Thread the Needle Between ACA and Roth Conversion

[Acastus]

What AGI should I target to optimize taxes and ACA subsidies for my family of 3?

I FIRE'd last year, and now I am converting some IRA funds to Roth. I have about 10 years before taking SS. I have taxable, t-IRA, and Roth IRA buckets, and within reason my AGI and spending can be independent of each other for at least 5 years. Family is 2 parents and 1 college age child. Breakpoints for family of 3 are roughly 200% FPL = $42.5k, 400% FPL = $85k. I would like to spend in the 60-90k range, and I can spend taxable money with minimal taxation to make my AGI substantially less.

Current plan is to convert $43k IRA, matching the 24k standard deduction + 19k to fill the 10% tax bracket, then let capital gains more or less float in the 10-15k range. The ACA subsidy is reduced with more income, and I count it as an additional  8% tax over this range.

Is this the best target to convert my IRA? Converting more comes at a cost of 20% effective tax rate (12% nominal + 8% ACA subsidy loss). Spending less would save 18% tax, but convert less IRA. Assuming a 7% return, I will convert only a portion of expected gains with this strategy.

[terran]

Here are a couple of posts from @seattlecyclone that should help: https://seattlecyclone.com/optimizing-the-affordable-care-act/ and https://seattlecyclone.com/marginal-tax-rates-under-the-aca/. You'll need to update the numbers in the first post as it's from a few years ago, but the principles should be the same.

[secondcor521]

It's a complex question that is regularly discussed on another retirement board forum (early-retirement.org).

You might take a look at the advanced calculator at i-orp.com.  It is free and well-regarded, but you have to understand what you're doing when you put the numbers in.  Read their instructions and help files carefully.

There are also commercial services out there that will let you plug your numbers into their software for a modest fee.  I'm not very familiar with those.

The two principles I've heard and believe in are:  First, good optimization means knowing what you're optimizing for - are you wanting to pay for college as cheaply as possible, have as much after tax money in your 50's as possible, leave a certain legacy for your kid, maximize after tax spending across your lifetime, etc.

Second, usually evening out your top marginal rate over time will lead to the lowest taxes and highest after tax spending.  What I am doing is looking at what my total marginal tax rate will be when I turn 70 and comparing that to what my total marginal tax rate will be this year assuming a given AGI.  My age 70 tax rate is the sum of my federal income tax, my state income tax, and my IRMAA surcharge on my RMD and 85% of my SS minus my standard deduction.  My current tax rate is based on my target AGI and is my federal income tax, state income tax, loss of ACA subsidy, and FAFSA EFC increase.

I guess the other thing that gets people is assumptions.  You need to decide what you think about whether tax rates will be higher, lower, or the same in the future.  You need to decide what you think will happen to Social Security benefits in the future.  Etc.

A common strategy is to convert up to the top of some cliff.  For you, if you're facing a runaway IRA, you probably should consider converting all the way up to the top of the 12% / beginning of the 22% bracket.  Another choice would be the top of the ACA cliff at 400% FPL.  A third choice would be the top of the FAFSA SNT cliff at $49,999 (google that for more to see if it applies to you).

What I do at age 50 with three kids in college is sell what I need from taxable throughout the year to pay my living expenses.  I then will end up with some total amount of dividends, capital gains, interest, and side gig income.  Then in December I decide what I want my AGI to be and Roth convert to get to that target AGI.  This year I'm choosing the FAFSA SNT cliff, and will probably choose that next year as well.  After that I'll probably Roth convert more in order to avoid the higher tax brackets that are coming for me in my 70's and 80's (assuming I live that long, knock wood).

If you get that far, note that the marginal rate of your ACA "tax" is bigger than it first appears, because the applicable figure from Form 8962 gets applied to all of your AGI, not just the incremental amount.  So the best way to accurately figure the ACA marginal tax rate is to increase your ordinary income by, say $100, and then see what that does to your Form 8962 bottom line result.

HTH.  Good luck!

[seattlecyclone]

Current plan is to convert $43k IRA, matching the 24k standard deduction + 19k to fill the 10% tax bracket, then let capital gains more or less float in the 10-15k range. The ACA subsidy is reduced with more income, and I count it as an additional  8% tax over this range.

Not 8%. Try 10-18%, depending on where you are in the phase-out range. This is graphed in the blog post @terran linked above.

If you get that far, note that the marginal rate of your ACA "tax" is bigger than it first appears, because the applicable figure from Form 8962 gets applied to all of your AGI, not just the incremental amount.

...and this is why.

As @secondcor521 points out above, you have lots of changes in your tax situation coming up over the next couple decades. When your kid finishes college and leaves your health plan, your ACA family size (and thus the federal poverty level that applies to your family) will be going down. When you hit 65, you won't need to worry about the ACA anymore, but RMDs and social security will be coming up. Whatever you have in your traditional IRA, you're going to be taxed on that money eventually. The question is whether it's better to do it now or later, and that's something that really varies from person to person based on your spending needs and other sources of cash.

[MDM]

What AGI should I target to optimize taxes and ACA subsidies for my family of 3?

Depends on the definition of "optimize". ;)

You might enter all your other income, then switch the independent variable to tIRA withdrawal (i.e., put D31 into cell G107 and click the nearby "Update chart") in the marginal rate chart on the Calculations tab of the case study spreadsheet (download it as an Excel file).  Adjust cell P83 as needed to cover a wide enough range for your consideration.

That should give you an idea of the "topography" for your current situation.  Next comes estimating future marginal rates, but one step at a time....

[Acastus]

Thanks all for the perspectives. I realize the question is complex. I will define my optimum as maximum disposable income over my lifetime. Social security will kick in in 8-12 years and stabilize my spending. Having more portfolio funded income for the next 10 years is what I want, and that is contrary to most of the withdrawal schemes out there.

In NY, where I live, the marginal tax on ACA is simpler. NY has super expanded Medicaid that covers families up to 200% FPL. Marginal tax on the next $1k is 300-400% as the 8% contribution comes on all at once. My baseline plan has regular income past this cliff, so my marginal ACA "tax" is closer to 10%. I will pay that on top of 0% captial gains, so that is OK. Long term, I think we go back to 10/15/25... tax brackets in 4 years, then higher as the debt climbs above 120% GDP.

I decided, as an early retiree, to be in the ACA subsidy part of the program instead of super Medicaid. Getting nearly free insurance seemed to be gaming the system too much for my taste. I will reexamine that if costs climb too much. I will pay about $5k for insurance alone in 2020.

[RWTL]

Following...

[Trifle]

Posting to follow.  I'm in this boat too and appreciate the discussion and pointers.

[EricEng]

Here are a couple of posts from @seattlecyclone that should help: https://seattlecyclone.com/optimizing-the-affordable-care-act/ and https://seattlecyclone.com/marginal-tax-rates-under-the-aca/. You'll need to update the numbers in the first post as it's from a few years ago, but the principles should be the same.

That second link is stellar.  It made me seriously reconsider my tax strategy during FIRE.  I'm now thinking I want to realize a lot more of my capital gains at 15% rate now while working with insurance before I start using ACA.  This is assuming those subsidies survive/exist during the ~25-30 years of my early retirement before medicare.

[NinjaSue]

Posting to follow. Thanks for the information!

[EricEng]

A common strategy is to convert up to the top of some cliff.  For you, if you're facing a runaway IRA, you probably should consider converting all the way up to the top of the 12% / beginning of the 22% bracket.  Another choice would be the top of the ACA cliff at 400% FPL.  A third choice would be the top of the FAFSA SNT cliff at $49,999 (google that for more to see if it applies to you).

I love this term and hadn't ever considered the issue.  Went to play with my excel and realized I'm going to have to drastically convert to my roth to get ahead of this while I have kids under 17.  I was thinking just $30k/year, but actually needs to be $60k-90k/year which messes with the ACA subsidy quite a bit.

[Well Respected Man]

Very interesting topic. Another option to consider for reducing income to qualify is to ensure that you select an HSA-qualified HDHP. That way you can contribute $3550-$9100 to your HSA(s), depending on age and marital status. This amount comes directly off of MAGI, and can be contributed through April 15 of the following year. When combined with the withdrawal and conversion rules for Roth IRAs, it makes sense to build up enough Roth contributions (or non-deductible tIRA contributions) prior to retirement to cover both the expected conversion amount in retirement, as well as a withdrawal amount to fund the HSA.

To be more clear, if you are spending from Roth contributions as well as converting in the same year, you can run into penalties on amounts that have not been in the account for at least 5 years.

[RWTL]

Very interesting topic. Another option to consider for reducing income to qualify is to ensure that you select an HSA-qualified HDHP. That way you can contribute $3550-$9100 to your HSA(s), depending on age and marital status. This amount comes directly off of MAGI, and can be contributed through April 15 of the following year. When combined with the withdrawal and conversion rules for Roth IRAs, it makes sense to build up enough Roth contributions (or non-deductible tIRA contributions) prior to retirement to cover both the expected conversion amount in retirement, as well as a withdrawal amount to fund the HSA.

To be more clear, if you are spending from Roth contributions as well as converting in the same year, you can run into penalties on amounts that have not been in the account for at least 5 years.

This is really smart.  I respect you :)

[freya]

Posting to follow also.  For those of us who plan to have only a small window (e.g. 10 years) between retirement and taking social security, and relatively large tax-deferred savings, this is quite a tightrope to walk and there's very little guidance out there.

I have played with iORP but no matter what I plug into it, it comes out with the same answer each time:  convert your entire IRA before age 70 regardless of which tax bracket you get pushed into.  It does now recognize Obamacare limits, although it doesn't seem to know about Medicare high income surcharges.

[MDM]

Posting to follow also.  For those of us who plan to have only a small window (e.g. 10 years) between retirement and taking social security, and relatively large tax-deferred savings, this is quite a tightrope to walk and there's very little guidance out there.

I have played with iORP but no matter what I plug into it, it comes out with the same answer each time:  convert your entire IRA before age 70 regardless of which tax bracket you get pushed into.  It does now recognize Obamacare limits, although it doesn't seem to know about Medicare high income surcharges.

All good observations.

I-ORP's tax calculations are good "in the middle."  For high income it ignores NIIT and only partially considers IRMAA.  For low income it incorrectly assumes 85% of all SS benefits are taxable.

For people in your situation, it may be a relatively "flat optimum" in that your spendable income doesn't change all that much whether you do no Roth conversions or allow I-ORP to convert as much as it deems appropriate. 

By how much do your results change in those two extremes?

[rab-bit]

Following

[freya]

For people in your situation, it may be a relatively "flat optimum" in that your spendable income doesn't change all that much whether you do no Roth conversions or allow I-ORP to convert as much as it deems appropriate. 

By how much do your results change in those two extremes?

Good question, will try that.  However - I figured that what I'd have to do is run several scenarios and build my own spreadsheet to figure out where the optimum lies.   Is iORP's disposable income number post-tax?  Even so, does it know about state/local taxes?   Those are complicated for NYC since there are many factors involved:  the $20K IRA withdrawal exclusion, a ridiculous number of tax brackets ranging from 5 to 11%, and some significant property tax breaks with fixed income limits that become available after age 65.  One of them (SCHE) may turn out to be a better deal than Obamacare, given that property taxes are increasing faster than insurance premiums in this town (about 10% per year).

[Trifle]

Posting to follow also.  For those of us who plan to have only a small window (e.g. 10 years) between retirement and taking social security, and relatively large tax-deferred savings, this is quite a tightrope to walk and there's very little guidance out there.

I've been playing with iORP but no matter what I plug into it, it comes out with the same answer each time:  convert your entire IRA before age 70 regardless of which tax bracket you get pushed into.  It does now recognize Obamacare limits, although it doesn't seem to know about Medicare high income surcharges.

I've been playing with iORP too, but am having the opposite problem.  I'm FIREd, age 52, and no matter what numbers I plug in it is telling me to convert NONE of my IRA . . . I'm assuming this is some type of error/misunderstanding on my part, and I will keep at it. 

Really interesting tool.

ETA:  Found the problem just now.  I was using the 'basic' iORP version, and only the 'extended' version calculates Roth conversions. 

[MDM]

Is iORP's disposable income number post-tax?  Even so, does it know about state/local taxes?

Yes to the first.  Only to the extent you tell it for the second.

Those are complicated for NYC since there are many factors involved:  the $20K IRA withdrawal exclusion, a ridiculous number of tax brackets ranging from 5 to 11%, and some significant property tax breaks with fixed income limits that become available after age 65.  One of them (SCHE) may turn out to be a better deal than Obamacare, given that property taxes are increasing faster than insurance premiums in this town (about 10% per year).

And I-ORP won't let you tell it more than some basic items.  Works great for a state with a standard deduction/exemption and a single bracket.  See https://www.i-orp.com/TaxRepeal/help/ORPHelp.html#StateMin.

Giving I-ORP the marginal state tax rate closest to what you expect at the optimum is probably the best approach, but taking its answer with a few grains of salt is also a good idea.

[cangelosibrown]

Another thing to remember is that there are two ACA subsidies -- the Premium Subsidy, which is pretty easy to model as a marginal tax, and the Cost Sharing Subsidy, which isn't. The Cost Sharing Subsidy has a couple of cliffs (It's been a couple years since I've done this, but it's usually quite low), below which you can be on a MUCH better plan(something like a $500 out of pocket max instead of $5k), for the same price. If you aren't planning to have many medical expenses, not a huge deal, but if you are, these plans can save you thousands of dollars. Definitely worth considering if at all possible.

[seattlecyclone]

Another thing to remember is that there are two ACA subsidies -- the Premium Subsidy, which is pretty easy to model as a marginal tax, and the Cost Sharing Subsidy, which isn't. The Cost Sharing Subsidy has a couple of cliffs (It's been a couple years since I've done this, but it's usually quite low), below which you can be on a MUCH better plan(something like a $500 out of pocket max instead of $5k), for the same price. If you aren't planning to have many medical expenses, not a huge deal, but if you are, these plans can save you thousands of dollars. Definitely worth considering if at all possible.

Very true. There are cost sharing thresholds at 150%, 200%, and 250% of the poverty level that applies to your family. Of these, the cliff at 200% is much larger than the other two.

I had always been planning to keep our income below 200% of the poverty level to get some nice cost sharing subsidies, but after FIREing and looking more closely into the available options we went with a bronze HSA plan instead. For the cost sharing plan to be a better deal we'd need to have over $3,000 of medical bills. This hasn't happened for either my wife or I in our adult lifetimes except in years where she has given birth.

Freeing ourselves from the 200% constraint, at least while we're relatively young and healthy, allows us to do a few more Roth conversions and HSA contributions now, which will put us in a better position to keep our income lower in future years when we're older and the cost-sharing plans will look like a more compelling option. Threading the needle indeed!

[Acastus]

Very interesting topic. Another option to consider for reducing income to qualify is to ensure that you select an HSA-qualified HDHP. That way you can contribute $3550-$9100 to your HSA(s), depending on age and marital status. This amount comes directly off of MAGI, and can be contributed through April 15 of the following year. When combined with the withdrawal and conversion rules for Roth IRAs, it makes sense to build up enough Roth contributions (or non-deductible tIRA contributions) prior to retirement to cover both the expected conversion amount in retirement, as well as a withdrawal amount to fund the HSA.

To be more clear, if you are spending from Roth contributions as well as converting in the same year, you can run into penalties on amounts that have not been in the account for at least 5 years.

I considered doing this, but the HSA eligible bronze and silver plans are about $100 per month more than the non HSA plans. Assuming I put the entire $8100 in an HSA, that adds 15% effective tax rate.

[DK]

F

[Abe Froman]

Following.
At least trying.
This concerns me - but in trying to unravel all this - I think my head exploded.

Wondering if there are local tax experts that can help me pick up my brain matter and make sense of this for me.

[DaMa]

PTF

[Trifle]

Following.
At least trying.
This concerns me - but in trying to unravel all this - I think my head exploded.

Lol glad I'm not the only one!  Great thread.

[TeeNixx]

PTF

[enFuego]

The two principles I've heard and believe in are:  First, good optimization means knowing what you're optimizing for - are you wanting to pay for college as cheaply as possible, have as much after tax money in your 50's as possible, leave a certain legacy for your kid, maximize after tax spending across your lifetime, etc.

Second, usually evening out your top marginal rate over time will lead to the lowest taxes and highest after tax spending.  What I am doing is looking at what my total marginal tax rate will be when I turn 70 and comparing that to what my total marginal tax rate will be this year assuming a given AGI.  My age 70 tax rate is the sum of my federal income tax, my state income tax, and my IRMAA surcharge on my RMD and 85% of my SS minus my standard deduction.  My current tax rate is based on my target AGI and is my federal income tax, state income tax, loss of ACA subsidy, and FAFSA EFC increase.

...

A common strategy is to convert up to the top of some cliff.  For you, if you're facing a runaway IRA, you probably should consider converting all the way up to the top of the 12% / beginning of the 22% bracket.  Another choice would be the top of the ACA cliff at 400% FPL.

This is great insight and you have clearly articulated what I have only recently started considering.  We will be looking at fire post-college age years and my spreadsheets are warning of a potential runaway 401k.  I have been reluctant to switch to Roth 401k contributions because my tax bracket in retirement will definitely be lower than now.  Although, paying more taxes now may be offset by the access to the funds tax-free, and the effect of the shorter time horizon on growth of pre-tax dollars.  I have been modeling a more consistent and higher level of Roth conversion/withdrawal pre SS and RMD age to address this concern.  I am surprised about how much I project to pay in taxes but it does seem at first pass that this is probably better in the long-term to avoid outrageous taxes later in life.
 
Definitely need to optimize for the holistic view of our future life's finances and not just tax minimization in one particular period.  A lot more thinking to be done here...

[Padonak]

Ptf

[SuperSecretName]

Very interesting topic. Another option to consider for reducing income to qualify is to ensure that you select an HSA-qualified HDHP. That way you can contribute $3550-$9100 to your HSA(s), depending on age and marital status. This amount comes directly off of MAGI, and can be contributed through April 15 of the following year. When combined with the withdrawal and conversion rules for Roth IRAs, it makes sense to build up enough Roth contributions (or non-deductible tIRA contributions) prior to retirement to cover both the expected conversion amount in retirement, as well as a withdrawal amount to fund the HSA.

I'm trying to understand the benefit here.  Is it just to get funds from tIRA->HSA? Or rather, since it comes off of MAGI, you can figure out what you want your income to be (ignoring HSA contributions), and then throw this on top (and convert more than in the initial plan)?

[seattlecyclone]

Very interesting topic. Another option to consider for reducing income to qualify is to ensure that you select an HSA-qualified HDHP. That way you can contribute $3550-$9100 to your HSA(s), depending on age and marital status. This amount comes directly off of MAGI, and can be contributed through April 15 of the following year. When combined with the withdrawal and conversion rules for Roth IRAs, it makes sense to build up enough Roth contributions (or non-deductible tIRA contributions) prior to retirement to cover both the expected conversion amount in retirement, as well as a withdrawal amount to fund the HSA.

I'm trying to understand the benefit here.  Is it just to get funds from tIRA->HSA? Or rather, since it comes off of MAGI, you can figure out what you want your income to be (ignoring HSA contributions), and then throw this on top (and convert more than in the initial plan)?

I view post-retirement HSA contributions to be a good way to:
1) Shift some money from taxable to a tax-sheltered account after retirement. This will help keep your MAGI down going forward because you'll have that much less taxable dividend and capital gains income.
2) Offset some of the MAGI you incur from doing a Roth ladder.

For both of these, you'll want to make sure that an HSA-eligible plan is actually the best financial choice given your health status and the other medical plans available to you at your income level. The tax benefits from an HSA contribution are a definite part of the equation here but they can't be the overriding concern.

Also it's important not to let your HSA grow out of control. For example if you make full family-sized HSA contributions for 20 years in which you're pretty healthy and don't have many medical bills to spend it on, you could easily end up with a quarter of a million dollars in there. Using the 4% rule that's enough to fund at least $10k of annual medical bills for a very long time. At some point, further contributions just don't make sense. I'd much rather have an out-of-control IRA than HSA.

[SuperSecretName]

I'd much rather have an out-of-control IRA than HSA.

Correct me if I'm wrong, but after age 65, an HSA functions like an tIRA with penalty free withdraws (still taxed, just like tIRA).  But, there are no RMDs.  So, an out-of-control HSA might actually be better.

[seattlecyclone]

I'd much rather have an out-of-control IRA than HSA.

Correct me if I'm wrong, but after age 65, an HSA functions like an tIRA with penalty free withdraws (still taxed, just like tIRA).  But, there are no RMDs.  So, an out-of-control HSA might actually be better.

Penalty-free withdrawals, yes...at least while you're still alive. After you pass away the entire sum is taxable income to your beneficiary in the year of your death. If you don't want to risk dumping a six-figure sum of taxable income in your kid's lap the year you die, you might prefer to not let that much accrue in an HSA.

[MDM]

I have been reluctant to switch to Roth 401k contributions because my tax bracket in retirement will definitely be lower than now.

If it will be 8-10% lower (e.g., 12% vs. 22%, or 24% vs 32%), your reluctance is well placed: traditional now will be better for you.

Although, paying more taxes now may be offset by the access to the funds tax-free....

If and only if you contribute the maximum to your Roth account, and your retirement marginal rate is only "a little lower" than currently.  See Traditional versus Roth - Bogleheads for the math behind all the above.

[enFuego]

Thanks @MDM!  If I keep maxing out my regular 401k and the market performs well, I may be close to the same bracket anyways.  I have added that link to my homework... much appreciated.

[Well Respected Man]

Sorry for the late reply/ghosting. Regarding the HSA topic, I'm clearly ignorant of the ACA plan costs, so I need to follow up on that. In my Cadillac employer-provided plan world, the HDHP is lower cost to the employee, so I assumed the same. The other bias I have is that we have consistently high usage of our plan, always meeting the high deductible, and paying out of pocket. So we have receipts for a large part of the HSA contributions, and a reasonable expectation to use up anything we put in on medical expenses.

I'm also going to look into the runaway IRA/HSA concept. Sounds like one of those Mustachian problems.

[terran]

Sorry for the late reply/ghosting. Regarding the HSA topic, I'm clearly ignorant of the ACA plan costs, so I need to follow up on that. In my Cadillac employer-provided plan world, the HDHP is lower cost to the employee, so I assumed the same. The other bias I have is that we have consistently high usage of our plan, always meeting the high deductible, and paying out of pocket. So we have receipts for a large part of the HSA contributions, and a reasonable expectation to use up anything we put in on medical expenses.

I'm also going to look into the runaway IRA/HSA concept. Sounds like one of those Mustachian problems.

You're not wrong, it's just that your employer probably offers an HSA plan and a copay plan, so the HSA plan is a lot cheaper by comparison. However, the insurers on the marketplace also offer non-HSA eligible high deductible plans that they charge even less for. This might be because they have even higher deductibles (while HSA plans are high deductible, they have to remain under a certain deductible to be eligible) or just because they know people place value on having an HSA so they can charge more.

Sometimes they get really sneaky and make the two plans just about the same but offer a little bit of prescription drug coverage with one plan which makes in ineligible for an HSA, which lets the insurer charge more for the added benefit of the HSA plan.

I was looking at the plans offered in my area the other day out of curiosity and the HSA plan was only a few dollars a month more than the similar non-HSA plans, so not everywhere has a huge difference. Definitely a location specific thing.

[DaMa]

A person enrolled in a plan with an HSA option will use more services than one in a plan that is similar without the HSA option.   It seems counter-intuitive, but if you have a savings account to pay for health care, you are more likely to get health care.  If you get basic services, you are more likely to uncover things that lead to more expensive services. 

Insurance companies purposely design plans so that the non-HSA option has some small amount of better coverage, but still has lower premiums.

[Paul der Krake]

A person enrolled in a plan with an HSA option will use more services than one in a plan that is similar without the HSA option.   It seems counter-intuitive, but if you have a savings account to pay for health care, you are more likely to get health care.  If you get basic services, you are more likely to uncover things that lead to more expensive services. 

Insurance companies purposely design plans so that the non-HSA option has some small amount of better coverage, but still has lower premiums.

Do you have data to back this assertion? You may very well be right, but it does run counter to the conventional wisdom around high deductibles discouraging care.

[DaMa]

A person enrolled in a plan with an HSA option will use more services than one in a plan that is similar without the HSA option.   It seems counter-intuitive, but if you have a savings account to pay for health care, you are more likely to get health care.  If you get basic services, you are more likely to uncover things that lead to more expensive services. 

Insurance companies purposely design plans so that the non-HSA option has some small amount of better coverage, but still has lower premiums.

Do you have data to back this assertion? You may very well be right, but it does run counter to the conventional wisdom around high deductibles discouraging care.

I participated in the pricing of benefits at several health insurance companies in actuarial and finance roles.  I never looked for a public data source, but, off the top of my head, it would be unlikely.  Most data shared by insurance companies is scrubbed to remove plan design information (proprietary).  Medicare and Medicaid data don't reflect high deductibles.  Quick Google got me "Buntin and colleagues (2006) found evidence suggesting that the presence of a personal savings account (such as an HSA) attached to an HDHP could offset the overall spending reduction by roughly one-half, resulting in a net reduction in use of 2 to 7 percent."  https://www.rand.org/pubs/technical_reports/TR562z4/analysis-of-high-deductible-health-plans.html

High deductibles do discourage care.   But having medical savings discourages less than not having medical savings.  Also, the people who fund HSAs are usually older, better educated, and have more discretionary income overall. 

[Paul der Krake]

Thanks! Super interesting stuff.

[seattlecyclone]

Right. We're not comparing high-deductible plans to low-deductible plans, we're comparing high-deductible plans with HSA eligibility to very similar plans without. Makes sense that there might be some difference in usage between the two.