Should I Get an HDHP Just to Use an HSA?

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Robert207
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Should I Get an HDHP Just to Use an HSA?

Post by Robert207 » Fri Feb 06, 2015 9:30 am

I'm going to be switching jobs and came across this timely post by White Coat Investor:

http://whitecoatinvestor.com/should-i- ... se-an-hsa/

Specifically this got me questioning what I was planning to do: "Likewise, if your employer pays some or all of your health insurance premiums, it doesn’t make sense to turn that benefit down (unless you can exchange it for a higher salary) just to get a HDHP/HSA."

With my new employer, I will have an option of taking a HDHP. Employer pays all premiums (traditional or HDHP) and does not contribute anything to an HSA. These look to be very solid plans no matter which way I go. I am young, healthy and rarely go to the doctor. I take full advantage of 401k, ROTH IRA so the HSA would provide additional tax savings. How do I decide if the tax savings are worth the risk of potentially paying more out of pocket in any given year?

Thanks for your thoughts!

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Carl262 » Fri Feb 06, 2015 3:28 pm

What is the out-of-pocket maximum for both plans?

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Robert207
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Re: Should I Get an HDHP Just to Use an HSA?

Post by Robert207 » Fri Feb 06, 2015 3:47 pm

Carl262 wrote:What is the out-of-pocket maximum for both plans?
Looks like 4500 for the HDHP and 2500 for the standard plan.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Spirit Rider » Fri Feb 06, 2015 7:39 pm

Usually, it is the combination of pros and cons that determine if the HDHP/HSA path is cost effective. In your case, I mostly see cons.

Employee premium share: Employer pays 100%, no advantage to HDHP
Deductible: By definition, disadvantage HDHP (you need to detail the difference)
Out Of Pocket maximum: Significant disadvantage HDHP
Employer HSA Contribution: None
HSA tax deferral benefits: marginal tax rate

In your case you have no premium discount or HSA contribution benefits, only the risk of increased deductible and OOP expenses.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Aptenodytes » Sat Feb 07, 2015 11:45 am

You should seldom do anything only for one reason, ignoring other relevant things. Look at the whole picture and decide.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by grabiner » Sat Feb 07, 2015 3:20 pm

You have to work out the math, comparing the premiums you pay, tax benefits from the HSA, and out-of-pocket costs with both the conventional and high-deductible plans. You can see how this works in a wiki article: High deductible health plan: Examples
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Re: Should I Get an HDHP Just to Use an HSA?

Post by Userdc » Sat Feb 07, 2015 4:53 pm

The only way I could see an advantage here is if you are in a very high tax bracket and already max out your tax advantaged space.

In that situation, it might be worth it to "pay" for additional tax-deferred space by taking a worse plan.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by grabiner » Sat Feb 07, 2015 5:00 pm

Userdc wrote:The only way I could see an advantage here is if you are in a very high tax bracket and already max out your tax advantaged space.

In that situation, it might be worth it to "pay" for additional tax-deferred space by taking a worse plan.
You get more than just the benefit of extra tax-deferred space; you also get a subsidy on filling that space. If you are in a 28% tax bracket and contribute $3350 to your HSA, you get back $938 on your taxes, so it only cost you $2412 to invest $3350 tax-free. That $938 alone may well be more than the expected extra medical costs of the HDHP.
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Re: Should I Get an HDHP Just to Use an HSA?

Post by Robert207 » Sun Feb 08, 2015 10:30 pm

Appreciate the thoughts, looks like I have some more research and reading to do. I am in the 25% tax bracket so that certainly is a consideration and I've really benefited from maxing out my 401k as I also have a small side business that covers expenses. I haven't had any out of pocket expenses in 5 years, but I have to remember that there is always the possibility. If I do go the HDHP route, I would plan to pay for everything out of pocket and let the HSA plan grow tax free - keeping all of my documentation in case I ever need to withdrawal the money. In the future (~5 years), I'm hoping to only rely on my side business which would mean that I'd be purchasing my own health insurance at that time.

Deductible for the HDHP is $2000 and the standard plan is only $300.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by LadyGeek » Sun Feb 08, 2015 10:33 pm

This thread is now in the Personal Finance (Not Investing) forum (health plan).
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Re: Should I Get an HDHP Just to Use an HSA?

Post by Carl262 » Tue Feb 10, 2015 9:01 pm

Don't forget when HSA contributions are run through payroll, you also avoid payroll taxes (another 7.65%).

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Re: Should I Get an HDHP Just to Use an HSA?

Post by mistike » Tue Feb 10, 2015 9:43 pm

If you plan on using it as an investment account, check the details. Mine pays 0.25% and the investment options are pretty bad.

You also should look at what you expect in the next few years - any surgery ? For exemple, I'm going to use mine to pay for LASIK and I'm so glad I chose to go that route. But then my OOP is lower than yours, the HDHP plan is cheap enough and my employer does give a bonus contribution.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by grabiner » Tue Feb 10, 2015 10:16 pm

mistike wrote:If you plan on using it as an investment account, check the details. Mine pays 0.25% and the investment options are pretty bad.
You can change to another custodian with better investment options, so this isn't a major cost.
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Re: Should I Get an HDHP Just to Use an HSA?

Post by White Coat Investor » Tue Feb 10, 2015 11:14 pm

This is an easier decision than people are making it sound. You've got the best of both worlds- access to an HSA AND your employer is paying all the premiums!

So the only issue is the higher deductible vs the benefit of the HSA. Well, you know you're going to get a benefit right off the bat with the HSA. So 25% federal. You don't mention state, or payroll, but that could potentially be closer to 40%. You also don't mention single or married. So let's go single.

So, $3,350 * 25% = $838. If you use NO health insurance, you're up $838 going the HSA route, no including the benefits of additional tax/asset protected space.

Now, let's assume you spend $0-2500 on health care. If you use the regular plan, you pay it all. If you use the HDHP, you pay it all. So advantage- HSA plan.

If you spend $2500-3338, you're still better off with the HSA plan.

If you spend between $3338 and 4500, then you're better off with the regular plan.

Once you're above $4500, assuming they're both 80/20 or something up to the same maximum out of pocket, the HSA plan wins again.

That's an awfully narrow window for the regular plan in my book. I'd take the HSA, especially since you're pretty healthy.

Edit: You said $2500 and $4500 OOP maximum. I'm assuming you meant deductible as those OOP maximums are awfully low.
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Re: Should I Get an HDHP Just to Use an HSA?

Post by killjoy2012 » Wed Feb 11, 2015 12:57 am

Robert207 wrote:Deductible for the HDHP is $2000 and the standard plan is only $300.
^^ That needs to be reflected in your calcs Emergdoc. Your $0-2500 spend #s would change to be in big favor of the standard plan.

As a single, healthy guy in his early 40s, if my employer was willing to offer me a traditional plan with a $300 deductible and they cover all premiums, I'd go that way for sure. While the optimism of possibly making $900 through the HSA is appealing, 1 trip to the ER for the most minor thing will negate that savings fast. And you're also talking $2500 vs $4500 max OOP if something more serious were to occur. At the end of the day it's a gamble -- are you going to need medical care this year? If so, then go traditional. If not, go HDHP/HSA. You just need a crystal ball.

I currently have a HDHP and HSA & enjoy the tax savings, but my employer surely doesn't cover the premiums either! I did have to visit the ER this year (rare) and the bill was $800, all out of pocket. The other downside of the HSA is that I find myself putting off, or talking myself out of, going to the doctor simply based on cost... since it's going to be completely on me out of pocket. Granted, that doesn't happen a lot, but it's one of the downsides of having a "catastrophic only" HDHP.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by White Coat Investor » Wed Feb 11, 2015 1:34 am

Okay, I misread the deductibles. But you can just redo the thing using those numbers.

$0-1138, HSA better.
$1138-2000 Standard better.
$2000+ HSA Better.

Again assumes plans are exactly the same after the deductible is met, which probably isn't true. But still a pretty narrow window of medical expenses for the standard plan to be better.

I just think an HSA plan is going to come out ahead for a healthy guy when the employer is picking up all the premiums. But I have lots of people asking me if they should forego an employer paid standard plan in order to buy their own HDHP on the open market. That's dumb. That's what the post was about.
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Re: Should I Get an HDHP Just to Use an HSA?

Post by Userdc » Wed Feb 11, 2015 1:50 am

I still don't think those numbers are right.

Here's the parameters:

HDHP: 2,000 deductible, 4,500 OOP Max
Standard: 300 deductible, 2,500 OOP Max

So if we assume the HSA benefit is a round $1,000 dollars, then I show the breakeven at $1,550:

HDHP: $1,550 - $1,000 = $550
Standard: $300 + 20% * ($1,250) = $550

Anything higher than that and the Standard wins hands down.

The HSA could be worth more (if you have high state tax, marginal payroll tax) or less (if you use FSA or itemize medical deductions on the standard insurance, OR you end up no needing the HSA for future medical expenses).

I love HSAs, but I'd personally just take the Standard in this case.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Robert207 » Wed Feb 11, 2015 9:55 am

I appreciate the additional analysis. I do have state taxes in the 6% range and I am single. If I do go the HSA route I was looking at either HSA Bank or Elements (formerly Eli Lilly Federal Credit Union I believe) to get access to some decent funds. I haven't spent a dime on medical expenses in the last 4 years and no surgeries planned. It is just hard for me to imagine going to a doctor for any other reason than being sick/antibiotics which would surely be under the $1000 range since I've never been in that situation. Maybe I'm just young and naive :) I'll be taking a closer look at both of the plans again before making my final decision.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Carl262 » Wed Feb 11, 2015 4:33 pm

There's a lot of different numbers floating around. Here's my analysis (spoiler: HSA wins out). My plan assumptions:

HDHP: $2,000 deductible, $4500 OOP Max, 20$ Coinsurance, $1275 savings on the HSA (25% Fed + 7.65% PR + 6% State)
Standard: $300 deductible, $2500 OOP Max, 20% Coinsurance

From $0 up to $300 expenses, the HSA is ahead by $1275
From $300 up to $2000 expenses, the HSA is ahead most of the way; as the number grows the HSA loses ground until it lags by $85 at $2000.
From $2000 to $11,300, the HSA is down by $85.
From $11,300 to $14,500 the number gets increasingly larger until it maxes out at the HSA being behind by $725 at the $14,500 mark.
From $14,500 upwards, the HSA is down by $725.

1-Year Best Case Scenario: No medical expenses and an HSA plan, giving $1275 over the standard.
1-Year Worst Case Scenario: Over $14,500 in medical expenses with the H.S.A. plan, down by $725 over the standard.

If two years have over $14,500 in expenses, and the third year has no expenses, it doesn't matter what you choose. If you're healthier than that, the HSA wins.

If you have $14,500 one year in expenses, you might be able to foresee if next year will have high expenses and switch to the standard plan in open enrollment, making the HSA even less risky.

*Lots of assumptions here. I don't have the plan details in front of me.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Robert207 » Fri Feb 13, 2015 1:53 pm

Carl262 wrote:There's a lot of different numbers floating around. Here's my analysis (spoiler: HSA wins out). My plan assumptions:

HDHP: $2,000 deductible, $4500 OOP Max, 20$ Coinsurance, $1275 savings on the HSA (25% Fed + 7.65% PR + 6% State)
Standard: $300 deductible, $2500 OOP Max, 20% Coinsurance

From $0 up to $300 expenses, the HSA is ahead by $1275
From $300 up to $2000 expenses, the HSA is ahead most of the way; as the number grows the HSA loses ground until it lags by $85 at $2000.
From $2000 to $11,300, the HSA is down by $85.
From $11,300 to $14,500 the number gets increasingly larger until it maxes out at the HSA being behind by $725 at the $14,500 mark.
From $14,500 upwards, the HSA is down by $725.

1-Year Best Case Scenario: No medical expenses and an HSA plan, giving $1275 over the standard.
1-Year Worst Case Scenario: Over $14,500 in medical expenses with the H.S.A. plan, down by $725 over the standard.

If two years have over $14,500 in expenses, and the third year has no expenses, it doesn't matter what you choose. If you're healthier than that, the HSA wins.

If you have $14,500 one year in expenses, you might be able to foresee if next year will have high expenses and switch to the standard plan in open enrollment, making the HSA even less risky.

*Lots of assumptions here. I don't have the plan details in front of me.
Appreciate this, the plans actually I was offered actually differed between what I was sent before I started work. I believe now the HDHP comes out further ahead.

HDHP: 2,000 Deductible, 4,500 out of pocket max
Standard: 1,000 Deductible, 4,000 out of pocket max

Thanks everyone for your help - now to research the best HSA provider.

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Re: Should I Get an HDHP Just to Use an HSA?

Post by Carl262 » Fri Feb 13, 2015 3:43 pm

HDHP: 2,000 Deductible, 4,500 out of pocket max
Standard: 1,000 Deductible, 4,000 out of pocket max
No question that I would select the HDHP with those options. HealthEquity and Saturna are a couple of places that have decent investing options for HSA's.

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