UALflyer wrote: ↑Wed Jun 05, 2024 1:20 pm
Unfortunately, both the calculations and the spreadsheet are incorrect. Here are just some of the issues:

* It is exceptionally common on BH to create these calculations to factor in the tax savings associated with the HSA contributions, but then to completely omit the tax savings associated with a healthcare FSA that a conventional health plan member could use. The tax treatment of the healthcare FSA is identical to that of the HSA.

Agreed. Further below I have included an FSA contribution of $3200.

* I don't know why you're assuming a total marginal rate of 32%, which may be higher or lower than the actual blended tax rate of the participant.

I had to start somewhere. However, even enormous differences in total marginal rate (income tax, excess medicare, FICA, etc) makes VERY little difference, given that all health insurance premiums, FSA contributions and HSA contributions are subject to (essentially) the same marginal rates. The absolute values as on the y-axis change, but the differences between costs of each plan change trivially. Trivially is of course subjective.

* To the extent that the participant's income is above the Social Security wage cutoff for the year, the FICA savings calculations are incorrect.

That's incorrect. FICA is included in the definition of marginal rate in this case. I used 32% as the "all in". If one is under the FICA threshold the marginal rate is lower. Premiums, FSA/HSA contributions are all free of FICA, right? In any case, my calculator has toggle switches for whether one is below/above the SSWB and also above/below being assessed excess Medicare tax. I ignore NIIT.

* The patient's share of the billed medical expenses shown in your chart is totally incorrect. With a conventional plan, the origin and the nature of the charges determine the cost share, and a lot of charges are exempt from the deductible and are only subject to a flat copay. So, for instance, under the OP's HDHP, incurring a $5K emergency room charge on day one means that the entire $5K is paid by the OP out of pocket. On the other hand, under the OP's conventional plan, the exact same $5K emergency room charge results in a $250 flat copay, with insurance paying the remaining $4,750.

Yes, I stated this in my assumptions, when I wrote "assuming the share of billed medical expenses is identical". One can easily take the graph and adjust any of the values for such "point" discrepancies.

* If the OP is not already maxing out all available tax advantaged vehicles, then you are grossly overestimated the tax benefits associated with an HSA. In other words, if the OP is taking the funds that he would've used to fund his 401K and, instead, using them to fund the HSA, then there are no additional tax savings associated with him doing so.

I basically agree with Grabiner on this, but ok. If so, the benefits of the HSA contribution are a little overstated on the graph. OP has since clarified they are maxing other vehicles out.

* There is no clarity on the plan structure available to the OP. So, for instance, does either plan have an individual and family deductible and OOP max? Under the HDHP, are all charges subject to the OOP max (with some/many HDHP's, prescription charges are not subject to the OOP max)? Does the OP's conventional plan cover all delivery charges in full or subject to a relatively small flat copay?

I used the numbers that were provided. But even more importantly, the OP doesn't know whether an MRI (or any other test, visit, drug, or surgery) will cost $1000 vs $100,000 between the two plans. So except for the left and right extremes, everything in between is essentially a guess. How many ER visits will we have, 1 or 5? Will one member of the family need the care or will it be spread out evenly among 2-10 people? There are 10 hospitals in my area and each have different negotiated rates for various care. The OP (nor I) can be expected to create a 24-dimentional grid with slider bars to analyze plans "suppose I need 3 specialists at NYU, 2 general visits, 1 ER visit at Cornell"

Below is an updated graph with FSA contribution. You can see my assumptions. Note that in my previous graph I may have had an error. I think I used a 10% co-insurance estimate for the PPO rather than the 20% estimate given by the OP.

Personally, I use such graphs to look at best case and worst case scenarios. In the example below, if no care is needed, the HSA wins out by a huge amount (and even more when accounting for investment gains). If "extreme" care is needed, the difference is small but again with the HSA winning out (and of course subject to all the uncertainties/differences in billing with respect to medications/ER/etc as we've been discussing). For most people without known/existing ongoing medical issues, the HSA/HDHP in this particular example will be the best plan on average over time. If in any given year there is an emergency, a short-term specialty med, etc. Ok, the PPO perhaps would have been, in hindsight, the best choice for that year. If a person's medical situation changes (e.g. chronic expensive condition) they they switch to the other plan at year end.

If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).