Using an HSA To Reduce Your Medical Costs as published in InsideNova.com
Have you ever stood in the grocery store wondering whether to buy the 20-ounce box for $4.99 or the 12-ounce version for $2.99? (Hint: They’re both $0.25/ounce.) That’s simple compared to deciding which of the following is the better healthcare deal for your family when both are available:
(1) A traditional healthcare plan with lower deductibles but higher premiums.
(2) A High-Deductible Health Plan (HDHP) + Health Savings Account (HSA) combo, with higher deductibles but lower premiums, plus tax savings.
Admittedly the calculations are tricky and the HDHP/HSA model is less familiar, so you may be tempted to opt for traditional coverage. That’s too bad, because as more employers offer an HDHP/HSA combo, it’s often the better deal. Let’s take a look at that math:
Step 1: Calculate the cost of your traditional plan by adding annual premiums and out of pocket (OPP) expenses.
Step 2: Calculate the cost of a HDHP/HSA strategy as follows:
A. Add annual premiums plus OPP costs. (Consider the minimum deductible amount for 2018 of $1,350/individual or $2,700/family when working up your OOP costs.)
B. Calculate tax savings from contribution to an HSA. They are tax deductible for Federal and State income tax purposes and, if contributions are made through payroll withholding run through an employer’s Cafeteria plan, also for FICA tax purposes. It’s not uncommon for tax savings to range in the 40% area. Multiply your total tax rate by your anticipated contribution to a HSA (max contributions in 2018 are $3,450/individual and $6,900/family plus $1,000 for those age 55+)
C. Subtract the (B) amount from your (A) amount. Some employers contribute to employees’ HSAs. If so subtract this non-taxable contribution but be aware that the employer and employee’s contributions cannot exceed the limits in (B)
Step 3: Compare your Step 1 cost with your Step 2 net cost to determine which is the better deal.
Complex? Yes. Worth the effort? Also, yes. Next time I’ll share how to handle your HSA for triple tax savings!