My company recently added an HDHP/HSA option, which I had actually requested because my husband is on the same and we weren’t able to fully utilize the HSA AND I couldn’t have an FSA. However, as it turns out the way this plan works is that you have to meet the full family deductible before it begins paying for an individual, unlike most plans. To add to that, I work in pediatric healthcare and their services are free for my dependent who does have a condition that requires him to go to specialists and get xrays regularly. Except, again, that’s not the case on this plan - I still have to meet that family deductible before it’s free.
We could really use the tax break of being able to put the full family amount in the HSA, but I’m not sure if that makes sense financially if I’m going to have to spend extra - probably couple of thousand $ - out of that HSA money on services that would cost me 0 on the other plan. Can anyone help me think this through?
One thing to check is if your company contributes >anything< to that HSA for your use. In my case, my company kicks in $1500 a year(not matching, just ‘here’s $125 a month’). That alone covers half the family deductible.
As in many things in life… ‘it depends’. The tax breaks related to the HSA are excellent, but if you are losing thousands of dollars in healthcare costs to get a tax break on $8300-$8550, its probably not a financially wise maneuver.
This is in some sense more of a personal finance question than a tax question. You need to first determine the cash cost difference between the two options.
How much extra OOP expenses will you have with the HDHP?
How much of a reduction in premiums do you have with the HDHP?
Does your employer make any contribution towards the HSA?
@Jay How much extra OOP expenses will you have with the HDHP? We would be charged for about $2000 of services that we would not be on the other plan - allowing for that, we’d still be able to add an additional $2250 to the account that we couldn’t currently and reducing our taxable income by an extra $4250. We no longer qualify for contributing to a Roth IRA, so looking for other options for additional retirement savings,
How much of a reduction in premiums do you have with the HDHP? It’s actually $130 more expensive annually than the HMO plan I would otherwise choose.
Does your employer make any contribution towards the HSA? $500.
@Tatum
Reading through this I guess it sounds like we’d probably just be better off taking the same dollars and putting it in my 401k, instead, which I’m not yet maxing out. I already contribute some through the Roth 401K option, so maybe I add this same amount pre-tax for the same benefit.
@Tatum
That sounds correct, and kudos for you for doing the Roth 401k as well. I don’t know where you are in life, but if you are far from retirement, Roth is generally the way to go even if its initially more expensive tax-wise. After a few years of growth, the Roth will win easily. I’m looking at my own far-too-large pretax 401k balance and lamenting not doing Roth for several years on the way to where I am now.
@Ashton
If I’m lucky, I’m 10ish years from retirement, if not…15-20. This is the first place I’ve worked (the last 5 years) that had the Roth 401k option that I know of. I guess it’s good that as we phased out of being able to contribute to a Roth IRA, at least we have the Roth 401k option.
@Tatum
An extra $1500 in net OOP expenses is barely worth the tax deduction on $4250 if you were in the 37% tax bracket. It seems unlikely it makes sense for you, especially because you do still get the tax deduction on the expenses you can reimburse from the FSA if you choose to use it (or your husband’s HSA if you choose to not fund an FSA to preserve his HSA eligibility).
@Jay
Thanks! Yeah, I think taking the $ and putting it into my 401k makes more sense! At this point, I think we’re better off sticking with the HSA so we have the rollover option, even if it means we can’t contribute as much.
However, as it turns out the way this plan works is that you have to meet the full family deductible before it begins paying for an individual, unlike most plans.
That’s part of the definition of an HDHP. You aren’t eligible for an HSA unless you have to meet the full family deductible before they cover anything other than preventive care. (I’m just mentioning this in case you thought it was specific to the HDHP your employer chose to offer. It’s not, they’re all that way.)
Based on what you said about the premiums costing more and having higher OOP expenses for your dependent, it sounds like you might pay a bit less tax but overall won’t end up with more money in your pocket during a typical year.
However, if you can contribute the max to the HSA and not use it for the additional medical expenses you incur, then it can be invested and grow tax free. If you save your receipts for medical expenses, you can reimburse yourself from the HSA at any time in the future tax free. So this money becomes another way to save for retirement without the future tax hit of deferred compensation plans. It really comes down to whether you can afford the extra OOP costs and how you believe investments will do between now and when you withdraw the money.
Also, if you happen to live in California, then you do have to pay state tax on the contributions to the HSA and any realized growth in the investments. As far as I know, all other states conform to the Federal law on HSAs.
That’s part of the definition of an HDHP. You aren’t eligible for an HSA unless you have to meet the full family deductible before they cover anything other than preventive care. (I’m just mentioning this in case you thought it was specific to the HDHP your employer chose to offer. It’s not, they’re all that way.)
Thanks! 1) Our benefits director didn’t know this until just now so she is giving everyone the option to change since it wasn’t communicated. That said, she did say it’s an IRS thing. 2) Because the full coverage for our services benefit for dependents is specific to this organization, it never occurred to me that it would be affected by the type of plan. Once I realized it was, I wasn’t as worried about it with the individual deductible but having to meet the family one really puts it over the top of making no sense to stay with it.
While I could afford the medical expenses out of pocket, I think at this point it makes more sense to deal with this issue once I’ve maxed out my 401k. When I get to the point of being able to do that, these medical issues with my dependent may have resolved one way or another, putting the HSA back on the table.
I had the better coverage last year and wanted to see if an HSA would be better. I pulled an excel for all our medical costs from the insurance portal. Then I adjusted the costs for any expected medical services. I analyzed how the coverage would apply to us with the higher do-pays and deductible.
The high deductible plan is better for us. We would pay less and we would end the year with a balance in the HSA account that would carry forward. As opposed to using the FSA which is a use it or lose it account. Side note, that is the dumbest thing I have ever heard of. Why not make it carry forward as well?
Anyway… I would do the same exercise if I were you. Many people see the HSA as an additional retirement account that is tax beneficial both going in and going out and can be invested in the stock market.
@Oli
Agreed, but since it’s going to cost me about an extra $1600 in medical expenses and I haven’t yet maxxed out my 401k, I think it makes the most sense to put that $ to pre-tax 401k contributions. If we had already done that, and still weren’t eligible for a Roth IRA, then it might make sense to go for the HSA investment potential.
@Tatum
The HSA is essentially a traditional and Roth retirement account. Goes in tax free. Comes out tax free. So if you do decide to go that route, I would take advantage.
Might not be worth the extra medical expense. I found the lower premium made up for the extra out of pocket costs in our circumstance. If that’s not the case for you then you may want to stay with the better plan.