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HSA Financial Tradeoff
An interesting comment on this EconLog article got me thinking about the break-even point between an HSA and traditional coverage:
I switched to an HSA-eligible plan for 2005, the first year my employer offered one. My old plan cost me $300/yr (tax-deductible) and was traditional insurance with a $10 co-pay. It was the sort of plan you'd love to have if you were a big health-care consumer. But I'm not. I'm young, male, and single, so I don't see a lot of doctors.
I assume a 25% marginal tax rate throughout the following.
My new plan's deductible, and HSA contribution limit, is $1100 — lower than I would prefer, but it was the only option. It costs me $0/yr to enroll; the premiums are paid entirely by my employer. (My new plan is significantly cheaper to my employer than my old plan was, though I won't disclose the details. I wish they could pass the savings along to me as wages, but I think they're legally forbidden. Socialism has to stay competitive somehow, eh?)
My old plan actually increased premiums this year, but I don't remember the amount so I'll calculate with last year's figure. The $300/yr premiums cost $225 after tax.
With my new plan I can get the tax deduction on $1100. The $1100 goes into the HSA, costing only $825 in after-tax dollars, for a benefit of $275.
My old plan cost me $225/yr. My new plan benefits me $275/yr. As long as my annual health care spending is less than $500, I come out ahead — and that's before the customer service benefits of the new plan, and ignoring compound interest in my HSA balance.
Unlike the attorneys, I'm not guaranteed to come out ahead. If I need expensive care I could end up paying more. But that's a risk I'm willing to assume, because I think my spending will be much less than $500.
In this situation my employer gets the better half of this win-win, saving significantly more than $500 in premiums, but I won't begrudge them that. I'm just happy to have something that more resembles insurance than pre-payment for services I don't plan to receive.