Other side to: HSA is it worth it? question

[acb550]

I was hoping a different question would be posed there, so I pose it here instead:  Is an HSA worth it if the premiums are a couple hundred dollars higher than a low cost HMO/POS plan?

Aenta took over the company we had been using and they are not offering HSAs in several states, including Iowa.  Their replacement plan for what we had last year is a bronze plan and is now up to $820 for our family of 4.  (Last year was $645, prior was $500...)  Only 2 companies offer HSA in Iowa.  Medica and Wellmark.  The lowest cost HSA plan for my family of 4 is $1033.18 per month.  The deductible of this HDHP is actually lower than the Aetna deductible, but that makes sense given the higher premium.

I don't expect we will need health insurance for more than the regular preventative maintenance.  Both plans cover this 100%.  Iowa actually allows deductions for health insurance even though the IRS doesn't (we have a stupid high cost health insurance plan through the clinic... almost all physicians buy their own because of the costs).  I did a spreadsheet of potential breakdowns.
Premiums alone:  HSA: $12,398 vs Aetna: $9840.  When accounting that Iowa tax is deducted for either plan it becomes $11,294.72 vs $8964.46.  Maxing out the HSA and using a conservative Federal tax reduction, I figure premium + HSA contributions will be about $16,155 seen going to health care vs the $8964.46.  Worst case scenarios (catastrophic) where the total family deductible maxes out, the HSA costs about $29,155 (this is with max HSA contributions) and the Aetna plan costs $23,064.50

Again I don't see using it more than regular health checkups.  And a clinic perk is the deductible is waived for anything the insurance doesn't cover (no such professional courtesy at the hospital)... so if there are reasons to be at the clinic, we go through the deductible more quickly with the HSA and the clinic would get reimbursed again sooner.

Do you all think it is worth it to pay an effective $2300/$6400 more for the HSA and build that up?  Or do you think it would be better to forego the HSA savings build up and save the money?
Thanks

[DMFA]

Here are some important, pertinent reads for you:

• https://www.whitecoatinvestor.com/should-i-get-an-hdhp-just-to-use-an-hsa (p much right on point with your question)


• https://www.whitecoatinvestor.com/choosing-an-hsa-provider


• https://www.whitecoatinvestor.com/retirement-accounts/the-stealth-ira/

Your terminology is a little odd - it seems like the question you're asking is about whether a high-deductible health plan (HDHP), which would render you eligible for HSA contributions, would end up with less absolute dollars spent annually vs a lower-cost plan like an HMO or PPO.  The HSA stands alone from the plan.

First of all, insurance is tricky.  You never know how much you'll end up needing, but obv it's less likely to need a lot for seemingly healthy people.  Chances are you don't need the extra coverage from the lower-deductible programs.

Second of all, HSAs don't really "cost" much at all other than the cost of the HDHP premiums and uncovered expenses you need to be eligible to contribute to one.  Other than some two-digit set-up fees and some single-digit monthly fees, and the expense ratios of the funds held, they don't "cost" anything.  The $6,650 you get to contribute each year is not a "cost" - it's yours, and you can do with it whatever you want.  It's tax-deductible (can even avoid FICA sometimes), grows tax-free, and is drawn tax-free if used on healthcare (which is what you're talking about using it for, and is its best use, especially after decades of growth).  You don't have to use your employer's HSA and can choose any HSA provider you want; however, if you use you employer plan by payroll deduction, it eliminates FICA tax on the contribution (6.2% on the first $118,500 of income for SS and 1.45% for MCR).

Then, you have everything that the HSA can do.  It is an additional $6,650 of tax-advantaged money each year, regardless of how you use it.  You can keep money in a cash account with a low interest rate (usually < 2%) and usually a minimum on the cash portion, or you can invest the money in ETFs and mutual funds like a usual brokerage account.  If drawn after age 65 for anything other then healthcare, there is no penalty (only taxed as income tax).  This is what WCI calls the "Stealth IRA." The only bad way to use it is to draw your funds from it prior to age 65 and not for healthcare (income tax and 20% penalty).

That renders your math a bit fuzzy to me.  Notwithstanding the other uses for the HSA, and looking at it as though it solely and completely will be spent on healthcare alone (which is a unlikely and not great scenario), your cost comparison should be:

• HDHP costs: (premiums + anticipated expenses) - HSA tax savings [basically bracket * contrib, assuming 33% * 6650 = $2,217]


• HMO/PPO costs: premiums + anticipated expenses

So, without going through the specifics, and especially if you won't be spending that much money on your healthcare outside of your premiums, it comes down to how you want to use the HSA.  Its versatility as a retirement account draws a lot of healthy people/families with high incomes to choose the HDHP so as to enable HSA contributions, sometimes more so to maximize the tax-advantaged retirement savings than to use it for healthcare spending in earlier years.  Some will even pay their healthcare expenditures with non-HSA cash (basically eschewing a 25-39.6% discount in most cases) in order to let their HSA investments grow.  There's not really a sole mathematical equation that can account for as to how it fits with your overall financial plan...

[acb550]

What is interesting is that the LOWEST cost HDHP that is HSA eligible is actually $213 MORE each month than the lowest cost plan (Aetna taking over Coventry One).  However, the Aetna plan is not HSA and Aetna offers no HSA plans in the state of Iowa.  Iowa has two companies only that over HSA plans: Wellmark Blue Cross and Blue Shield  and Medica.  Since I anticipate no costs other than premiums, period, the Aetna plan saves money.

I realize that the $6750 (2017 max) is my money and goes into health accounts/growing etc.  That's why I said what I see from my paycheck on the year is the $16155 to health care:  Premiums + contributions - tax deductions (fed and state), compared to $8964.46 (premiums - Iowa tax deduction).  If I didn't contribute to the HSA (that would be foolish) then I'd be paying $8964.46 for the Aetna plan or $11295 for the high deductible plan (with lower deductibles before insurance kicks in).  The HDHP actually has deductibles of $6500 individual/13,000 family compared to the HMO plan (not HSA eligible) of $7,050/$14,100.  But I could use the same $6750 and invest it elsewhere and have access to the money if needed, or use it to pay down student loans or clinic buy-in loans.  In the HSA it has the advantage of reducing the tax bracket if that comes into play, and not paying FICA.

But I view my medical expenses being $0.  ACA plans pay for physicals and immunizations.  I'd dip into HSA for dental visits (cheaper to pay out of pocket than insurance) and prescription ($16.20 for 90 day supply).  If we need to use the clinic for any reason, it waives the deductible as a professional courtesy.

Looking at premiums only (premiums minus state tax deduction), is it worth it to put that $6750 away and pay $2300 more in premiums for the same medical services benefits?

[DMFA]

Wait a second...maybe I'm being dense, but why is that HMO plan not HSA eligible if your family deductible is $7,050 with OOP max of $14,100?  That's greater than what defines an HDHP for HSA eligibility, which is $2,600 deductible and $13,100 OOP max.  Is it one of those mixed-deductible plans with both per-person and family deductibles, with a per-person deductible under the family minimum?

You do not have to have the HSA that is provided by your insurance carrier.  Yes, Aetna has an HSA, but you're under no obligation to use it if you have their plan.  You can have health insurance through BCBS and your HSA through Fidelity, for instance.

Regarding your math question, if your tax break on the $6,750 is more than $2,300 (34.1%), then yes.  But I think that's a bit too simplistic and I don't think that's the question you should be asking.

[acb550]

I know.  That is part of my problem about which way to go.  The Aentna Leap plan is basically HDHP, but NOT HSA deductible.  It makes no sense, but that's the way it is.  And I've been on the phone with Aetna a few times asking different questions about different plans, and I always ask, "And there are no HSA plans in Iowa?" and I'm told that is correct.

[jz]

Consider that this is a decision for one year, and you may have 30 more years, with different variables, each year.

 

"But I could use the same $6750 and invest it elsewhere and have access to the money if needed, or use it to pay down student loans or clinic buy-in loans "

 

Your opportunity cost analysis above is sound.   For this year, you have better places to shut the money.  Next year may be different.  You sound like a young doctor and will have many more years to build up an HSA account.

[Josh0731]

acb550 wrote:

I know.  That is part of my problem about which way to go.  The Aentna Leap plan is basically HDHP, but NOT HSA deductible.  It makes no sense, but that’s the way it is.  And I’ve been on the phone with Aetna a few times asking different questions about different plans, and I always ask, “And there are no HSA plans in Iowa?” and I’m told that is correct.

Click to expand...

I'm also confused. You know you don't need your employer's help or involvement to have an HSA right? Aetna has nothing to do with your HSA.  And while some employers provide HSAs and even sometimes contributions, many also don't have anything to do with your HSA.  So if the plan fits the IRS HDHP criteria then that's all you need. Pick it and then go set up your HSA on your own. Your employer needn't be involved at all.

[acb550]

So I was looking it up.  The Aetna plan really is not HSA eligible.  The reason is the deductibles are too HIGH.  The HSA (I didn't know this) has a range: More than $1300/$2600 individual family but LESS than $6550/$13,100.  At $7050/$14,100, Aetna's deductible is too high and I can't contribute to HSA.

That's a strange caveat.  But then, didn't insurance companies write a lot of the legislation.  This is them saving themselves money at the expense of everyone else.

[DMFA]

Yeah, that plan sucks.  They're over the family OOP max limit of $13,100.  There's a very narrow range for OOP max that is under the limit for the ACA but over the limit for HSA eligibility.  I still can't believe that's a rule.

The HSA-eligible option seems like it doesn't suck, but your choice is a complicated one to make.  Thinking of the HSA only in terms of its tax deduction and what it can do in only one year is not really an appropriate application of its abilities.  If your overall financial plan supports having the additional tax-advantaged retirement savings (it usually should), then you're probably better with the HSA-eligible plan and an investment HSA.  If cash flow is all that matters so much, then you may want to review other aspects of your finances (e.g. minimizing overall expenditures).