Help me decide on HSA

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Topic Author
gurusw
Posts: 198
Joined: Sun May 11, 2008 9:37 am

Help me decide on HSA

Post by gurusw »

Hi,

I am in dilemma. My employer offers free medical/dental/vision insurance. So it is very confusing to me whether to go for HSA.

We are family of 3. Within medical, I have 2 options: PPO Plan & High-deductible health plan (HDHP).

If I get PPO, the co-pays are very low. The max deductible per year is $250/person & $750/family.
The max expense per year for family is $4000.
HSA is not an option with PPO, but I can do FSA.

If I get HDHP, the co-pays will be higher. The max deductible per year is $1500/person & $3000/family.
The max expense per year for a person is $3000 & for family will be $6000.
But my employer pays $2000 to HSA if I opt for HDHP. Additionally I can contribute $5100/year. FSA won't be an option in this case.

I have additional cash to put in HSA. But I am not sure whether to put that cash in HSA, or get PPO & invest my cash through taxable account. How do I make that choice?

Thanks.
Tdubs
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Re: Help me decide on HSA

Post by Tdubs »

Details on the co-pays? The difference could be important.

The employer match is very good. So I'd be inclined toward the HDHP, but we need to know more.

Any differences in ER visits or hospitalization? Lab tests? Does one offer coverage in areas the other does not?

What have your family expenses for medical been like in the past?
Spirit Rider
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Re: Help me decide on HSA

Post by Spirit Rider »

With the HDHP + $2K employer HSA contribution; the HDHP/HSA effective max OOP = $6K - $2K = $4K (same as PPO) and the effective deductible = $3K - $2K = $1K (only $250 more than PPO).

When you factor in the tax savings on the $5100 in HSA contributions, tax free growth and tax free distributions. I think it leans strongly towards the HDHP/HSA, but you have to compare co-pays/co-insurance.
Topic Author
gurusw
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Re: Help me decide on HSA

Post by gurusw »

Co-pays .... PPO vs HDHP:

Some are same
Preventive care: both $0 both
Diagnostics tests, Ambulace, Surgeon: both 10% coinsurance
Pharmacy: both same (preventive $0, generic $10, prefered $30, speciality 20% coinsurance)

Some are more for HDHP
PCP or Specialist, Physical or speech therapy, Chiropractor: $20 vs 10% coinsurance
Urgent care center: $35 copay vs 10% coinsurance

Some cases PPO is more!
CT scan/MRIs: 20% coinsurance vs 10% coinsurance
Emergency room: $100 copay+10% coinsurance VS 10% coinsurance

I don't care about other services since they are very unlikely for my family. But I think mostly the other services are both 10% coinsurance.

Coverage areas and Network would be the same for both plans.

Other than the yearly checksups & flu shots, between all 3 of us, the total dr visits are averaging between 3 and 4 per year (meaning 1 per person per year).
The only big expense we had 2 years back, was for braces for my son... for which I had used FSA.
If it helps, our current ages are 45, 43, 12.
Topic Author
gurusw
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Re: Help me decide on HSA

Post by gurusw »

Also as I understand, HSA would have taxes & 20% penalty if taken out for non-health reasons before 65.
And it will have taxes if taken out for non-health reasons after 65.
It is tax/penalty free only for health reasons. So I'm not sure what would be the right amount to put there. Of course I have $0 now :)
Bfwolf
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Re: Help me decide on HSA

Post by Bfwolf »

The HDHP option will be superior in the vast majority of use cases.

Assuming you are already maxing out your 401k and backdoor Roth (and possibly even if you aren't), you should max out the HSA.
Topic Author
gurusw
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Re: Help me decide on HSA

Post by gurusw »

Bfwolf wrote: Thu Oct 31, 2019 12:21 am The HDHP option will be superior in the vast majority of use cases.

Assuming you are already maxing out your 401k and backdoor Roth (and possibly even if you aren't), you should max out the HSA.
Yes, I am maxing out 401K and Roth. But no contributions to 529.
Bfwolf
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Re: Help me decide on HSA

Post by Bfwolf »

gurusw wrote: Thu Oct 31, 2019 12:23 am
Bfwolf wrote: Thu Oct 31, 2019 12:21 am The HDHP option will be superior in the vast majority of use cases.

Assuming you are already maxing out your 401k and backdoor Roth (and possibly even if you aren't), you should max out the HSA.
Yes, I am maxing out 401K and Roth. But no contributions to 529.
I would certainly prioritize your HSA over your 529. HSA withdrawals used for medical expenses are completely tax free, i.e. superior to any other pre or post tax retirement account. You can also use your HSA to reimburse yourself for past medical expenses. So you can invest your HSA funds, let them grow tax free and then reimburse yourself for your medical expenses from 3, 10, 30 years earlier. This is what many of us do: pay for our medical expenses out of pocket and then scan in the receipts for reimbursement from our HSAs many years from now after we've enjoyed decades of tax free growth.

Since your current balance is $0, there's little risk of you being unable to use the current maxed out contributions for medical expenses. But even when you get to that point, it essentially turns into a traditional IRA except you have to wait til 65 to get the money without penalty instead of 59.5. You are likely in a high enough tax bracket where that kind of pre-tax investing is better for you than post-tax investing in a 529.

Of course you want to have enough money to pay for college, and a 529 may be a worthwhile place to look AFTER you max out your HSA. But you can also always save for college later and/or just pay for it from cash flow depending on your income/expenses.
bluebolt
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Re: Help me decide on HSA

Post by bluebolt »

If you have expensive prescriptions, one thing to verify is whether the prescription drug costs are only covered once you hit your deductible under the HDHP. Some HDHP plans work that way and the prescription coverage only kicks in once you have hit your deductible.
Spirit Rider
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Re: Help me decide on HSA

Post by Spirit Rider »

gurusw wrote: Thu Oct 31, 2019 12:00 am Also as I understand, HSA would have taxes & 20% penalty if taken out for non-health reasons before 65. And it will have taxes if taken out for non-health reasons after 65. It is tax/penalty free only for health reasons. So I'm not sure what would be the right amount to put there. Of course I have $0 now :)
There should never be a reason to take non-qualified distributions from an HSA < age 65. You should almost never take non-qualified distributions from an HSA >= age 65 unless you have no other pre-tax accounts to take distributions from.

Almost all HSA account owners will have far more HSA qualified medical expenses than HSA account balances. Fidelity's estimate for an average 65 year-old couple retiring in 2019. Is that they will spend $280K on retirement healthcare expenses in today's dollars. That figure does not include vision, dental and LTC.
terran
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Re: Help me decide on HSA

Post by terran »

As usual it sounds like the HSA is better for very low/no medical spending (you get to keep the employer HSA contribution and get a tax deduction for extra HSA contributions) and very high medical spending (same out of pocket max after employer HSA contribution and you get a tax deduction for extra HSA contributions), so the PPO only comes out ahead for a medium amount of medical spending. From my own experience and from seeing other threads like this that's pretty typical. Do you have a sense of whether your family's medical spending is high, medium, or low?
terran
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Re: Help me decide on HSA

Post by terran »

bluebolt wrote: Thu Oct 31, 2019 4:43 am If you have expensive prescriptions, one thing to verify is whether the prescription drug costs are only covered once you hit your deductible under the HDHP. Some HDHP plans work that way and the prescription coverage only kicks in once you have hit your deductible.
Isn't that a requirement of HSA compatible HDHPs?
rantk81
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Re: Help me decide on HSA

Post by rantk81 »

Whether or not a plan has a PPO network is completely separate from whether or not it is a HDHP compatible plan.

PPO refers to how the doctor network is structured.

HDHP refers to details of how the cost-sharing part of the plan is structured.


A HDHP plan could have a PPO network or a non-PPO network.

A non-HDHP plan could have a PPO network or a non-PPO network.
rantk81
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Re: Help me decide on HSA

Post by rantk81 »

terran wrote: Thu Oct 31, 2019 8:27 am
bluebolt wrote: Thu Oct 31, 2019 4:43 am If you have expensive prescriptions, one thing to verify is whether the prescription drug costs are only covered once you hit your deductible under the HDHP. Some HDHP plans work that way and the prescription coverage only kicks in once you have hit your deductible.
Isn't that a requirement of HSA compatible HDHPs?
For HDHP/HSA compatible plans, generally all costs (other than "Preventative") must be paid by the covered individual/family until the deductible is met.

However, some prescriptions can be deemed "preventative" (such as blood pressure medications.) It is up to the folks who created the plan to determine if those 'scripts will be covered before the deductible or not. But they don't affect HDHP/HSA eligibility.
47Percent
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Re: Help me decide on HSA

Post by 47Percent »

gurusw wrote: Wed Oct 30, 2019 11:02 pm Hi,

I am in dilemma. My employer offers free medical/dental/vision insurance. So it is very confusing to me whether to go for HSA.

We are family of 3. Within medical, I have 2 options: PPO Plan & High-deductible health plan (HDHP).

If I get PPO, the co-pays are very low. The max deductible per year is $250/person & $750/family.
The max expense per year for family is $4000.
HSA is not an option with PPO, but I can do FSA.

If I get HDHP, the co-pays will be higher. The max deductible per year is $1500/person & $3000/family.
The max expense per year for a person is $3000 & for family will be $6000.
But my employer pays $2000 to HSA if I opt for HDHP. Additionally I can contribute $5100/year. FSA won't be an option in this case.

I have additional cash to put in HSA. But I am not sure whether to put that cash in HSA, or get PPO & invest my cash through taxable account. How do I make that choice?

Thanks.

Under most (normal) circumstance you should only look at the max expenses and not deductibles -- the logic being, for any health issue other than something extremely minor, you pretty much would go from 0-60 in 3 seconds!

That being the case PPO HSA still makes sense. With the $2K free money from the employer, and the close to $2K you would save in your taxes.. Don't overthink it. Just go with the HSA.

(Corrected the typo above, which completely screwed up the meaning and suggested the opposite of what was intended. Sorry for the confusion)
Last edited by 47Percent on Thu Oct 31, 2019 11:37 am, edited 1 time in total.
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anon_investor
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Re: Help me decide on HSA

Post by anon_investor »

I don't think the OP mentioned whether any future plans for another child (or some kind of big surgery). If any such plans, the PPO might win out over the HDHP/HSA combo. Also, I assume the OP has sufficient after-tax funds to pay for 100% of the out of pocket medical expenses while on the HDHP (in order to allow the HSA to grow)? If not, then I would just do the PPO.

I have had PPO, HMO, HDHP/HSA. And I have found that for expected (or unexpected) large medical expenses in a year the PPO/HMO usually will trump the HDHP/HSA (especially if the plan is to pay all out of pocket costs with after-tax funds in order to allow the HSA to grow).

I have had an HDHP/HSA for a while now, and use the strategy of paying for all out of pocket medical expenses with after-tax funds, in order to allow my HSA to grow. However, this year my family was hit with a number of unexpected medical expenses (to multiple people) pushing us well past the deductible and close to the out of pocket maximum. For this calendar year, comparing past HMO/PPO coverage I had, the HDHP/HSA would have lost out (as I would have invested those after-tax funds).
terran
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Re: Help me decide on HSA

Post by terran »

rantk81 wrote: Thu Oct 31, 2019 8:42 am
terran wrote: Thu Oct 31, 2019 8:27 am
bluebolt wrote: Thu Oct 31, 2019 4:43 am If you have expensive prescriptions, one thing to verify is whether the prescription drug costs are only covered once you hit your deductible under the HDHP. Some HDHP plans work that way and the prescription coverage only kicks in once you have hit your deductible.
Isn't that a requirement of HSA compatible HDHPs?
For HDHP/HSA compatible plans, generally all costs (other than "Preventative") must be paid by the covered individual/family until the deductible is met.

However, some prescriptions can be deemed "preventative" (such as blood pressure medications.) It is up to the folks who created the plan to determine if those 'scripts will be covered before the deductible or not. But they don't affect HDHP/HSA eligibility.
Ah, I knew some preventative medications where fully covered, but I thought that was defined by the ACA, not up to the discretion of the insurer.
asif408
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Re: Help me decide on HSA

Post by asif408 »

Maybe I missed it but what are the premiums for each plan? That would also be a consideration.

I have a HDHP/HSA, and I considered the:
1) Difference in premiums
2) Tax savings from HSA
3) Difference in cost in 3 situations:
a) no health care expenses,
b) expenses right around max deductible
c) and expenses in worst case scenario (max OOP)

In my case, premiums were much lower for HDHP, and total cost (considering difference in premiums and tax savings/contributions from employer for HSA) was lower in cases 3a-3c, although in case 3b the savings wasn't much.
Texanbybirth
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Re: Help me decide on HSA

Post by Texanbybirth »

I'd go with the HSA, and max it out every year.

(You have great options, btw. We're on a HDHP/HSA, and our family deductible is higher than your family Max OoP! You're in a good place to save some serious cash in the HSA.)
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
rantk81
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Re: Help me decide on HSA

Post by rantk81 »

terran wrote: Thu Oct 31, 2019 9:38 am Ah, I knew some preventative medications where fully covered, but I thought that was defined by the ACA, not up to the discretion of the insurer.
Well, the set of medications that CAN qualify for this special case -- yeah that's defined by the ACA. But it is at the discretion of the insurer if they actually do cover those prior to hitting deductible.

https://www.irs.gov/pub/irs-drop/n-19-45.pdf
Last edited by rantk81 on Thu Oct 31, 2019 11:30 am, edited 1 time in total.
Topic Author
gurusw
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Re: Help me decide on HSA

Post by gurusw »

Thanks all for bringing some clarity to my situation.

So is it correct that I can contribute full $5100 to HSA regardless of my income level?
KyleAAA
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Re: Help me decide on HSA

Post by KyleAAA »

I've had the same choice at two employers now (seems to be increasingly popular) and the math has both times come down heavily on the side of choosing the HDHP with HSA. In your case, it seems like a no brainer. You're generally best off investing the entire HSA balance and paying health expenses out of pocket. Think of it as an extra 401k.
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