Is a Health Savings Account in Your Future?

So last week’s post explained Flexible Spending Accounts (FSA’s) and Health Savings Accounts (HSA’s) and how they differ.  I’ve been enrolled in a high-deductible health plan for several months now, and opened an HSA to go along with it.  I’m thinking I made the right choice.  But would it be right for you?  Let’s consider a couple of family situations and whether they make good candidates for the high-deductible/HSA combination.

1. A young, healthy couple (or individual):  You and your spouse are free of any chronic medical conditions, rarely go to the doctor or have to fill a prescription, and do not expect to become pregnant over the next twelve months.  Many employers who help pay for their employees’ health plan coverage will encourage people to sign up for the high-deductible option because the premiums are lower and it saves them (and the employee!) money.  To entice people to go that route, they will even contribute some of the money they are saving into an HSA for the employee/family.  That’s free, untaxed money; and if it’s not spent this year it continues to accumulate in the account for future use and can even be invested.  And the investment returns are also never taxed if spent on qualified expenses.  If that employer contribution exceeds your expected expenses during the plan year, it’s a no-brainer: go with the HSA.  Even if that contribution is less than expected expenses, or if the employer contributes nothing, the lower premiums may still make this choice a bargain.

For the next two scenarios, let’s use these policy descriptions to work through the examples:

High-deductible plan with HSA: $3000 deductible for individual, $6000 for family; then a 20% co-pay on next $3000 for each individual, after which insurance pays 100%, unlimited.  Employer contributes $1000 to the HSA for an individual policy, $2000 for a family policy.

Employee’s cost of family policy: $80/month ($960/year)

Regular policy without HSA: Deductible is $250/individual, and two individuals must meet their deductible to meet the family deductible of $500.  Then there is a 20% co-pay on the next $5000 of family expenses, after which the insurance pays 100%, unlimited.

Employee’s cost for the policy: $220/month ($2640/year).

 

2. A couple with one having predictably high expenses, but the other healthy: Even though the employer kicks in $2000 to an HSA for a family policy, it may all be spent on one individual’s medical expenses, as in this scenario with a high-deductible plan.

Adult A: $20,000 in expected medical expenses                       

                                    $3000 deductible

                                        600 the 20% co-pay on the next $3000 of expenses

                                    $3600 total for adult A

            Adult B: $400 expected medical expenses; out-of-pocket:

                                    $400 deductible and total for adult B

Family’s total out-of-pocket: $4000 medical expenses + $960 policy cost - $2000 employer contribution to HSA = $2960

But what if they had the other policy?

            Adult A: $20,000 in expected medical expenses; out-of-pocket:

                                    $250 deductible

                                    1000 co-pay on the next $5000 of expenses

                                    $1250 total for adult A

            Adult B: $400 in expected medical expenses; out-of-pocket:

                                    $250 deductible

                                        30 co-pay on $150

                                    $280 Total for adult B

Family’s total out-of-pocket: $1530 medical expenses + $2640 policy cost = $4170

 

3. Family of two adults and two children under 12: Assumes the adults are still relatively young and healthy and the children will have fairly low, predictable expenses; with the traditional plan:

            Adult A: $600 in medical expenses                Adult B: $750 in medical expenses

                        $250 deductible                                              $250 deductible

                            70 co-pay on $350                                        100 co-pay on $500

                        $320 total adult A                                           $350 total adult B

            Child A: $2000 in medical expenses              Child B: $1200 in medical expenses

                        $400 co-pay on $2000                                                $240 co-pay on $1200

Family total out-of-pocket: $1310 medical expenses + $2640 policy cost = $3950

With the high-deductible option, no one in the family meets the $3000 individual deductible, so they must bear all the costs, and insurance pays nothing.  So:
Family total out-of-pocket: $4550 medical expenses + $960 policy cost – $2000 employer’s contribution to HSA = $3510

In all three scenarios the HSA option would have been the better choice, although the third one was borderline because children’s expenses are predictably unpredictable.  Moreover, my calculations do not account for the tax savings realized through an HSA.

But my point here is to show you how you should do your own calculations if you ever have a choice of insurance plans.  And remember, although I tried to make these scenarios realistic based on my own experience and the types of health plans I’ve seen, these are completely hypothetical policies and situations and are not intended to direct or advise you to choose a particular type of health coverage.  You MUST run your own numbers and make your own decision.

 

Until next time,

Roger

 

“We make our own decisions, but the Lord alone determines what happens.” Proverbs 16:33 CEV