Bronze vs Bronze HSA

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cowdogman
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Bronze vs Bronze HSA

Post by cowdogman » Sun Oct 27, 2019 1:01 pm

We're self employed and buy our healthcare on the Washington State Exchange. We have two children on the policy.

I experimented this year (2019) and bought a bronze policy. The premium is $1,065/month less than the gold from the same insurer. And each month I have deposited $1,065 in a dedicated HY taxable savings account, and I pay any med bills out of that account. So far for 2019 our out-of-pocket expenses have been about $1,100. So this year the experiment worked well (so far).

Now I'm looking at 2020 and am weighing using a bronze HSA policy. It's about $550/year more expensive than the bronze (non-HSA) and it does not include the bronze (non-HSA) two free office visits for each insured (which I value about $100 (after insurance discount) per visit--if used). The deductible and out-of-pocket max under the bronze HSA are slightly lower, but still so high that we will likely never hit them (fingers crossed). Other than above there are really no differences between the policies.

If we fully fund an HSA for 2020 it'll probably save us $1,500 to $2,000 in taxes in 2020--depending on income level.

To me it's a toss up, and so probably better to go with bronze (non-HSA) and avoid the hassle of the HSA account.

Any thoughts? Am I missing some issue?

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indexfundfan
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Re: Bronze vs Bronze HSA

Post by indexfundfan » Sun Oct 27, 2019 1:50 pm

cowdogman wrote:
Sun Oct 27, 2019 1:01 pm
We're self employed and buy our healthcare on the Washington State Exchange. We have two children on the policy.

I experimented this year (2019) and bought a bronze policy. The premium is $1,065/month less than the gold from the same insurer. And each month I have deposited $1,065 in a dedicated HY taxable savings account, and I pay any med bills out of that account. So far for 2019 our out-of-pocket expenses have been about $1,100. So this year the experiment worked well (so far).

Now I'm looking at 2020 and am weighing using a bronze HSA policy. It's about $550/year more expensive than the bronze (non-HSA) and it does not include the bronze (non-HSA) two free office visits for each insured (which I value about $100 (after insurance discount) per visit--if used). The deductible and out-of-pocket max under the bronze HSA are slightly lower, but still so high that we will likely never hit them (fingers crossed). Other than above there are really no differences between the policies.

If we fully fund an HSA for 2020 it'll probably save us $1,500 to $2,000 in taxes in 2020--depending on income level.

To me it's a toss up, and so probably better to go with bronze (non-HSA) and avoid the hassle of the HSA account.

Any thoughts? Am I missing some issue?
I am weighing the same issue.

My non-HSA policy has lower premiums, and provided discounted office visits ($60 copay) and drugs ($40 copay).
The HSA policy has higher premiums (~$1300 more a year), all office visits (other than preventive care) are full priced, but I can save on taxes with a HSA (I save about $1100 in taxes with the HSA). Not counting the discounted office visits, the HSA policy costs me $200 more.

It looks like for your case, your HSA policy costs $550 more but you can save $1500 to $2000 in taxes. So your HSA policy costs you $1000 to $1500 less. You have a better case to take the HSA policy compared to me.
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nalor511
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Re: Bronze vs Bronze HSA

Post by nalor511 » Mon Oct 28, 2019 2:58 am

HSA plans do (by law) allow you one free "preventative" office visit per year, in addition to all the other things that are recommended by the American Health Council Thingy (e.g. cholesterol test, vaccinations, etc). No charge, literally $0, no deductible for those things.

Cigarman
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Re: Bronze vs Bronze HSA

Post by Cigarman » Mon Oct 28, 2019 4:55 am

I think the benefit of the HSA and being able to stash away money for future medical expenses is far superior. Last I knew it was up to $5000 per year you can put in there and as expenses rise (with age) that becomes even more valuable.

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RickBoglehead
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Re: Bronze vs Bronze HSA

Post by RickBoglehead » Mon Oct 28, 2019 5:00 am

HSA contribution limits for 2019 are $3,500 for individual, $7,000 for family. 2020 is $3,550 and $7,100. Add $1,000 for 55 and over catch-up.

Plus, it grows tax free. Invest it 100% stock market index.
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J295
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Re: Bronze vs Bronze HSA

Post by J295 » Mon Oct 28, 2019 10:15 am

We favor the HSA plan

I’m curious, what is the MAGI cliff for your family of four, and how close is your MAGI to that cliff?

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Hayden
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Re: Bronze vs Bronze HSA

Post by Hayden » Mon Oct 28, 2019 1:18 pm

I'm in the same boat. I plan to pay the higher premium to get the HSA plan.

It does seem crazy to me. Why don't they create an HSA plan that is the lowest cost option?

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Re: Bronze vs Bronze HSA

Post by nalor511 » Mon Oct 28, 2019 2:01 pm

Hayden wrote:
Mon Oct 28, 2019 1:18 pm
I'm in the same boat. I plan to pay the higher premium to get the HSA plan.

It does seem crazy to me. Why don't they create an HSA plan that is the lowest cost option?
For me the HSA plan *was* the lowest cost option, when you factor in that your taxable income is lowered by the amount of the HSA contribution.

Rdytoretire
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Re: Bronze vs Bronze HSA

Post by Rdytoretire » Mon Oct 28, 2019 2:24 pm

If I understand correctly a contribution of after tax money to the HSA lowers your MAGI by the contribution amount?

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Re: Bronze vs Bronze HSA

Post by J295 » Mon Oct 28, 2019 2:29 pm

HSA contribution reduces MAGI.

Also, solo 401(k) contributions reduce MAGI.

Capital losses reduce MAGI

Etc

Thus, if OP is interested, I’m curious on whether he/she can do any planning to stay below the cliff and enjoy the substantial premium tax credits.

nalor511
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Re: Bronze vs Bronze HSA

Post by nalor511 » Mon Oct 28, 2019 4:25 pm

Rdytoretire wrote:
Mon Oct 28, 2019 2:24 pm
If I understand correctly a contribution of after tax money to the HSA lowers your MAGI by the contribution amount?
Correct

"If you have an HSA-qualified high-deductible health plan (HDHP), contributing to an HSA (health savings account) will also lower your MAGI." https://www.healthinsurance.org/faqs/wi ... -eligible/

atlgenxennial
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Re: Bronze vs Bronze HSA

Post by atlgenxennial » Mon Oct 28, 2019 4:35 pm

J295 wrote:
Mon Oct 28, 2019 2:29 pm
do any planning to stay below the cliff and enjoy the substantial premium tax credits.
Can you talk more about this?

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Re: Bronze vs Bronze HSA

Post by sperry8 » Mon Oct 28, 2019 4:43 pm

Cigarman wrote:
Mon Oct 28, 2019 4:55 am
I think the benefit of the HSA and being able to stash away money for future medical expenses is far superior. Last I knew it was up to $5000 per year you can put in there and as expenses rise (with age) that becomes even more valuable.
This. Your decision is only taking into account "this year". But OP you are at worst a wash and with the HSA option you now have invested funds growing tax deferred. That is the key to the equation. Hard to beat (only 401ks and the like are better).
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JackoC
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Re: Bronze vs Bronze HSA

Post by JackoC » Mon Oct 28, 2019 9:53 pm

nalor511 wrote:
Mon Oct 28, 2019 4:25 pm
Rdytoretire wrote:
Mon Oct 28, 2019 2:24 pm
If I understand correctly a contribution of after tax money to the HSA lowers your MAGI by the contribution amount?
Correct

"If you have an HSA-qualified high-deductible health plan (HDHP), contributing to an HSA (health savings account) will also lower your MAGI." https://www.healthinsurance.org/faqs/wi ... -eligible/
I assume referring to ACA subsidy. It also reduces the MAGI for calculating whether you pay IRMAA on Medicare...though that's only relevant for the couple of years before you reach 65 assuming you enroll in Medicare at that age (because the IRMAA calc looks at your income 2 yrs earlier so for the first couple of years of Medicare it's looking at an income you could reduce with an HSA contribution, once the look back is to when you were already in Medicare, and thus couldn't contribute to an HSA, it's no longer relevant).

Otherwise the value of HSA is the federal tax deduction (NJ state income tax doesn't look at HSA's, I don't if any others do) in that year, plus also the value of tax free as opposed to taxable compounding for whatever period you keep that money in the HSA. That could be worth quite a lot for younger people who'd use an HSA as a long term savings vehicle (not as much for people like us looking at IRMAA calcs soon).

On upfront tax benefit, I'd recommend not just assuming it's your apparent tax bracket rate, but simulating it in tax software. For us the HSA deduction comes out more valuable that the back-of-envelope number I would have estimated. In our case for 2020 NJ Blue Cross's Bronze HSA becomes non-HSA (it would seem because they lifted the OOP limit beyond what's allowed to qualify). Having calculated the real tax cost of that, plus a lower premium from Amerihealth, the other main provider in NJ who still has a Bronze HSA plan, we'll probably shift. Previously the lower rate alone wasn't worth it; one year in ACA era we went with Amerihealth and found greater difficulty finding doctors who take them and customer service even worse than BCBS (which is saying something) to offset their price advantage then. But the premium difference has increased since, and now HSA tax difference upfront, not counting the Future Value benefit of tax free investment income.

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Re: Bronze vs Bronze HSA

Post by J295 » Mon Oct 28, 2019 10:39 pm

atlgenxennial wrote:
Mon Oct 28, 2019 4:35 pm
J295 wrote:
Mon Oct 28, 2019 2:29 pm
do any planning to stay below the cliff and enjoy the substantial premium tax credits.
Can you talk more about this?
Will be glad to help as best I can. FYI we have utilized the premium tax credit under the affordable care act by managing modified adjusted gross income since the exchange was put in place. perhaps you want to post your gross income, sources of income, family size and ages, state of residence in another post, then PM me and I can take a look at it and respond.

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cowdogman
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Re: Bronze vs Bronze HSA

Post by cowdogman » Tue Oct 29, 2019 5:25 pm

OP here.

Thanks very much for the really useful input.

So far we have always fallen off the ACA cliff (that is, not qualified for subsidies), but using the HSA to, possibly, stay on the cliff edge is a very good point. How close we get to staying on the cliff varies year by year.

My economic analysis is as follows: $550 higher premium cost plus loss of up to 8 free office visits (approx $800 max) for the HSA vs. $1,500 to $2,000 in tax savings (depending on how much we make next year). Washington has no income tax and so no state tax savings from the HSA.

But tax free growth on $7,900/year is attractive.

I also like the IRMAA point as my wife and I are 7 and 5 years away from Medicare.

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Re: Bronze vs Bronze HSA

Post by J295 » Tue Oct 29, 2019 6:33 pm

OP.

If you’re willing to share… What is the annual premium without premium tax credit? And, are you funding solo 401(k)s (which, like an HSA, reduce modified adjusted gross income).

I might be projecting here because our premium tax credit of $24,000 for a couple is so valuable, but I’m just curious if there’s anyway you can stay below the cliff and whether it’s worth it to you.

In any case, best of luck.

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cowdogman
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Re: Bronze vs Bronze HSA

Post by cowdogman » Tue Oct 29, 2019 7:20 pm

J295 wrote:
Tue Oct 29, 2019 6:33 pm
If you’re willing to share… What is the annual premium without premium tax credit? And, are you funding solo 401(k)s (which, like an HSA, reduce modified adjusted gross income).
For 2020, non-HSA bronze premium is $21,941.88 and HSA bronze premium is 22,453.68.

We don't fund pre-tax 401(k)s anymore. Plus pre-tax 401(k) contributions are a lot less valuable now if you're taking a QBI deduction, which we do. I know what you're getting at, but a solo 401(k) contribution would not keep us on the cliff. We would still fall off. At least this year--and previous years. Maybe next year?

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Re: Bronze vs Bronze HSA

Post by J295 » Tue Oct 29, 2019 9:43 pm

Thanks for the follow up. Best of luck.

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