HSA or lower deductible through Marketplace

[orbops]

My wife and I are currently in a Fidelity HSA for the first time this year and contribute the max plus we're both over 55. My dilemma for 2024 (and beyond) is whether to continue enrolling in an HSA so that I can increase my yearly Roth conversion by the HSA contribution amount, or go for a Silver Marketplace plan with a lower max out of pocket and NOT take the larger Roth conversion.

HSA: $15K out of pocket max including monthly premium of $10/month
Silver plan: $7K out of pocket max including monthly premium of $50/month

During this year, we ended up hitting the $15K max, and paid with non-retirement money, while letting our HSA accrue 5% CD interest.

Running some numbers if I made a Roth conversion each year in the amount of the HSA contribution shows that since I'm in the 10% federal tax bracket and AZ 2.5% tax bracket, I would save about $1,287 in taxes from the increase in Roth conversion. While if I max out an HSA each year, I'm paying $8K more than a silver plan.

Seems clear cut that it's probably better to select the Marketplace Silver plan assuming that we max out our out of pocket each year. But if we don't max out, it's more variable. Any thoughts on what you think is more important - increased Roth conversions for 4-7 years , or paying less out of pocket using non-retirement money.

 

[Kings over Queens]

HSA is a savings/investment account you can fund with pre-tax dollars to pay for medical expenses.

HDP is a high deductible insurance plan.

a condition of HSA participation is that you are enrolled in an HDP.

I offered all that for others who might not be aware.

When you say "continue enrolling in the HSA" I believe you mean continue with the HDP, yes?


In any event, I prefer to hold my money rather than pay the insurance company, so for me HDP is the given. I'm currently funding my HSA post tax and then file for the adjustment on my return. 2024 the company will fund pre-tax, assuming I don't FIRE. I'm not yet doing roth conversions.

 

[orbops]

When you say "continue enrolling in the HSA" I believe you mean continue with the HDP, yes?

Yes, the HSA is a High Deductible Health Plan.

 

[RunningBum]

Running some numbers if I made a Roth conversion each year in the amount of the HSA contribution shows that since I'm in the 10% federal tax bracket and AZ 2.5% tax bracket, I would save about $1,287 in taxes from the increase in Roth conversion. While if I max out an HSA each year, I'm paying $8K more than a silver plan.

This paragraph is confusing. I take it to mean that if you go with an HSA eligible plan and max it out, it's has a $1287 tax advantage. That makes sense to me. You are correct in assigning this benefit value for an HSA eligible plan. It's really the only factor for choosing an HSA plan, unless the ACA cliff comes back and the reduction of income for an HSA plan keeps you from going over the cliff. That would be a more complex calculation which gives you a much larger advantage for an HSA plan.

But that you say you are "paying $8K more" if you max it out. It sounds like you are treating the HSA contribution as an expense. It's not. It's an investment. Unless you don't have the cash flow available to make an HSA contribution, don't even think about the cost of the contribution, but rather than tax benefit of making that investment.

The HSA eligible plan costs you $10/month or $120/yr, but that $1287 value of the HSA contribution means you are $1167 ahead, without factoring in any medical expenses.

The silver plan costs $50/month or $600/yr.

So if you have zero medical expenses, the HSA plan is $1767 better.

But if you have $15,000 or more medical expenses, the HSA plan costs you $13,713, while the silver plan costs you $7600. That's a $6,113 advantage for the silver plan.

If you think you'll max out expense again, by all means the silver with the lower max OOP is much better. Only you know how likely that is.

Every year I make a spreadsheet comparing the Health Insurance plans I am considering, with rows for various levels of medical claims I might have. For your case, this would tell you at which level of claims the silver plan would become the better value. Then you can decide which side of the crossover point you are most likely to have claims for, and weigh that along with the best and worst cases: $1767 for no claims (HSA plan) vs. $6113 for the max (silver plan).

 

[audreyh1]

Yes, the HSA is a High Deductible Health Plan.

The HSA is a health saving account.

To contribute to an HSA you must have a health insurance plan that is HSA compliant. High deductible (within a certain range) is only one of the caveats.

 

[orbops]

If you think you'll max out expense again, by all means the silver with the lower max OOP is much better. Only you know how likely that is.

That's the big dilemma. In my case I thought we're both healthy (57 years old and wife is 61 years). We hit our max out of pocket due to her getting t-boned in a car accident by an 82 year old snow bird and had internal bleeding. I ended up having a quadruple bypass and then my gallbladder failed 2 months later.

I guess I'm just gun shy now with 2 unexpected set of medical expenses in 1 year. My wife said to wait until she gets results from her upcoming mammogram to decide if we choose the HSA or the non-HSA Silver plan. Seems like choosing levels of health insurance is like rolling the dice...

 

[teej1985]

That's the big dilemma. In my case I thought we're both healthy (57 years old and wife is 61 years). We hit our max out of pocket due to her getting t-boned in a car accident by an 82 year old snow bird and had internal bleeding. I ended up having a quadruple bypass and then my gallbladder failed 2 months later.

I guess I'm just gun shy now with 2 unexpected set of medical expenses in 1 year. My wife said to wait until she gets results from her upcoming mammogram to decide if we choose the HSA or the non-HSA Silver plan. Seems like choosing levels of health insurance is like rolling the dice...

Woah - how did the quadruple bypass come out of nowhere? That sounds a bit scary if no health concerns beforehand.

 

[SecondCor521]

That's the big dilemma. In my case I thought we're both healthy (57 years old and wife is 61 years). We hit our max out of pocket due to her getting t-boned in a car accident by an 82 year old snow bird and had internal bleeding. I ended up having a quadruple bypass and then my gallbladder failed 2 months later.

I guess I'm just gun shy now with 2 unexpected set of medical expenses in 1 year. My wife said to wait until she gets results from her upcoming mammogram to decide if we choose the HSA or the non-HSA Silver plan. Seems like choosing levels of health insurance is like rolling the dice...

I think you have to take your best guess on the probability of next year's medical expenses.

It's hard to know how to incorporate our prior experience and history into our best guess. Maybe this year was a blip, maybe it was a harbinger of the way things will be.

Personally I have a Bronze HSA eligible ACA plan which is essentially a catastrophic plan, and I try to max out my HSA contribution each year. I'm 54, healthy (for now), and do what I can to take care of my health and minimize (but not eliminate) my risks.

I've been doing the Bronze HSA for a few years now, and I am ahead of the game for now but I understand one or two bad years could put me behind the curve on that decision. Although I just looked and my deductible and OOP max are both $8K, so that's not horrible.

 

[orbops]

Woah - how did the quadruple bypass come out of nowhere? That sounds a bit scary if no health concerns beforehand.

It was scary. My main symptom was that when we walked our senior chihuahua each day, I was a little short of breath on the way home. When it persisted for 2 weeks, I finally decided to see my Primary Care Physician. When he heard shortness of breath, he told me to go to the ER. Urgent care then told me the same thing. Based on my symptoms, the cardiologist and heart surgeon thought I might need a stent and were shocked when it turned into a triple bypass. Once the surgery started, they realized it had to become a quadruple bypass.

Turns out my father, his brother, and other relatives all had heart problems when they were older - so the doctors said it was hereditary.