Open Enrollment - to HSA or not HSA?

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funeshah
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Open Enrollment - to HSA or not HSA?

Post by funeshah » Tue Oct 08, 2019 12:45 pm

Hi all,

Open enrollment season is upon us. 2020 is an exciting year for us, as we're expecting our 2nd child in February.

That said, I'm a bit conflicted/torn between selecting a HRA (Health Reimbursement Account) and a HSA (Health Savings Account). The HSA is only available with a high-deductible plan.

For family coverage, annual plan prices:
HSA: $3,453.85
HRA: $5,630.42

Employer will contribute:
HSA: $600
HRA: $800
*additional funding pending completion of various programs, for both HSA and HRA

Annual Deductible:
HSA: $4000/family
HRA: $1500/individual and $3,700/family

Other than those #'s, the coverage amounts are same/similar (for in-network coverage). HRA is not portable, HSA is. I can also make additional contributions to HSA.

That said, what other factors should I be looking at, or if you were in my boat, which option would you chose, and why?

Thanks in advance,

michaeljc70
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Re: Open Enrollment - to HSA or not HSA?

Post by michaeljc70 » Tue Oct 08, 2019 12:51 pm

It depends on how much you would contribute to the HSA, your tax bracket and how much in healthcare expenses you'd guess you'll have. Obviously the latter is the trickiest. Given you are saving over $2k in premiums + you can get a tax break (assuming you have additional $$$s beyond current tax deferred savings) I'd likely go with the HSA. An HSA is a good investment vehicle. Though I haven't contributed to mine for 6 years (due to not having an HSA plan), I have almost 6 figures in there. It is invested in a total stock market fund and I've never used it for healthcare expenses.

HomeStretch
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Re: Open Enrollment - to HSA or not HSA?

Post by HomeStretch » Tue Oct 08, 2019 12:57 pm

I would choose the HSA if out-of-pocket costs for provider visits, etc. up to the deductible are the same under either plan. The HRA annual premium net of the employer contribution is ~$2,000 more than the HSA/HDHP for a plan that differs only by the deductible amounts. Plus as you noted you can contribute to the HSA account.

Is a PPO plan offered? With an expectant spouse and two young children, there can be a lot of claims...

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funeshah
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Re: Open Enrollment - to HSA or not HSA?

Post by funeshah » Tue Oct 08, 2019 2:12 pm

Unfortunately, a PPO plan is not being offered (to me, anyways)...

Olemiss540
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Re: Open Enrollment - to HSA or not HSA?

Post by Olemiss540 » Tue Oct 08, 2019 3:04 pm

What are the max annual out of pocket for either plan?

I ran three scenarios for my healthcare options:

1.) No health issues
2.) Hit plan deductible
3.) Hit max out of pocket

Given the premium savings and tax savings from HSA contributions, it was nearly a wash for option 3 while the HSA was the clear winner for Option 1 and 2. I LOVE my HSA and have been lucky enough to accumulate a decent chunk which takes the strain off my emergency fund while also accelerating my path to FI.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

retire4lyfe
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Re: Open Enrollment - to HSA or not HSA?

Post by retire4lyfe » Tue Oct 08, 2019 3:25 pm

When I do this type of comparison I try to analyze it based on maxing the deductible in both plans for a year.

HSA
Premium: $3,453.85
Deductible $4,000 - $600 = $3,400
Total you spend to hit deductible max: $3,453.85 + $3,400 = $6,853.85

HRA
Premium: $5,630.42
Deductible: $3,700 - $800 = $2,900
Total you spend to hit deductible max: $5,630.42 + $2,900 = $8,530.42

If you experienced a major health issue during the year and maxed your deductible the HSA would be the cheaper option. Your deductible is $500 cheaper on the HRA but you have to spend $2,176.57 more in premiums to get it.

One other factor to look at is what the out of pocket maximums on the two plans are once you hit the deductibles.

I would think the HSA's portability and over all lower cost to meet the deductibles would make it the best choice.

anon_investor
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Re: Open Enrollment - to HSA or not HSA?

Post by anon_investor » Tue Oct 08, 2019 3:39 pm

Congrats on soon to be adding another little one.

The birth and other related medical bills will likely be very high for 2020.

You should look at more than just the premium + deductible. You should consider the maximum out of pocket (e.g. what is the co-pay and/or co-insurance coverage). Also remember the higher premiums reduce your taxable income. An HSA is nice, but not worth it if you end up costing yourself thousands of dollars of extra out of pocket costs.

You really should just crunch the numbers to see what is better for 2020.

Independent George
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Re: Open Enrollment - to HSA or not HSA?

Post by Independent George » Tue Oct 08, 2019 10:07 pm

HSA. My 2nd greatest financial mistake was using a flex account instead of an HSA for most of my working life.

If you spend above the deductible (which seems plausible with two kids), the HSA/HDHP is actually cheaper by about $1,700.

If you spend below the deductible, you can save & invest the 'excess' HSA contribution.

If you have enough income to cover your medical expenses with cash, you can use the HSA as a tax exempt (and not tax deferred) investment account - you are not taxes on either contribution or on withdrawals.

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grabiner
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Re: Open Enrollment - to HSA or not HSA?

Post by grabiner » Wed Oct 09, 2019 11:42 pm

Count the additional tax savings for the HSA, and for an FSA if you can use it with the HRA plan, as part of the comparison. The family HSA limit is $7100. Contributing $6500 of your own money to an HSA saves you $1430 in taxes in a 22% bracket, and more if you pay state tax as well (except in CA or NJ). (This contribution is a net gain even if you have to reduce retirement savings elsewhere. $6500 in your Roth IRA grows tax-free with no deduction on the contribution; $6500 in your HSA gets a tax deduction, grows tax-free, and can be used for medical expenses in retirement if you don't spend the money now.)
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FiveK
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Re: Open Enrollment - to HSA or not HSA?

Post by FiveK » Thu Oct 10, 2019 12:35 am

anon_investor wrote:
Tue Oct 08, 2019 3:39 pm
You really should just crunch the numbers to see what is better for 2020.
+1

Might be worth putting your numbers into a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the personal finance toolbox spreadsheet.

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guwop
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Re: Open Enrollment - to HSA or not HSA?

Post by guwop » Thu Oct 10, 2019 12:04 pm

I'm also trying to decide whether or not to enroll in the HSA next year. The FSA has been quite useful this year, and we're on track to spend down the funds to $0 by end of year. Was hoping to use this thread to get some advice.

Current situation:
MFJ
AGI: 100k
1 child (turning 1 soon)

My wife has her own plan through her job and currently covers herself + our child.
She is planning to quit around February/March to be a SAHM, at which point I will add both of them to my plan.

Open enrollment starts next week. My question is, if I sign up for the individual HSA during open enrollment, I will only cover myself beginning January 2020, correct? Would I still be able to use HSA funds to pay for my family's medical expenses (under individual coverage)? When my wife quits, can I then declare a life event and convert to family coverage? If I'm able to use the HSA to pay for their medical expenses under individual coverage, is there any need to convert to family coverage? Is the only difference the maximum contribution amount/year?

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FiveK
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Re: Open Enrollment - to HSA or not HSA?

Post by FiveK » Thu Oct 10, 2019 12:46 pm

guwop wrote:
Thu Oct 10, 2019 12:04 pm
My question is, if I sign up for the individual HSA during open enrollment, I will only cover myself beginning January 2020, correct?
If you mean "sign up for individual HDHP coverage" then yes. Note that you will be ineligible for an HSA if your wife participates in a general medical Flexible Spending Account (FSA), because you as a spouse would be covered by that FSA.
Would I still be able to use HSA funds to pay for my family's medical expenses (under individual coverage)?
Yes.
When my wife quits, can I then declare a life event and convert to family coverage?
That is up to your insurer.
If I'm able to use the HSA to pay for their medical expenses under individual coverage, is there any need to convert to family coverage? Is the only difference the maximum contribution amount/year?
Note the difference between "covered by insurance" vs. "eligible for HSA reimbursement." You may not wish the rest of your family to go without medical insurance.

See https://www.irs.gov/pub/irs-pdf/p969.pdf for details on all the above.

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guwop
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Re: Open Enrollment - to HSA or not HSA?

Post by guwop » Thu Oct 10, 2019 12:57 pm

What's the best way to determine if the HDHP+HSA is the right plan for my family next year?

I should add that I'm planning to quit my job towards the end of next year, so we will have to pay out of pocket for private insurance. I could elect for the FSA again, but would have to spend this down to $0 before I quit. Since the FSA is fully funded Jan 1st, I could technically "save" a lot more if I depleted the funds a few months before the end of the year before I quit.

Given the above, would I still be able to contribute to the HSA even after I quit my job? Meaning I won't have a HDHP, but I would still like to take advantage of HSA investment vehicle.

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Re: Open Enrollment - to HSA or not HSA?

Post by grabiner » Thu Oct 10, 2019 8:22 pm

guwop wrote:
Thu Oct 10, 2019 12:57 pm
What's the best way to determine if the HDHP+HSA is the right plan for my family next year?
Compare the total cost (including tax savings) under various scenarios. How much do you expect to have in medical expenses, and how much would the conventional plan cover? The worst case for a HDHP is usually if you hit the deductible exactly,
I should add that I'm planning to quit my job towards the end of next year, so we will have to pay out of pocket for private insurance. I could elect for the FSA again, but would have to spend this down to $0 before I quit. Since the FSA is fully funded Jan 1st, I could technically "save" a lot more if I depleted the funds a few months before the end of the year before I quit.

Given the above, would I still be able to contribute to the HSA even after I quit my job? Meaning I won't have a HDHP, but I would still like to take advantage of HSA investment vehicle.
You can only contribute to an HSA for months that you are covered by an HDHP. It doesn't have to be the same HDHP; you could use COBRA coverage from your employer, or get an HDHP from a private insurer. In particular, the HDHPs on the Affordable Care Act marketplace are often good deals. But if you are covered for 10 months, your contribution for the year is limited to 10/12 of the IRS maximum.

The advantage of the HSA is that you can continue to use it even after you lose the HDHP coverage. Thus, contributions to the HSA are not considered part of the cost; the money is still there for future medical expenses, so that you don't need to pay out of pocket and can save more in other accounts.
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beyou
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Re: Open Enrollment - to HSA or not HSA?

Post by beyou » Thu Oct 10, 2019 9:03 pm

Are the networks of doctors the same for both ? That would be most important to me.

I same then it’s just a financial decision based on assumptions, such as if you will remain in your job.

My single son will have to make same decision next year as his employer is also giving a choice of the two. They steer you to HRA by many small differences in the plan, but I really like the portability feature.

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guwop
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Re: Open Enrollment - to HSA or not HSA?

Post by guwop » Thu Oct 10, 2019 9:51 pm

My wife and I do not expect to have many, if at all, medical expenses next year. We would only have to pay some copays for our child’s doctors visits, vaccinations, tests, etc. nothing that would come close to the high deductible. Does this mean the HDHP would be the better choice? If I do quit my job next year, the most that would be in there would be $7100, and then I wouldn’t be able to contribute to it again until I enroll into another HDHP.

grabiner wrote:
Thu Oct 10, 2019 8:22 pm
guwop wrote:
Thu Oct 10, 2019 12:57 pm
What's the best way to determine if the HDHP+HSA is the right plan for my family next year?
Compare the total cost (including tax savings) under various scenarios. How much do you expect to have in medical expenses, and how much would the conventional plan cover? The worst case for a HDHP is usually if you hit the deductible exactly,
I should add that I'm planning to quit my job towards the end of next year, so we will have to pay out of pocket for private insurance. I could elect for the FSA again, but would have to spend this down to $0 before I quit. Since the FSA is fully funded Jan 1st, I could technically "save" a lot more if I depleted the funds a few months before the end of the year before I quit.

Given the above, would I still be able to contribute to the HSA even after I quit my job? Meaning I won't have a HDHP, but I would still like to take advantage of HSA investment vehicle.
You can only contribute to an HSA for months that you are covered by an HDHP. It doesn't have to be the same HDHP; you could use COBRA coverage from your employer, or get an HDHP from a private insurer. In particular, the HDHPs on the Affordable Care Act marketplace are often good deals. But if you are covered for 10 months, your contribution for the year is limited to 10/12 of the IRS maximum.

The advantage of the HSA is that you can continue to use it even after you lose the HDHP coverage. Thus, contributions to the HSA are not considered part of the cost; the money is still there for future medical expenses, so that you don't need to pay out of pocket and can save more in other accounts.

WS1
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Re: Open Enrollment - to HSA or not HSA?

Post by WS1 » Fri Oct 11, 2019 10:09 am

Is the Out of Pocket Max the same for both plans?

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grabiner
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Re: Open Enrollment - to HSA or not HSA?

Post by grabiner » Fri Oct 11, 2019 7:12 pm

guwop wrote:
Thu Oct 10, 2019 9:51 pm
My wife and I do not expect to have many, if at all, medical expenses next year. We would only have to pay some copays for our child’s doctors visits, vaccinations, tests, etc. nothing that would come close to the high deductible. Does this mean the HDHP would be the better choice?
It probably does, but the co-pays will be replaced by full payments (at the in-network rate if your doctor is in your plan's network). An HDHP may not pay anything except for preventive care until you meet the deductible. Thus the vaccinations and annual checkups for the kids may well be free, but other visits to the pediatrician may cost $100.

You have to work out the estimate based on your own medical cost.
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guwop
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Re: Open Enrollment - to HSA or not HSA?

Post by guwop » Mon Oct 14, 2019 12:16 pm

We do not expect to meet the family HDHP deductible ($4,000) next year. Aside from routine pediatrician visits, shots, vaccines, etc, we should only require preventive care (annual physical/checkup and dentist), which is covered (deductible-waived).

I'm not sure how much our PCP and pediatrician copays will be. According to the plan description, it says for the In-Network PCP/Specialist/Dependent Child copay is "N/A". Does that mean I don't have to pay any copays for in network visits under the HDHP plan?

Also, the OOP Limits for my current plan are $3,800/$10,500. HDHP would be $3,500/$7,000. Is this enough data to make an informed decision as to which plan I should elect?

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grabiner
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Re: Open Enrollment - to HSA or not HSA?

Post by grabiner » Mon Oct 14, 2019 12:46 pm

guwop wrote:
Mon Oct 14, 2019 12:16 pm
We do not expect to meet the family HDHP deductible ($4,000) next year. Aside from routine pediatrician visits, shots, vaccines, etc, we should only require preventive care (annual physical/checkup and dentist), which is covered (deductible-waived).

I'm not sure how much our PCP and pediatrician copays will be. According to the plan description, it says for the In-Network PCP/Specialist/Dependent Child copay is "N/A". Does that mean I don't have to pay any copays for in network visits under the HDHP plan?
This may mean that the payment is listed elsewhere as co-insurance (say 10% after you have met the deductible).

But since this is an HDHP, there is definitely not a co-pay until you have met the deductible; you pay the full price.
Also, the OOP Limits for my current plan are $3,800/$10,500. HDHP would be $3,500/$7,000. Is this enough data to make an informed decision as to which plan I should elect?
You need to work out the math, but this makes the HDHP look better, because the worst-case cost is lower. If you have enough emergency funds to cover the worst-case costs, you should compare the math for more likely costs. For example, if you expect your out-of-pocket costs to be $1000 more with the HDHP, then the HDHP is a better deal if the day-one cost (what you will pay if you never see the doctor other than for your annual checkup) is $2000 less, but a worse deal if the day-one cost is $500 less.
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Re: Open Enrollment - to HSA or not HSA?

Post by motorcyclesarecool » Tue Oct 15, 2019 6:01 am

When deciding whether to HDHP for kid #2, I took all the Explanations of Benefit (EOBs) for the year kid #1 was born (on a PPO plan), assumed the negotiated rates would remain “in the ballpark” between insurers, and ran the the numbers in Excel. I found out that I would have paid less with HDHP.

The same spreadsheet has allowed me to comparison shop between to HDHPs, one of which had fixed copays after meeting the deductible. The other one had a 5% copay after meeting the deductible, which scared my coworkers, but I could see actually cost far less than the fixed copays of the other plan.

Do a spreadsheet.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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guwop
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Re: Open Enrollment - to HSA or not HSA?

Post by guwop » Tue Oct 15, 2019 11:23 am

If I select individual HDHP coverage during open enrollment, that allows me to contribute a max of $3,550 for 2020. Employer will be contributing $750 of that.

When my wife loses her insurance coverage next year, I'll have to switch to family HDHP coverage via qualifying event, which would increase my max contribution to $7,100, $1,500 of which is contributed by my employer.

Once I switch to family coverage, will my employer automatically increase their contributions from $750 to $1,500? Would I even be able to change my 2020 contribution during a qualifying event?

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