The Pension Boards of the United Church of Christ has just added an HSA-approved Plan to its Health Plan options. This is a High-Deductible Health Plan (HDHP) that qualifies the employee to contribute to their Health Savings Account (HSA) with pre-tax dollars. An HDHP has lower monthly premiums, but a significantly higher annual deductible and out-of-pocket maximum. An HSA account can be used for medical, dental and vision expenses, and carries over from year to year. If you have minimal medical expenses, this can result in significant savings to you (rather than to your insurance company, who makes money if you pay high premiums but don’t have many medical expenses). The savings are increased since any medical, dental or vision expenses can be paid with pre-tax dollars from your HSA account. If you change to a non-HDHP in the future, you can still use your HSA for medical expenses, but can no longer make pre-tax contributions.
To evaluate whether this makes sense for you, you need to estimate your planned and unplanned medical expenses. Although lab work and tests can be very expensive, the break-even point is often at about $10,000 in annual medical care for an individual or $20,000 for a family. Catastrophic care, such as a hospitalization or major surgery, would likely result in reaching the out-of-pocket maximum, most of which would be covered by the funds in your HSA.
Plan A Premium: $1,000 per month
Co-pays, co-insurance, dental, vision costs for $2,500 in medical care: $1,000 per year
Total cost, including income taxes: $13,000
HDHP Premium: $600 per month Contribution to HSA: 3,550 per year
Co-pays, co-insurance, dental, vision costs for $2,500 in medical care: $2,500 per year
Total cost, including income taxes: $10,750. Note that $1,050 of this is carried over in HSA account for a net cost of $9,700
To evaluate this, I’ve developed a (very rough) Medical Plan Comparison Model. Please note, as always, that you should consult a qualified accountant if you are seeking tax or insurance advice!