My commenter Ron deserves to have this post promoted from yesterday’s open thread. I oppose HSAs (and for that matter employment-based health insurance) as a policy because they are diametrically opposite to being the overall solution to universal health insurance, although I’m pretty much indifferent to whether we go with a tax-based single payer system or a strictly-regulated, compulsory, community-rated (non-underwritten) individual or group insurance system as the preferred outcome. However, in real life we’re not getting to any of those politically any time soon, and as a solo operative with some of my own health problems it appears to me that a high deductible plan with an associated HSA is my best option. So I’ve got one.
Ron explains in this example why that might be a good option for others….of course he doesn’t get to the community-rating/risk pool division issue, but that’s for another post. Here’s Ron’s example:
A 30 Year Old Nurse Who Is A Single Mother
Pick Any Des Moines Hospital
Annual Income: $50,000
A single parent mother making $50,000 a year is not rich. Many
employers will pay $400 a month for single coverage but the employee
must pay the additional $400 a month to add on their child, out of
their paycheck. Now the Mother has deductibles and co-pays on both her
and the child. Probably, knowing health insurance like I do, the
employee insurance has switched from co-pays on RX to co-insurance
($10 co-pay for Generics and $25 co-pay on Brand Name PLUS Co-Insurance
of 50% on Brand Name). Remember, some people when they get sick have RX
bills of $1,500 a month, ask Montel Williams. So if the mother or the
child got sick we have no idea what will be the out of pocket annual
expense for just RX. PLUS, If the mother got ovarian cancer and could
not work, a requirement for keeping her insurance, she would be put to
COBRA for insurance termination. Everybody, including people who sell
group insurance, say they can’t comprehend why that makes even the
slightest difference in the world. To me it’s simple, I would prefer a
contract that can’t be singled out for termination because of my
relationship to some employer.
The HSA Individual Option
The Mother pays the total family premium of $78.68 per month. Now
she saves $400 a month coming out of her paycheck that she can save or
spend on her baby. The $400 a month, that the employer is currently
spending on the Mother’s single insurance, is redirected to the bank,
in the Mother’s Tax Free Health Savings Account or HSA. The bank must
be FDIC insured, it’s the law.
Annual Deposit From Employer: $4,800
Maximum Annual Out-Of-Pocket (OOP) for the family: $5,200
So the maximum annual OOP expense for this Mother and child is
capped at $400 a year and she is currently paying $400 a month, out of
her check, with no idea how much she could owe with co-pays and
No FICA Tax on HSA deposits. The FICA tax is 15.3% and is split
between employer and employee. Now the hospital won’t pay 7.65% on
every dollar the mother earns. Employers love the HSA when they figure
The Hospital is depositing $4,800 a year in the mother’s HSA. She or
her employer may maximize her HSA annual deposit and save on taxes,
another $400 or a maximum of $5,200 may be deposited each year.
When the mother goes to the doctor everything is the same. The
doctor’s bill is $80 for example. The first thing is the charge is run
it through the PPO, exactly like they are doing it now, and the charge
is sent to the insurance company. The insurance company then sends an
Explanation Of Benefits (EOB) that says, your $80 charge has been
diminished to (example) $50. Do you want to pay the $50 with personal
funds or would you prefer to have it deducted from your HSA? Once
covered charges hit the deductible they are paid at 100%.
If the mother put the max in her HSA and didn’t use any HSA funds,
which some people do, at 65 years of age she would have over $400,000
at 4% interest. If she uses average $1,300 a year she will have over
$300,000. If she uses $2,600 a year she will have over $200,000 at 65
years of age. Also she has the freedom to place her HSA balance in
mutual funds for the possibility of a higher return.
I tell clients to max out their HSAs because 30 years of retirement
health care expenses will be expensive. HSA funds dedicated to
retirement health care expenses are never taxed and money that is never
taxed will last longer in retirement.
Next month retirement will be high lighted when the House throws it’s retirement bill on the table.
Who thinks this Mother should keep her present employer’s insurance at $400 a month out of her check?