This is the first year I'm considering the HSA plan offered through my employer, however I need a little help determining if it's cost effective for my situation (I understand the triple tax benefit and would like to make this work in my favor if ideal). A little guidance on the numbers and math would be much appreciated.
For what it's worth, I used the Schwab's HSA Calculator to try and get a clearer picture but have some unanswered questions. After inflation, the growth is fair (assuming 35+ years before retirement, currently 22% marginal tax rate) but not anything substantial. Though I know it's still that much more in my pocket in the long run.
The only regular medical expenses I have are weekly virtual therapy (specialist) sessions. Provider charges 60-minute individual session (initial or follow up) at $150 / session.
When I broke it down, I got the following.
With HSA (Individual):
Contribution limit: $4,400/year
I plan to contribute: $4,400/year (max out 2026)
HSA premium: $0/mo
HSA deductible: $3,400
HSA OOP max: $5,000
HSA expected medication costs: No regular medications needed. Just the one-off prescriptions like antibiotic, etc. if needed. If I had to guesstimate a comfortable nest egg for that with this plan, $300ish?
HSA expected specialist visit costs with 20% coinsurance applied + deductible: $3,610
HMO (Individual):
HMO Premium: $31.95
HMO deductible: $0
HMO OOP max: $4,000
HMO prescription copay: $15 (total expected medication costs: $100ish?)
HMO office visit copay: $30 primary / $50 specialist. (total expected office visit costs: $200-300ish?)
Virtual Specialist Visit: $0
The HMO plan is what I currently have and has worked perfectly fine for my needs for the past several years. I'm wondering if I should continue with it given how little it would cost me ($783) or switch to the HSA knowing that the difference between my expected medical costs ($3610) and contributions for the year ($4400) would be roughly $800.
Will my HSA contribution growth still out perform my out of pocket costs each year? What am I not getting here? Am I one of those middle-of-the-road people where the HSA benefits may not quite apply?
I feel like there's a big blank spot I can't figure out for my situation. I know more often than not HSA is the way to go but I can't figure out the ah-ha moment related to my specific details.
Posted by katzorp
4 Comments
You’re actually asking the *right kind* of question here,because HSAs aren’t “always better,” they’re just often misunderstood
You can invest the $4,400 elsewhere so the entire $4,400 contribution space is not a benefit. $968 is the immediate benefit (plus state income tax saved) although if you haven’t maxed out your other tax advantaged space that might not be fully true. It’s also potentially tax free in the future although, again, need to compare to other options (401k, IRA, taxable brokerage?) but let’s be generous and call it a $1,500 total tax benefit.
You don’t mention any employer contribution.
So how is it even close to worthwhile to pay $3,600 in extra medical costs for ~$1,500 tax benefit and saving $783 in premiums?
You are not missing anything HSA just isn’t the best fit for you right now. Since you have regular medical costs your current plan actually works better.
HSA is great if you barely use healthcare but in your case it kind of cancels out.
HSA is not health insurance. If you get hit by a car tomorrow your HMO will take care of you, your HSA will not.