar amounts, and there are many categories. Doctor visit is 30, specialist 50, ER 250
2 tiers of providers. All current primaries and specialists are part of the lower cost tier. Higher cost tier includes the large selection of doctors, above.

[sol]

Does the silver HDHP plan contribute to your HSA for you?  Mine puts in $1500 per year into the HSA as a "premium pass through" which means that your actual costs are $1500 lower than the premiums plus your out of pocket costs.  Then they put in another $150 for us if we complete our annual health assessments.

Then after that, yes you have to do the math on your marginal tax rate times your HSA contributions.  The limit next year will be $6900, so after the $1500 and $150 that my insurer puts in I can contribute another $5250.  That used to be in the 22% tax bracket, but under the new TCJA my marginal rate is lowered to 12%, though they took my deductions away so I pay it on more income.  So my tax savings from the HSA are only 12% of $5250, or $630.  It's not nothing.

If my premiums were about $4000 for the HDHP, I would add to that our out pocket costs (which are about 1800/yr) and then subtract off the $1500 pass through, the $150 for assessments, and the $630 of tax savings to get a net annual healthcare cost of $3,520.

In broader context, I think you're correct that the new tax brackets make HDHPs less attractive.  By lowering the top marginal rate (but increasing the amount of income you pay it on) they have kept my total tax bill approximately the same, but effectively increased the cost of my health insurance.

[seattlecyclone]

Then after that, yes you have to do the math on your marginal tax rate times your HSA contributions.  The limit next year will be $6900, so after the $1500 and $150 that my insurer puts in I can contribute another $5250.  That used to be in the 22% tax bracket, but under the new TCJA my marginal rate is lowered to 12%, though they took my deductions away so I pay it on more income.  So my tax savings from the HSA are only 12% of $5250, or $630.  It's not nothing.

Note that the decrease in income from HSA contributions will also increase your premium subsidy. This effect essentially adds a few percentage points to your tax bracket.

I'm looking into this myself for our first partial year of FIRE next year. I'm going to try and target an income just under 200% of the poverty level in order to qualify for the 87% cost sharing silver plans.

The cost sharing plan I'm looking at looks pretty nice:
$400/month premium for my wife and me after tax credit
Nominal copays for doctor visits or urgent care visits, no deductible involved for these.
$1,900 deductible per person that seems to only apply for hospitalization or surgery or exotic prescription drugs. $1,900 is also the out-of-pocket max, so everything's free after that.

On the other hand we could get the following bronze plan:
$150/month premium for my wife and me after tax credit
$4,750 per person deductible that applies to every non-preventive service.
20% coinsurance after that, up to the $6,550 out-of-pocket maximum
Ability to contribute to an HSA

The bronze plan saves $3,000 on premiums over the course of the year, but the tradeoff is a medical plan that basically does nothing until we rack up $4,750 in medical bills. At our expected income level we might not even be in the 10% bracket since a good chunk of our income will be coming from capital gains and dividends, so the immediate tax savings from HSA contributions will be pretty minimal.

Part of me thinks the rational thing to do is take the bronze plan. If we shove the $3,000 in premium difference into the HSA we'll probably come out ahead most years. Another part of me really likes the idea of being able to go to the doctor for $10 even if "it's probably nothing," and really limiting the amount of financial downside if we do need a bunch of medical treatment. Financially it's probably pretty close to a wash in the long run, with the bronze plan resulting in more cost variability from year to year.

[pecunia]

This looks like a good place to ask this question.

I buy my own health insurance.  It's expensive. 

I looked around on the internet a few weeks ago.  I filled out some forms looking for costs.  Since then, I've received beau coup calls from salesmen offering me health insurance for $200 / month or so.  They want to sign me up over the phone.  Each time I tell them, "Whoa Partner, I want a written description of what I'm buying."  Almost invariably, they hang up or try to BS their way out of it.   I also ask them if their products are available via the health insurance marketplace and they are almost immediately gone.

Is this a big scam thing?  Just what are these people selling?

I'm thinking of going back to the reputable Blue Cross crooks I've dealt with in the past.  It's through the marketplace so I figure there has to be at least a semblance of honesty.  This insurance is, however, higher than those of the phone peddlers.

[bacchi]

I looked around on the internet a few weeks ago.  I filled out some forms looking for costs.  Since then, I've received beau coup calls from salesmen offering me health insurance for $200 / month or so.  They want to sign me up over the phone.  Each time I tell them, "Whoa Partner, I want a written description of what I'm buying."  Almost invariably, they hang up or try to BS their way out of it.   I also ask them if their products are available via the health insurance marketplace and they are almost immediately gone.

I've received a shit ton of spam calls in the last few months. As in, more in the past 30 days than I've received over the past 2 years. Most are about health insurance and a few are about student loans (and I've never had any student loans). Unlike in the past, these robo calls use a local area code and sometimes even the same prefix as my number.

Who knows what their game is? Go further into the rabbit hole and report back to us. :)

[sol]

I've had a couple of calls offering to sell me health insurance, but hung up on them before they got into specifics so I don't really know what they have to offer or what kind of scam they might be running.  I'm quite capable of using my state's health plan finder and making my own decisions, and I don't need or want any direct marketing.

[jpdx]

I'm surprised to see that you have access to an HSA with a Silver plan. Around here, you need to go Bronze for a HSA illegible plan.

[Acastus]

Note that the decrease in income from HSA contributions will also increase your premium subsidy. This effect essentially adds a few percentage points to your tax bracket.

I'm looking into this myself for our first partial year of FIRE next year. I'm going to try and target an income just under 200% of the poverty level in order to qualify for the 87% cost sharing silver plans.

This is my partial FIRE year, and 2019 will be a full retired year, so we are in similar situations. All my income next year will be IRA conversions, dividends, and cap. gains. So the HSA will allow me to convert more IRA, but there will be no immediate tax break, per se. I can also contribute $7900, due to age. I decided to target 250% poverty so I can convert more IRA. I will lose some headroom when my kid leaves the household in 5 years or so.

I think valuing the HSA eligibility at 12% of $7900 is probably right, as Sol suggests. And no, I do not get contributions to the HSA from the insurer.

I am leaning toward the lower cost, no HSA plan, because I have a known expense coming up. I will meet my single deductible early, so later costs will be low. The procedure will not fill out the combined family deductible of the HSA plan, so it would be full cost under that plan. I also think the set dollar copays with the tiered plan are probably better insurance than 20% copays in case something bad happens. The insurance part of health insurance is something I pay attention to, since I have had a brush with death a while back.

[mtnman125]

Sorry for the potential hijack of this thread

In early retirement, assuming all income comes from filling roth pipeline (from IRA) and dividends/capital gains (from taxable). 

How does use an ACA plan with HSA?  Do you contribute to HSA from dividends/capital gains and then deduct them at tax time?

I currently use an HSA through employer plan, so contributions are taken pre-FICA/etc

[seattlecyclone]

Money you put in your HSA during early retirement will be deductible on your tax return, provided you're on an HSA-eligible insurance plan. No FICA deduction since you won't be working.

The money you put in there could come out of your savings account, dividends, sale of stock in a taxable brokerage account, withdrawal from a retirement account, whatever. Doesn't change your HSA deduction whatever you choose.

[Acastus]

There is no earned income requirement to fund an HSA. Any income will work. Assuming I will have more health costs as time goes by, it is better to convert some of my IRA to HSA and pay no tax ever.