The case pro/con regarding HDHP's and HSA's

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erak
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Joined: Tue Apr 01, 2008 8:41 pm

The case pro/con regarding HDHP's and HSA's

Post by erak »

Hi everyone-

I am back to this issue again as the "day of reckoning" approaches and I either change my health insurance from the HMO to an HDHP or maintain the HMO.

Bottom line regarding my decision at this point: for lack of a better description, slight fear of the unknown! My logical mind says that the 50+% savings on my insurance premium will more than make this move worthwhile from a financial health standpoint. My illogical side of things says to me "what if you hit a catastrophic illness?"

Basic financial considerations:
- I am self-employed; thus responsible for health insurance (knock on wood we're a healthy family w/ 40ish parents raising 2 10ish kids);
- Family coverage HMO is $15,000 premium per year; for HDHP it is about $7400 per year
- I can max out the HSA annual contribution with the difference that I would have ordinarily flushed down the drain with the HMO premium.
- Max deductible is $5000/year; with $10,000 maximum to reach w/ co-payments before full catastrophic coverage.
- No lifetime maximum exists.

It sounds like a viable way to go for me. The uncertainty of this is what concerns me I guess- something new. Has anyone tried and hated this approach to insurance? If so, why? And is there a rational argument in favor of paying more than two times the premium for the HMO?

I'm thinking M&T Bank, which is local, and has low HSA account costs and a 1.75% interest, plus mutual funds available for longer term HSA savings if/when it accumulates.......

Thanks!
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BruceM
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Post by BruceM »

There are two sides to this decision tree: The quality and access to medical services, particularly if/when you or a family member gets sick or injured....and the net costs. I'll speak to the latter.

With the HSA + HDHP, you're betting that the annual after-tax-deduction financial costs of the HSA (including premiums, contributions and out-of-pocket costs) will be less in any given year, than the premiums + OOP costs for the HMO.

Now, run this same calculation with 2 visits to the Dr.s office and two prescription drugs. Do it agin for 4 visits. Then for a one week hospitalization...and so on.

You'll find that the more you utilize the services, the financially better off you'll be with the HMO. At some future point of minimal medical services utilization, you'll have accrued enough HSA savings to have made it the better choice, even if a worst case illness or injury strikes. Where is that break-even point? I don't know, but it would be a good Excel exercise.

BruceM
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zzcooper123
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HSA

Post by zzcooper123 »

What's your current tax bracket? The current HSA deduction is "above the line"and more useful.
Many healthy people use their own funds to pay the medical bills and allow the HSA to compound tax free. Save the receipts and you can use the HSA funds at a time and place of your choosing.
Congress may take HSAs out with upcoming HealthCare reform.
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dual
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Re: HSA

Post by dual »

zzcooper123 wrote: Congress may take HSAs out with upcoming HealthCare reform.
I think that is probable.

Wonder what the approach will be to killing the program? Most likely will stop new contributions to HSA savings accounts and (I hope) allow tax free withdrawals from existing accounts. But they may put a time limit on tax free withdrawals.
mikep
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Post by mikep »

Things to consider:
-Is the HSA plan in the same network (can you still see all the same doctors, specialists, etc)?
-On paper, it seems the HSA plan is the clear winner. You have to consider if you reach $10,000 in out of pocket costs are you going to reach around $2400 in Dr/prescription copays with the HMO plan, which seems likely to me. Add in the tax advantages to the HSA and it's likely the HSA plan comes ahead no matter what (excel will show you)
-With HSA you have $0 copay upfront and claims get first billed through the insurance and then you get the bill. So you have no idea when you go to the ER if the bill will be $300 or $1800.
-Do you have a good emergency fund to cover the $10K maximum early in the year if you have to?
-Prescriptions are not covered until after deductible. Are you ok with going into the pharmacy and paying $500?
-Will the fear of paying $100-150 to see a doctor make you avoid going to the doctor (and a small problem could turn into a big problem)?

I have an HSA plan and have learned quite a bit from this website:
http://www.health--savings--accounts.co ... issues.htm
Topic Author
erak
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Post by erak »

mikep wrote:Things to consider:
-Is the HSA plan in the same network (can you still see all the same doctors, specialists, etc)?
-On paper, it seems the HSA plan is the clear winner. You have to consider if you reach $10,000 in out of pocket costs are you going to reach around $2400 in Dr/prescription copays with the HMO plan, which seems likely to me. Add in the tax advantages to the HSA and it's likely the HSA plan comes ahead no matter what (excel will show you)
-With HSA you have $0 copay upfront and claims get first billed through the insurance and then you get the bill. So you have no idea when you go to the ER if the bill will be $300 or $1800.
-Do you have a good emergency fund to cover the $10K maximum early in the year if you have to?
-Prescriptions are not covered until after deductible. Are you ok with going into the pharmacy and paying $500?
-Will the fear of paying $100-150 to see a doctor make you avoid going to the doctor (and a small problem could turn into a big problem)?

I have an HSA plan and have learned quite a bit from this website:
http://www.health--savings--accounts.co ... issues.htm
Thanks for these thoughts. The plan is in the same network. There is an estmator for "usual costs" on the plan's web site, so i would assume that I can get an idea of the costs. I do have a sufficient safety net to survive a large hit to the health costs if it were God forbid to arise.

The fear of paying alot will likely scare me, but not enough not to go, as that would scare me more.

The fear of paying $15000 for nothing w/ my HMO scares me more, I think. It's just so exorbitantly expensive now. $10,000; even $12,000- maybe I wouldn't worry about the HMO plan. But $15,000, and no sign of the fee slowing down.

I'm not sure what to make of health care reform and the impact on HSA's- I would assume that this would be a preferred means to go under an Obama plan, as it would be a privately funded option to compete against the Government plan.....
felixters
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Post by felixters »

The deciding factor for me was the fact that my HSA contributions will compound yearly and eventually contain a nice bucket of money that can be used in the future to offset medical costs beyond the deductible.

My employer contributes our entire deductible (2,500 for family) into my HSA account yearly. Since august, I've used $478 out of that $2,500, and in august I'll get another $2,500 deposited into the HSA.

It's a good thing while the trend continues. I suspect it will for awhile considering we are 24 and 25. If something comes up, I will either be able to cover it with the excess HSA money saved, or through my emergency fund (last resort).
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grabiner
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Re: The case pro/con regarding HDHP's and HSA's

Post by grabiner »

erak wrote:Basic financial considerations:
- I am self-employed; thus responsible for health insurance (knock on wood we're a healthy family w/ 40ish parents raising 2 10ish kids);
- Family coverage HMO is $15,000 premium per year; for HDHP it is about $7400 per year
- I can max out the HSA annual contribution with the difference that I would have ordinarily flushed down the drain with the HMO premium.
- Max deductible is $5000/year; with $10,000 maximum to reach w/ co-payments before full catastrophic coverage.
- No lifetime maximum exists.
With these numbers, the HDHP looks much better. You can spend $15,000 on the HMO, or spend the same $15,000 by putting $7400 into the HDHP, $5950 into the HSA, and the remaining savings in another account. Since you are self-employed, you can deduct premiums as well as HDHP contributions, so you won't have a full $1650 to save; it would be $1238 if you are in a 25% tax bracket and the money isn't tax-advantaged.

Now, if you have $5000 in medical bills, you still wind up ahead because you have $950 left in your HSA and $1238 left in the bank that you wouldn't have had with the HMO. And if you have that much in medical bills, you would probably have had significant co-payments with the HMO as well.

You will only be better off with the HMO if the HDHP leads to $7138 more in medical costs. That is, if you pay the maximum $10,000 from the HDHP, you would have to have less than $2862 in co-payments from the HMO. Even then, it is only a small difference, and it isn't necessarily that likely; if you have that much in medical bills, a lot of it is probably expensive prescription drugs.
Wiki David Grabiner
davegod75
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Re: HSA

Post by davegod75 »

dual wrote:
zzcooper123 wrote: Congress may take HSAs out with upcoming HealthCare reform.
I think that is probable.

Wonder what the approach will be to killing the program? Most likely will stop new contributions to HSA savings accounts and (I hope) allow tax free withdrawals from existing accounts. But they may put a time limit on tax free withdrawals.
uggh, time to write my senator/rep. again
mikep
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Re: HSA

Post by mikep »

davegod75 wrote:
dual wrote:
zzcooper123 wrote: Congress may take HSAs out with upcoming HealthCare reform.
I think that is probable.

Wonder what the approach will be to killing the program? Most likely will stop new contributions to HSA savings accounts and (I hope) allow tax free withdrawals from existing accounts. But they may put a time limit on tax free withdrawals.
uggh, time to write my senator/rep. again
HSA's are definitely on the chopping block. I would not bother investing HSA's at this point, I'm keeping them in cash incase the HSA party ends soon. See details here: http://www.john-goodman-blog.com/attack-on-hsas/
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preserve
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Post by preserve »

Friken Kennedy. HSA's were making a big dent in lowering medical costs / administrative costs.

Obviously, he wants to kill it.
billern
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Re: HSA

Post by billern »

mikep wrote:HSA's are definitely on the chopping block. I would not bother investing HSA's at this point, I'm keeping them in cash incase the HSA party ends soon. See details here: http://www.john-goodman-blog.com/attack-on-hsas/
Interesting link. I don't see anything discussed that makes me want to change what I'm doing with my HSA (investing it).

I suppose if they put in a deadline for making tax free withdrawals, I might be in trouble. But, the more I lose in the stock market before then, the less qualifying medical expenses I need to have to withdraw tax free. :lol:
mikep
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Re: HSA

Post by mikep »

billern wrote:
I suppose if they put in a deadline for making tax free withdrawals, I might be in trouble. But, the more I lose in the stock market before then, the less qualifying medical expenses I need to have to withdraw tax free. :lol:
Probably ok. Since my HSA is currently in cash, it's probably better to stay in cash after reading this. If I was already invested, I probably would leave alone but at the same time try to spend the account down to the extent of medical expenses incurred.
Topic Author
erak
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Post by erak »

How realistic is this proposed amendment to HSA's to be implemented? It's ridiculous. I would think it's the best of all worlds to allow an option to self-fund, as long as there is the full pre-tax benefits available.
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