5 ms·

For those of us who are self-employed, I'll mention that low or no deductible health plans may provide better value. When they sort of work, health deductible

by kxyvr 7y ago

For those of us who are self-employed, I'll mention that low or no deductible health plans may provide better value. When they sort of work, health deductible health plans are nice because: (1) monthly premiums are low and (2) they give access to a health savings account (HSA) where some amount of money can be stored pre-tax and then used for health related expenses. Of course, none of this saves someone that gets hammered with a $5000 bill like those in the article. Anyway, the pre-tax HSA account seems to be an attractive to many, and it may be benefit some. However, if you're self-employed, you can deduct your premiums off your income through the self-employed health insurance deduction: https://www.irs.gov/taxtopics/tc502 https://www.irs.gov/taxtopics/tc502 This means that there may be higher tax benefit for a high-premium, but low or no-deductible plan. Personally, I find it much easier to handle than going through the trouble of an HSA. All that said, it's pretty much all the same in a catastrophic case. Just take the premiums x 12 + out-of-pocket max to figure out the "maximum" yearly liability. At least on the ACA exchanges, this number is typically $11-15k on what I've seen from either high or low-deductible plans. If you can't make this number, you're not fully covered for catastrophic. Alternatively, if the hospital sends a bill to an out-of-network operator, you're probably screwed as well. Anyway, this is not to detract from the article. This is a huge problem. Mostly, I wanted to pass on some information that I had to sort through when picking and choosing plans over the years.

lotsofpulp 7y ago
The tax savings on the difference in premium between high deductible health plans and low deductible health plans is probably $2k at most ($6k in extra premiums @30% tax rate). That’s for single coverage, but even for family total year tax savings can’t be more than $5k. In either case, triple tax advantage of HSA is far more, especially due to compound growth. If you have the cash to be able to deal with $10k of medical expenses in an emergency, HDHP + HSA is a no brainer
- kxyvr 7y ago
  This is not to say that you're wrong, but I don't completely understand your numbers. My understanding of the triple-tax advantage of HSAs are that 1. Money going into the HSA is pre-tax 2. Investment gains from the HSA are not taxed 3. Money used from the HSA for qualifying health expenses is not taxed That said, there are many restrictions and two of these benefits seem to be included for self-employed individuals. For example, an HSA can not be used for over the counter drugs unless there's a prescription: https://www.irs.gov/newsroom/affordable-care-act-questions-and-answers-on-over-the-counter-medicines-and-drugs https://www.irs.gov/newsroom/affordable-care-act-questions-a... However, prescriptions can already be deducted without an HSA if one is itemizing: https://www.irs.gov/taxtopics/tc502 https://www.irs.gov/taxtopics/tc502 Alternatively, the above link also states that things like office visits to a physician can be deducted, which are things normally an HSA are used for. Basically, the one benefit that seems unique to an HSA is that the investment gains from the money in the account are not taxed, which is great assuming that this money is used for medical expenses or you make it to 65. Again, I'm not saying you're incorrect, but it looks like self-employed individuals automatically benefit from 1 and 3 above, assuming itemization. As such, it's seems like the trade off is whether the higher premium, which is less high due to the tax write-off, is worth lower the lower cost of a physician visit. Assuming, of course, we haven't gone catastrophic. What am I missing?
  - lotsofpulp 7y ago
    If you save your receipts for any medical care you or anyone else has received that you paid for, you can withdraw from your HSA to "reimburse" yourself at any point in time, including the future. Q39 at bottom of page 18 of following IRS document: https://www.irs.gov/pub/irs-drop/n-04-50.pdf https://www.irs.gov/pub/irs-drop/n-04-50.pdf Have a baby? Save that receipt showing payment for $5k from your post tax dollars, and let the money in your HSA grow tax free for however long you can, and then when you need it (e.g. in retirement), reimburse yourself for the birthing expenses. It's the first place your savings should go. It's easiest to just model the HSA as a triple tax advantage savings account as long as you pdf receipts for payments for medical expenses. Which you might not in 20s and 30s, but surely will into 40s and definitely 50s, and you can use it for payments you made for other people's medical expenses too. And even if you need to withdraw from it for an emergency, the penalty is only 10%.
    - kxyvr 7y ago
      Alright, if I understand you correctly, you're essentially using the HSA kind of like a Roth IRA, except that 1. Money contributed is tax free 2. There is a $3.5k contribution limit 3. Money can be withdraw tax free prior to 65, at any time, as long as there's a receipt for the qualifying medical expense that occurs after the HSA was established Then, from what I can tell, the drawback to this approach is that there needs to be enough cash flow to cover for medical expenses. Certainly, money could be withdrawn from the HSA, but the real tax benefit comes from pretax contributions and that capital gains, interest, and dividends are tax free. Overtime these can provide a huge amount of savings, but they need time to develop. Sound about right?
      - lotsofpulp 7y ago
        Correct. There's a higher contribution limit ($7k in 2019) if you have family HDHP coverage. Also, after retirement, money can be withdrawn without paying the 10% penalty and just paying the regular income tax, in case you don't have receipts for medical payments from the past. I wonder how the IRS would prevent a tax evader using the same receipts for payments for medical expenses for different withdrawals in different years.
- iheartpotatoes 7y ago
  Have you tried an HSA? What are the caveats on yours? Does the money roll over? Are there limits on how much you can put it? Does the bank that owns your HSA invest it? HSA's look like they were designed to save people money, but they are really just another way for banks to get more capital to invest, which is why there are so many caveats on them. I think it is abhorrent that an HSA even has to exist. An easier sol'n would be to allow no minimum limit on tax deductions, it just makes more paperwork for people. But I think HSAs are a bandaid to a broken system.
pnutjam 7y ago
my last employer had 3 plans, all high deductible. The one with the lowest deductible was significantly more if you hit the max out of pocket and included the higher premium. It was like $10k vs $6.5k, worst case.

by kxyvr 7y ago

lotsofpulp 7y ago

The tax savings on the difference in premium between high deductible health plans and low deductible health plans is probably $2k at most ($6k in extra premiums @30% tax rate). That’s for single coverage, but even for family total year tax savings can’t be more than $5k. In either case, triple tax advantage of HSA is far more, especially due to compound growth. If you have the cash to be able to deal with $10k of medical expenses in an emergency, HDHP + HSA is a no brainer

kxyvr 7y ago
This is not to say that you're wrong, but I don't completely understand your numbers. My understanding of the triple-tax advantage of HSAs are that 1. Money going into the HSA is pre-tax 2. Investment gains from the HSA are not taxed 3. Money used from the HSA for qualifying health expenses is not taxed That said, there are many restrictions and two of these benefits seem to be included for self-employed individuals. For example, an HSA can not be used for over the counter drugs unless there's a prescription: https://www.irs.gov/newsroom/affordable-care-act-questions-and-answers-on-over-the-counter-medicines-and-drugs https://www.irs.gov/newsroom/affordable-care-act-questions-a... However, prescriptions can already be deducted without an HSA if one is itemizing: https://www.irs.gov/taxtopics/tc502 https://www.irs.gov/taxtopics/tc502 Alternatively, the above link also states that things like office visits to a physician can be deducted, which are things normally an HSA are used for. Basically, the one benefit that seems unique to an HSA is that the investment gains from the money in the account are not taxed, which is great assuming that this money is used for medical expenses or you make it to 65. Again, I'm not saying you're incorrect, but it looks like self-employed individuals automatically benefit from 1 and 3 above, assuming itemization. As such, it's seems like the trade off is whether the higher premium, which is less high due to the tax write-off, is worth lower the lower cost of a physician visit. Assuming, of course, we haven't gone catastrophic. What am I missing?
- lotsofpulp 7y ago
  If you save your receipts for any medical care you or anyone else has received that you paid for, you can withdraw from your HSA to "reimburse" yourself at any point in time, including the future. Q39 at bottom of page 18 of following IRS document: https://www.irs.gov/pub/irs-drop/n-04-50.pdf https://www.irs.gov/pub/irs-drop/n-04-50.pdf Have a baby? Save that receipt showing payment for $5k from your post tax dollars, and let the money in your HSA grow tax free for however long you can, and then when you need it (e.g. in retirement), reimburse yourself for the birthing expenses. It's the first place your savings should go. It's easiest to just model the HSA as a triple tax advantage savings account as long as you pdf receipts for payments for medical expenses. Which you might not in 20s and 30s, but surely will into 40s and definitely 50s, and you can use it for payments you made for other people's medical expenses too. And even if you need to withdraw from it for an emergency, the penalty is only 10%.
  - kxyvr 7y ago
    Alright, if I understand you correctly, you're essentially using the HSA kind of like a Roth IRA, except that 1. Money contributed is tax free 2. There is a $3.5k contribution limit 3. Money can be withdraw tax free prior to 65, at any time, as long as there's a receipt for the qualifying medical expense that occurs after the HSA was established Then, from what I can tell, the drawback to this approach is that there needs to be enough cash flow to cover for medical expenses. Certainly, money could be withdrawn from the HSA, but the real tax benefit comes from pretax contributions and that capital gains, interest, and dividends are tax free. Overtime these can provide a huge amount of savings, but they need time to develop. Sound about right?
    - lotsofpulp 7y ago
      Correct. There's a higher contribution limit ($7k in 2019) if you have family HDHP coverage. Also, after retirement, money can be withdrawn without paying the 10% penalty and just paying the regular income tax, in case you don't have receipts for medical payments from the past. I wonder how the IRS would prevent a tax evader using the same receipts for payments for medical expenses for different withdrawals in different years.
iheartpotatoes 7y ago
Have you tried an HSA? What are the caveats on yours? Does the money roll over? Are there limits on how much you can put it? Does the bank that owns your HSA invest it? HSA's look like they were designed to save people money, but they are really just another way for banks to get more capital to invest, which is why there are so many caveats on them. I think it is abhorrent that an HSA even has to exist. An easier sol'n would be to allow no minimum limit on tax deductions, it just makes more paperwork for people. But I think HSAs are a bandaid to a broken system.

pnutjam 7y ago

my last employer had 3 plans, all high deductible. The one with the lowest deductible was significantly more if you hit the max out of pocket and included the higher premium. It was like $10k vs $6.5k, worst case.