By Dr. Rikki Racela, WCI ColumnistMy wife could not have been more excited. She had just accepted a no call/no weekends/no holidays anesthesia position. The one downside was the occasional commute into the big city since the surgery centers that the anesthesia group serviced would need a trip across the busiest bridge in the country (if not the world). However, most of her work would be in a surgery center that was on our side of the bridge and only a 30-minute commute away. I was excited for her since she would have more time to be with the kids and me.
But I was just as excited for another aspect that her job offered: an HSA! (I know, I am a physician finance geek, but that is why I'm writing columns for WCI.)
What’s not to love about an HSA? It is really the only truly triple tax-advantaged potential retirement vehicle that exists. The White Coat Investor has gone extensively into the merits of this potential “stealth IRA,” and I would be using it to take some of my wife's pre-tax income, get it compounded tax-free, and then withdraw it tax-free by saving healthcare receipts that we paid for out-of-pocket while the HSA grew. The money will never be taxed!
However, in analyzing the financial benefit compared to the situation we had before our access to the HSA, I realized that the benefit might be marginal. Contributing to an HSA excludes us from using other benefits, subjects us to higher premiums for family coverage, and makes us cover higher out-of-pocket healthcare costs. It is important to realize the potential benefits you might be giving up when choosing a High Deductible Health Plan (HDHP) to access an HSA.
The following are some pitfalls we hurdled over in our decision for my wife to access an HSA.
Pitfall #1: You Can’t Contribute to Both a Medical FSA and HSA
As I excitedly set up my wife's HSA to have automatic pre-tax contributions, I realized that maybe I should check if it was kosher to have both an HSA and FSA. We had been utilizing a medical FSA at my job, and I learned my wife was excluded from contributing to an HSA for the calendar year. Whew, I avoided that IRS violation.
But the medical FSA was helpful in using pre-tax money to purchase many over-the-counter health-related items, cover the remainder of any medical visit costs and deductibles, and fund the costs of any prescription drugs. We had been maxing out our medical FSA as my son, who suffers from ADHD, was attending expensive therapy sessions not covered by insurance and my wife was tearing her ACL (a classic skiing accident).
The medical FSA is a use-it-or-lose-it benefit, but we always use up all the money by the end of the year. For 2024, the max you can contribute to a medical FSA is $3,200 (that will increase to $3,300 in 2025), and we are suffering in the highest tax brackets in New Jersey. Our combined state and federal marginal tax rate is about 50%, so we save around $1,600 utilizing a medical FSA. If we were to use the HSA, we lose the medical FSA, but we would gain $4,150 max pre-tax (about $2,075 in benefit pre-tax). On top of that, the money can grow and be taken out tax-free whenever you want—it's not limited to the end of the year like the FSA—as long as you show appropriate healthcare receipts.
We also can do a limited FSA at my job, which reimburses vision and dental costs. In terms of our finances, it makes sense for my wife to take the HSA. Of course, that’s only if she remains healthy and doesn’t tear the other ACL or worse.
Which brings me to the next pitfall . . .
More information here:
7 Reasons an HSA Should Be Your Favorite Investing Account
Should I Get an HDHP Just to Use an HSA?
Pitfall #2: You Get Really Sick, and You Chose the HSA
You shouldn’t let the HSA tax tail wag the healthcare insurance dog. If you are chronically ill and continually supersede the out-of-pocket deductible of an HDHP, the choice is obvious. You don't enroll in the HDHP. What’s not so obvious is the answer to the question of whether you should still take an HSA if you are healthy, like my wife, without a chronic medical condition. There is no right answer to this question; just make sure you know the financial risk you are taking if you were to get sick or injured.
Look at my wife last year, suffering an ACL tear. The costs of surgery and rehab easily overcame the $2,500 deductible of the HDHP she now has. If we had chosen the HDHP for that year (if it had been an option), we would have lost money. But with my wife’s therapy completed along with the decision to quit the sport of skiing, it makes sense for us, given her otherwise excellent health, to take the chance on the HDHP, knowing there is always a slight risk of another injury. More importantly, we can easily cover a $2,500 deductible cost given our high income and emergency fund. It’s not a financial disaster for us to pay the high deductible of an HDHP, which is the most important hurdle to overcome when choosing an HDHP.
If you choose an HDHP over a non-HDHP, just be aware you MIGHT be risking not coming out ahead in terms of suffering an injury or illness in that year. I say MIGHT because of the next pitfall . . .
Pitfall #3: Your HDHP Might Have Great Coverage After the Deductible
You can’t just limit your number-crunching to the amount of your deductible. You must include how much of your medical services are covered after the deductible has been met. Being on my insurance, my wife could seek care within the hospital system where I am employed for NO MEDICAL COSTS!!! Given this incredible “friends and family” benefit, my wife was always getting her care with hospital system-associated providers. Care outside of my hospital system but still in-network would incur a $1,000 family deductible, and then 80% of services were covered. Out-of-network providers had a $2,000 deductible, and only 50% of costs were covered afterward.
The HDHP that my wife signed up for has similar medical coverage to the in-network benefits above after the deductible is met, so if she were chronically ill, the HDHP would not be worth it as she would see providers within my hospital system. But what’s interesting was that she had other health insurance options including a non-HDHP that really had terrible coverage after the low deductible was met. This was a PPO plan that had a $500 deductible, but any medical services after that were only 50% covered. Yes, because it's a PPO, there were more options for in-network providers, but if my wife were chronically ill and had to choose between the HDHP and PPO, she might come out ahead with the HDHP paying the higher deductible and then seeing in-network providers where services were 30% more covered compared to the non-HDHP PPO.
This can get phenomenally complicated very quickly, and adding to the complication is our next pitfall . . .
More information here:
How We Built a 6-Figure HSA (and What We Plan to Do with It)
Pitfall #4: Not Knowing Your Premiums
When you signed up for your benefit when first hired, you might have been told about the health insurance options and the premiums associated with these choices. Once signed up, you likely did a data dump like I did and forgot how much you are paying for health insurance premiums. This also likely includes the premiums associated with covering your spouse and kids. To cover my wife under my health plan costs $575 per year, while the HDHP at her job is totally free (her employer covers the full premium). Pretty good deal!
Which begged the next question I looked into: should the kids and I go under my wife’s plan to double the amount we can contribute to the HSA? The answer was no because of the premium cost. Under her HDHP, covering a spouse and two kids would cost $1,600 per month! That’s $17,200 per year. No way is that worth it compared to the $1,800 per year I pay to cover myself and the kids for my current health insurance under my employer. With my kids and I remaining on my health insurance as opposed to all of us jumping onto her HDHP, that saves us more than $15,000 per year.
Easy choice, but it shows you need to know what you’re paying in premiums before you can fully decide on whether an HDHP is the right choice.
Pitfall #5: Not Saving Receipts for ALL Medical Expenses
In episode No. 365 of the WCI podcast, there was a question that led my fellow esteemed WCI columnist Dr. Tyler Scott and WCI founder Dr. Jim Dahle to debate the pros and cons of the HSA. Tyler mistakenly thought that only medical receipts of the members enrolled in the HDHP could be used to withdraw funds from the HSA. Jim corrected him, saying that any medical receipts, including those of the spouse and dependents, could be used as long as the member was enrolled at the time the medical expense occurred.
I had actually been informed that the same applies to my medical FSA at my job. HR had told me that even if my wife and kids were under different insurance, I could still use the medical FSA benefit on their healthcare expenses. So, if you have an HSA, please keep receipts for ALL medical expenses regarding your spouse and dependents. And even if you have an FSA instead of an HSA, realize you can use the FSA funds on your spouse's and kids’ healthcare expenses even if they are not under your insurance.
More information here:
How I Failed and Then Mastered the Backdoor Roth IRA
The 1 Portfolio Better Than Yours
Where We Stand Now
In the end, my kids and I will stay on my current health insurance plan while my wife will have her work HDHP. It just makes sense as the kids and I are only paying a premium of $1,800 per year with full coverage for in-hospital system providers with a $1,000 deductible and 80% coverage for in-network. I'll give up the medical FSA benefit (but keep the limited FSA my job offers). My wife will have no premiums, a $2,500 deductible, and then 80% coverage for in-network providers, but she also will have access to the HSA.
Everybody’s circumstances are different and an HSA requires taking a look at the factors I have outlined above to make sure you are coming out financially ahead.
If you need extra help with planning for retirement or have
questions about the best way to save your money in tax-protected accounts, hire a WCI-vetted professional to help you figure it out.
Did I miss anything in deciding on the HSA? Have you encountered even more complicated situations when deciding to use an HSA? Did you find that this might be too complicated and decided against an HSA to keep your healthcare/financial life simple?
Great article Rikki and a wonderful real world example of how challenging this annual decision is for families. I have heard the complexities of this choice described as three dimensional chess which aligns with my personal experience for my family that has a special needs child and for my clients at large who struggle to understand the myriad variables that go into this decision.
To the discussion question “Did I miss anything?” – A couple elements that are missing in this analysis which I think are meaningful are the employer contribution to the HSA and the value of the tax free growth and tax free/penalty free withdrawals for any expense, healthcare or otherwise, after age 65 (assuming one saves their receipts).
I approach the question of “is an HSA right for me next year?” with a 5 part mathematical analysis.
Part A – What are the after-tax premiums for all plans?
If the non-HDHP is $10,000 a year and the HDHP is $6,000 that is a $4,000 PRE-tax difference. With a 40% marginal tax rate, the after-tax difference is $2400 in saved premiums. This supports your point that it is critical to know your premiums. A HDHP should have lower premiums because you are paying more costs up front (therefore saving the insurance company money). However, that is not always the case and sometimes the HDHP premiums are inexplicably large.
Part B – How much does the employer contribute to the HSA?
Assuming the premiums on the HDHP are lower, the employer is incentivized to have employees choose the HDHP because they save money on the portion of the premiums they are paying for you. Thus, it is common to see employers make contributions to the HSA to entice employees to use it. This is “free money” just like a 401k match that functionally raises one’s compensation. I often see $500 – 2500 put in annually by an employer.
For our example let’s say the employer puts in $1500.
Part C – What is the tax savings from maxing out the HSA?
The 2025 limit for a family is $8550 which includes employer contributions. In our example, that leaves $7050 for the family to contribute and deduct at their 40% marginal tax rate. This saves the family $2820 in taxes.
Now add up Parts A, B, and C to get a ($2400 + 1500 + 2820) =$6,720 “head start” for the HDHP/HSA. That’s a heck of head start and it’s critical to remember this when you are at frustrated at the pediatrician office paying all $400 for taking the baby in with strep throat under your HDHP.
But the analysis is not complete yet. What are our costs with potentially higher deductibles or missed opportunities with no FSA contributions like you mentioned.
Part D – What is the difference between the non-HDHP family deductible (or out of pocket max, whichever you prefer to compare based on projected healthcare usage) and the HDHP family deducible?
If the non-HDHP has a deducible of $1000 compared to $3000, that’s $2000 in favor of the non-HDHP.
Part E – What is the tax savings if an FSA were used instead of an HSA?
In our example for 2025 with a $3300 FSA limit and a 40% marginal tax rate, the answer is $1320.
So our net difference is $6720 – $2000 – $1320 =$3,400 in favor of the HDHP/HSA in this example.
This often what I see when I do these evaluations and why I disagree with the statement “If you are chronically ill and continually supersede the out-of-pocket deductible of an HDHP, the choice is obvious. You don’t enroll in the HDHP. “ That is absolutely not true for many of my clients. I have several clients with MS that have really expensive medications which causes them to hit their deductible and out of pocket max in the first quarter of each year but still use a HDHP/HSA because this net math shows it’s the right choice.
But wait….there’s more!
The FSA is use it or lose it and the HSA can be invested for 20-30 years with tax free growth and tax-free withdrawals. How much is that worth?
Of course, no one knows because we don’t know what market returns will be but the answer is “more than $0, probably a lot more than $0”. $8550 invested every year, increasing each year for inflation adjustments, increasing again for catch up contributions at age 55, compounding over a 30 year period at a modest ~6% rate is right around $1 million in the HSA. That is a strong tie breaker if the math is close in a given situation.
Also, once your adult kids gain tax independence, they can make their own $8550 contribution until they turn 26 and now they can be on pace for a million dollars in their HSA when they reach retirement age. That is a huge advantage in favor of the HDHP.
The point is, it’s really complicated and I have tremendous empathy for families who have to navigate this choice every year during open enrollment. Thank you for the great article and for making a meaningful contribution to this ongoing “to HSA or not to HSA?” question.
I like all your points except your calculation of the benefit of the HSA growth. The benefit is ONLY the additional tax protected growth of having that money in the HSA as opposed to being invested in taxable. Not the entire amount that HSA grows to. So maybe it grows at 8% instead of 6%. Can still be a lot of money, but not as much as you suggest.
Yes, totally agree. Thank you for articulating this point. I did not mean to imply that you would have $1 million additional dollars but I see now that my comment does read that way (I probably shouldn’t post comments at 1:30 AM).
The broader point is that if the analysis in a given year is close to neutral or even slightly against the HDHP, that there is some non-zero value of investing tax free for 20-30 years and having tax free withdrawals for any expense after age 65 (#SaveThe Receipts).
I acknowledge there are many ways to avoid paying capital gains taxes (via tax loss harvesting, charitable donations, step up at death, 0% LTGC bracket, etc). However, for those who do anticipate selling assets in the taxable account and paying long term capital gains, there is some value to these totally tax free withdrawals from the HSA compared to the taxable account.
In other words, there are two forward looking, non-zero, difficult to quantify benefits of the HSA in addition to the five part analysis I outlined above.
I have dreams of doing a net present value calculation of these benefits to give some quantifiable texture to this part of the conversation but if someone else wants to do that for me and post it here I would be fascinated and grateful.
dude yes absolutely you said it better than I did! I was going through your 5 step framework as I was making my decision and it some ways my situation was made easier to go through your 5 step framework.
1. What are the after-tax premiums for all plans? – this was pretty easy comparing my wife being on the plan solo vs. adding me and the kids.
2. How much does the employer contribute to the HSA? – $0
3. What is the tax savings from maxing out the HSA?- $4,150 x .37= $1535.50
4. What is the difference between the non-HDHP family deductible (or out of pocket max, whichever you prefer to compare based on projected healthcare usage) and the HDHP family deducible?- this was easy given my friends and family benefit at my hospital- is $0 for non-HDHP at my hospital plan 🙂
5. What is the tax savings if an FSA were used instead of an HSA?- $3200 x .37= $1184
and then there is the tax free growth and tax free withdrawal in the future that is much more nebulous to calculate.
So HSA favored in my wife and not my family given the your nice analysis. but yes I definitely should have not said “If you are chronically ill and continually supersede the out-of-pocket deductible of an HDHP, the choice is obvious. You don’t enroll in the HDHP. ” only makes sense in my specific situation where if my wife stayed on my friends and family plan where there is no out of pockets costs/deductibles/any other confusing medical insurance cost. and then I get the FSA to use for other costs.
If you want one more variable (there are so many variables!), recall that HSA and FSA contributions are not just exempt from income taxes but also from payroll taxes (assuming one makes their contributions via payroll withholdings and not “manually”).
Since the HSA contribution is larger ($8550 – 3300 =$5,250), that’s $5,250 x 7.65% =$401.63 additional savings in favor of the HDHP for many*.
*S-corp shareholders with 2% or greater ownership are not exempt from FICA taxes for HSA contributions.
One more consideration that I don’t see mentioned here is consideration of the max out of pocket in each plan. I think of that as the “worst case scenario” for the year.
Annual Premiums + Max OOP (already includes deductible) – tax savings – employer contribution to HSA
I’ve been surprised that once I’ve factored in your Parts A,B,C and D and added the max OOP difference that the HDHP account actually came out ahead by several thousand dollars in a “worst case year” for the plans available to me.
The challenge becomes there’s a specific range of spending where the non HDHP is better but the HDHP winds in the low spending and high spending scenarios.
In the end, the HSA account is a permanent benefit that I can take away from the year and swayed me to the roll the dice.
If I spend a middling amount on healthcare, I might have been better off with the PPO plan, but it’s only a few thousand here or there and we can afford the difference.
I agree completely Ron. The really important calculation is the max out of pocket vs the cost savings of the HDHP. Each family needs to account for tax savings, employer contribution, difference in the cost of the premiums. And of course long term growth and triple tax benefit.
If the calculation of the basics (cost of premiums and employer and catch up contributions and Out of pocket max for HDHP vs OOP max for PPO) if the differences are only a few thousand and you can afford it then maybe the HDHP with HSA is better choice because of the longterm growth.
Another way to think of this is it can be your long term health care insurance. This is money you will control and always be able to say where it goes. Long term care insurance policies can change and insurance companies always move the goal posts or can go belly up. The rough cost of a year in a memory unit is $250k and the avg length of stay is roughly 4 years. Another way to think of the million dollar HSA is as you long term care insurance. Pay a little more now while you are working and can afford it versus getting creamed if someone develops a neurological disorder, has a stroke or become incapacitated for any other reason such as a fall or cardiac condition. This money can also be used for assisted living if it can be shown that the assisted living is medically necessary.
My wife and I work in Massachusetts for same organization. We get $4500/year pre tax RMSA that earns 5% like a bond and keeps earning after we retire. That $9000/year and we do the HSA as I am 59 we get catch up and the employer match. Our family OOP max is $14,000 max and with the premiums, deductibles and tax savings make the HDHP and the PPO almost equal in cost (about $1,000 difference) and we now essentially have longterm care insurance that cannot be taken away.
I forgot to add that there is also the future cost of care. If you are in a high tax bracket and will stay there in retirement your Medicare premiums will be higher, if you have to use taxable assets to pay for healthcare costs selling these assets will cost you more in taxes and of course ear marking money for healthcare costs now while working may protect some inheritance for you children if that is important to you. In the end, if the costs are almost similar, the HDHP with the HSA probably makes sense.
My wife and I pay 20k per year with 6700 per person deductible each. To be fair we have a lot of capital gains this year that push just into a higher bracket for the ACA subsidy. Normal we will pay about $400 a month or $5,000 a year. The prices you’ve listed are amazing. I’m 59 years old and I haven’t come anywhere near that flow of a price since I was in my early twenties. We fully fund our HSA each year but don’t touch it, with the intention of using it to fund that segment of retirement known as healthcare costs haha! So we’ll entirely enjoy the tax free triple benefit there.
I hate you do a double take when I saw $2,500 deductible associated with a hdhp. The two are completely dissociative in my world.
***Sorry for the typos. I don’t see an editing feature. Here’s the post again corrected.
My wife and I pay 20k per year with 6,700 per person deductible each. To be fair we have a lot of capital gains this year that push just into a higher bracket for the ACA subsidy. Normal we will pay about $400 a month or $5,000 a year. The prices you’ve listed are amazing. I’m 59 years old and I haven’t come anywhere near that LOW of a price since I was in my early twenties. We fully fund our HSA each year but don’t touch it, with the intention of using it to fund that segment of retirement known as healthcare costs haha! So we’ll entirely enjoy the tax free triple benefit there.
I HAD TO do a double take when I saw you talk of your wife’s plan and the $2,500 deductible associated with a HDHP. I can’t imagine ever enjoying a deductible that low. I’d consider that an extreme “LDHP”. We are in Maine, of course, so each state is different, but we’re healthy, no medications, and still pay 20K per year for the privilege of paying 100% out of pocket for all health care costs except an annual wellness visit.
HDHP is defined by the government NOT by the specific deductible amount. And I think the minimum deductible is $2,500 or least was not too long ago. That doesn’t mean YOU can find a HDHP with that deductible in your area much less that you want to buy it (since the premium would be a lot higher than yours probably is.)
Yes as Jim mentioned this is the minimum deductible to meet the definition of for the gov’t to qualify as a HDHP. I’ll be my wife’s company is paying a crapload to have a HDHP with that low deductible amount.
“I had actually been informed that the same applies to my medical FSA at my job. HR had told me that even if my wife and kids were under different insurance, I could still use the medical FSA benefit on their healthcare expenses.”
I believe that this statement is not entirely correct if your wife wants to contribute to her HSA. The IRS states that if you are if you have “other coverage” you are not eligible to contribute to the HSA. So if your wife is covered under your medical FSA for a given year, she is not eligible to contribute to her HSA for that year.
IRS Publication 969
“Other health coverage. If you (and your spouse, if
you have family coverage) have HDHP coverage, you
can’t generally have any other health coverage. However,
you can still be an eligible individual even if your spouse
has non-HDHP coverage, provided you aren’t covered by
that plan.”
A medical FSA is considered “other coverage”. So if your spouse wants to contribute to an HSA, s/he cannot be covered by a medical FSA.
This is echoed by Forbes:
“There is however one important caveat to be aware of regarding the FSA. According to IRS rules, a healthcare FSA is considered an additional medical plan. As a result, to remain HSA-qualified and contribute to the account, you or your spouse cannot have a general-purpose FSA.”
https://www.forbes.com/sites/financialfinesse/2022/09/05/hsas-vs-fsas-strategies-for-married-couples-and-domestic-partners/
That’s my understanding as well. It can be a limited use FSA, but not a general medical one.
Excellent point! John you are correct you can still contribute to a “limited” FSA as Jim mentions, but not a full “general purpose” one. My work does not offer the “limited” FSA option.
Great article! (and Comments with more mathematical analysis!) I certainly get the triple-tax-free value, and I get the pros/cons side of the decision analysis you discuss here, but would like more clarification on the other side of the equation – taking the money out of the HSA. Seems to be less written about. You allude “medical receipts, including those of the spouse and dependents, could be used as long as the member was enrolled at the time the medical expense occurred.” Is the latter stipulation accurate? Here’s an example situation: Assume married couple is on HDHP and contributing to HSA from age 50-60, then changes to a non-HDHP health plan (eg offered through employer upon retirement), then go on Medicare at 65. Say a total of $100K was contributed into the HSA and by age 60 that is worth $140K. When taking withdrawals from the HSA you would ultimately need to have corresponding medical receipts totaling $140K, and you’re saying those receipts would all need to be during the period the spouses were “enrolled in the HDHP” ? (ages 50-60)? Or can the funds be taken against any medical receipts after age 50? Even after age 60 or 65?
I had the below Notes from a seminar that seem to contradict somewhat (I understand this topic and situations can be complicated so two things may be true at the same time!)
“While you can’t pay premiums for all types of health insurance coverage using HSA money, you can use HSA funds to pay for qualified medical expenses such as deductible, copay, and coinsurance:
1. Help bridge to Medicare If you retired prior to age 65, you may still need health care coverage to help you bridge the gap to Medicare eligibility at 65. Generally, HSAs cannot be used to pay private health insurance premiums, but there are 2 exceptions: paying for health care coverage purchased through an employer-sponsored plan under COBRA, and paying premiums while receiving unemployment compensation. This is true at any age, but may be helpful if you lose your job or decide to stop working before turning 65.
2. Cover Medicare premiums You can use your HSA to pay certain Medicare expenses, including premiums for Part B and Part D prescription-drug coverage, but not supplemental (Medigap) policy premiums. For retirees over age 65 who have employer-sponsored health coverage, an HSA can be used to pay your share of those costs as well.
3. Long-term care expenses Your HSA can be used to cover part of the cost for a “tax-qualified” long-term care insurance policy. You can do this at any age, but the amount you can use increases as you get older.”
I’m 99% sure that you can use H.S.A. funds tax free to pay for medical bills incurred from the point you first open it, with no regard given to when it was closed. This should be fairly easy to verify, but again, I’m pretty certain. My wife and I have an electronic vault of painstakingly calculated medical bills from around 2001 when we first opened our (now 6 figure) H.S.A. We figure once we hit 65, a certain percentage of our “living expenses” will be health related and so we’ll have a tax free pile to draw from. We’ve got 5 more years before medicare kicks in so I’m pretty sure we’ll keep it and fund it to the end!
HSA money can be used forever on any medical expense no matter what plan you’re enrolled in at the time of the expense. You have to qualify to make the contribution, not to spend from it.
hi Brad thanks for reading and great pick up! I meant to say, as jim said, “medical receipts, including those of the spouse and dependents, could be used as long as the member was enrolled BEFORE the time the medical expense occurred.” Sorry for the confusion.
I second this. It is a difficult calculus.
I am an employed surgeon, a father of three and the sole provider. I developed an autoimmune disease that has me currently fully disabled on private IDI. My medicines are roughly $250,000 per year and I typically hit my out of pocket max for the year in March. At open enrollment this year (planning on a non-clinical role in same organization after the first of the year), our company now offers an HDHP and puts $1500 in the HSA annually.
In my situation the decision would seem obvious- stay with traditional plan. However, the max out of pocket for the HDHP was $900 more than the traditional plan, and the premiums were $1500 a year less. This tells you how bad the current PPO plan is. As long as no one else in my family has massive medical needs, the HDHP will still come out ahead with me utilizing as much healthcare as I do. If another family member hits the OOP max, I’ll be $1000 in the hole. If a catastrophe occurs and we hit our family OOP max, we will be $3000 in the hole versus the PPO plan.
Ultimately, I went with the HDHP, I’ll need lots of healthcare, likely for the rest of my life, and having some money set aside for whatever comes in the future seems useful.
At the end of all this I am left wondering, why does our country do this to people? At what point does it break?
I’ve run into enough people with high health expenses where the HDHP is still the right plan that I’ve learned there is no rule of thumb on this. You just have to run the numbers. Sometimes HDHPs have higher premiums than a non HDHP offered by the same employer. It can be pretty wacky.
Hey sorry for the autoimmune disease and thanks for reading. yes, Tyler mentioned above that a HDHP is not always excluded if you have a chronic medical condition as the right choice. It only made sense with my particular situation if my wife had a chronic health condition to not do the HDHP and stick to me “friends and family” UMR health plan.
Don’t forget that with an HSA you can run medical expenses through the plan so you effectively pay them with pre-tax dollars even without itemizing. (You have the option but not the obligation to pay the deductible from the HSA.) For other health insurance you would have to itemize and only the medical expenses over 7.5% of your AGI could be deducted. Tyler makes an excellent point in Part A of his reply above about considering the after-tax cost of the plan premiums but I would suggest you can also think of the comparison of deductibles in after-tax terms if that is how you use the plan.
Also, as a reminder of how eager New Jersey is to tax its residents, that state (along with the equally voracious California) doesn’t allow a state tax deduction for HSA contributions.
good point and yes, stupid NJ and its crappy high taxes. Actually have future post about that . . .
I work two 10 hour days a week…so I’m “half-time”. My employer lets me buy their HDHP PPO for myself/wife/ and three kids under 26. It costs $17,000 per year with dental and vision coverage.
My first year at half-time, I paid for an Obamacare plan for three of us, a different one for my kids and a limited benefit plan for me to get the least cost. They cost about $14,000 a year. They paid almost nothing for claims…luckily none of us have any notable health issues. We had thousands in “uncovered” care that year that was drained from my HSA.
At present, my employer kicks in $2500 for the HSA which just about covers the routine dental copays and vision overages.
It’s a sad game. I consider the current high deductible PPO insurance to be primarily for serious accidents, shark attacks, or a weird cancer diagnoses.
In fact, I recently paid money from my HSA for a direct to consumer laboratory evaluation to bypass the PCP co-pays and any unknown laboratory co-pays for uncovered tests and avoided multiple appointments. Again, we are lucky that none of us have any serious ongoing medical conditions and take almost no medications other than over-the-counter Nexium from Amazon.
I don’t qualify for Medicare for another five years and my original plan to work part time for two years has been extended, partly due to the insurance phenomenon. The cost to put the kids that are in college on a better Blue Cross Blue Shield college plan has gone up to several thousand per child per year. The employee plan cost the same whether you have one child on the plan or three.
The high deductible PPO also has no out of network benefits for any mental health treatment. One in the family is seeing a therapist at a cost of $500 a month from our HSA.
The employee healthcare insurance costs with HSA drawdowns for routine minimal care are likely to cost me $100,000 between age 60 and 65. I budgeted $12,000 per year, not $20,000 per year, and got a surprise. I’ve read here that other people my age are paying similar amounts just for themselves and their spouse.
For us right now, the employee provided high deductible health plan PPO (with their HSA contribution) seems to be the best option.
yeah Anthony this stuff gets pretty complex pretty quick. Looks like you are making the best decision based on what you konw now. Either decision you make for healthcare seems not a big deal compared to you meeting all your other financial goals though!
My HDHP deductible is $2000 per year with TMOOP of $2800. That is actually less than my PPO plan deductible for some crazy reason. I think 2500 for HDHP is really reasonable. My thought is just stash as much money in HSA as I can and pay out of pocket while income is high. I think paying the piper while working is a small price to pay to have a healthy HSA to pull from in retirement when medical bills tend to increase. Essentially I just budget 2800 per year or whatever my TMOOP is for that year and just treat it like a regular expense that I mostly don’t have to pay completely. My HDHP premium is 28 bucks per month so its nice.
yeah Justin it’s crazy how the HDHP can cover more than a PPO plan. There are so many variations and insurance companies vary so much that sometimes it doesn’t make sense but hey, take advantage and use the HDHP. also tell your coworkers and HR department “dude, the PPO is stupid to take over the HSA plan.” Maybe HR has a reason why they offer an inferior/more expensive PPO plan compared to the HDHP plan. I would suspect that the reason would be System 1 thinking that “PPO plans, despite being more expensive, offer more choices for providers where services are covered vs. HMO/HDHP” without looking deep into the costs.
Thanks for the post, Rikki.
I just found this online calculator to help make the decision.
https://www.doctoredmoney.org/hsa-calculator
dude Jason this is awesome! thanks man now you tell me!