$234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

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clad856
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$234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by clad856 » Mon Dec 10, 2018 3:49 pm

Hello,

I am a 26-28 y/o and I am wondering if it is better for me to purchase a $234/mo Bronze HMO or a $290/mo Bronze HMO HSA-eligible medical insurance plan? I am self-employed and make around 80k-100k/year. The benefits of both bronze medical insurance plans are about the same but I am wondering if contributing to an HSA will be lower cost for me overall (tax-wise, etc.).

Any tips or advice on which of these two medical insurance plans to choose and is best for my situation? I am healthy and just want medical insurance for catastrophic coverage and the rare/unexpected. I am therefore just looking for the cheapest medical plan with high deductible and am wondering which of these two plans is the cheapest overall considering all factors (e.g. tax, etc.).

Thank you!

New Added Question (12/11): If I am self employed, how much taxes will I save if I am in the 22% tax bracket and contribute the maximum of $3500 in an HSA? Will I save just 22% of the $3500 or will I save the 15.3% in FICA taxes I have pay on my self-employment earnings as well? Anyone know the correct amount of taxes I will save? Thank you.
Last edited by clad856 on Tue Dec 11, 2018 1:14 pm, edited 1 time in total.

terran
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by terran » Mon Dec 10, 2018 4:38 pm

The annual premium difference is $672. If you're single the HSA limit is $3500. $672 is 19.2% of $3500. Assuming the two plans really are equivalent in all other ways, other than access to an HSA, then is seems to me that if you marginal tax bracket is anything less than 19.2% then you're better off with the non-HSA plan, if it's anything more then you're better off with the HSA plan. This would be your state and federal marginal brackets combined, unless you live in a state (like California) that doesn't recognize HSAs.

Since you're self employed, you may be able to deduct your health insurance premiums, in which case you could reduce the $672 by your marginal tax and use that to figure the break even rate.

If your business is an S corp you may be able to contribute to the HSA with pre FICA earnings while still counting the contribution towards your reasonable compensation which would increase the attractiveness of the HSA. That would be a question for whoever helps you with your payroll.

If you plan to invest the HSA, and assuming you already max all other tax advantaged space, there might be an added advantage to having the HSA in terms of reducing tax drag on invested money, but I'm not sure how you'd go about quantifying that?

averagedude
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by averagedude » Mon Dec 10, 2018 6:22 pm

If you are healthy and you believe you will stay that way (nobody knows), I would go with the HSA eligible plan. Rarely many say this, but an HSA for a young person is a better investment vehicle than any IRA or 401k plan after you have taken advantage of the match. This only applies if you are using your HSA as a long term investment vehicle and planning to invest it heavily into equities. One thing that people should consider when comparing plans in the marketplace is the deductible, total out of pocket costs, and what networks you will be in with each plan.

Atgard
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by Atgard » Mon Dec 10, 2018 6:53 pm

I am a big fan of HSAs if the premium costs are close enough. You get immediate tax savings and tax-free growth and tax savings when you withdraw down the road.

You have to look at your individual tax situation to see how much you will save immediately with the $3,500 tax deduction, then consider how much you will additionally save down the line.

Also keep in mind that most HSA plans have lower deductibles and out-of-pocket maximums; that is usually what makes them qualify as HSA-eligible while most other plans do not. So you may be getting slightly better coverage also.

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grabiner
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by grabiner » Mon Dec 10, 2018 10:14 pm

averagedude wrote:
Mon Dec 10, 2018 6:22 pm
If you are healthy and you believe you will stay that way (nobody knows), I would go with the HSA eligible plan. Rarely many say this, but an HSA for a young person is a better investment vehicle than any IRA or 401k plan after you have taken advantage of the match.
It doesn't matter whether you are young; the HSA is still the best investment. If you are in a 22% tax bracket, you might have the choice between putting $2000 into your HSA or $1560 into your Roth IRA. If you don't need the money for health care, you have $440 more growing tax-free for retirement. If you do need the money for health care, and you invested in the Roth IRA, the $2000 out of pocket is $2000 you can't invest in the Roth IRA next year, so you lost $440 compared to holding the money in the HSA.

The tax benefit has to be weighed against the difference in costs and coverage. For most HDHPs, the higher deductible offsets the tax benefits, so that you have to be in reasonably good health to benefit. But some employers subsidize coverage in a way that makes the HDHP always come out ahead. For example, with the US government, the employer contribution to the HSA and the tax savings cover the entire deductible on many plans in moderate tax brackets.
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willyd123
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by willyd123 » Tue Dec 11, 2018 6:38 am

I think the above advice is all good especially the first respondent who addresses your specific question very succinctly. The one thing that I don't think has been mentioned and that you didn't suggest is whether you really just want the cheapest option or are you interested in which plan may be best for you over the long run which may be to manage your HSA as a retirement plan, not a medical expense reimbursement plan. If you are open to managing it as the former, I would go with the HSA, max out my deferrals if I am able, invest the assets and let it grow. I've done this and now have about $70,000 available to pay medical expenses, Medicare premiums or to buy a sailboat if I want (I've saved all my medical expense receipts since I first opened my HSA and am therefore permitted to pull that amount out whenever I want).

Topic Author
clad856
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by clad856 » Tue Dec 11, 2018 1:16 pm

Thank you guys for your answers. So it seems that if I am health and do not expect to visit the doctor much I should go with the $290/mo HMO HSA-eligible plan?

My other new question is: If I am self employed, how much taxes will I save if I am in the 22% tax bracket and contribute the maximum of $3500 in an HSA? Will I save just 22% of the $3500 or will I save the 15.3% in FICA taxes I have pay on my self-employment earnings (the $3500 I contribute) as well? Anyone know the correct amount of taxes I will save? Thank you.

terran
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by terran » Tue Dec 11, 2018 7:48 pm

If you're a sole proprietor (file schedule c) I don't think there's any way to set it up so you don't pay self employment tax on the HSA. If you're an S-corp your payroll processor might be able to help you do so, but I don't how how difficult or expensive that would be, so you'd need to ask them about that.

J295
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Re: $234/mo Bronze HMO vs $290/mo Bronze HMO HSA-eligible medical insurance plan?

Post by J295 » Tue Dec 11, 2018 9:55 pm

The HSA contribution will not reduce the self-employment tax for a sole proprietorship.

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