A Smarter Way to Buy Health Insurance

Step 1: ENROLL

Enroll in an affordable HSA-Compatible High Deductible Health Plan (Bronze) to protect against large unexpected medical bills.

Save 20% to 60% on premiums compared to Silver, Gold and Platinum plans

Step 2: SAVE

Put these premium savings into a Health Savings Account (HSA) to pay for routine, expected medical bills and prescription costs and to save for future deductibles.

IF possible, make additional contributions up to the maximum allowable limits each year.

Tax-free contributions, growth & withdrawals

Step 3: INVEST

Set a goal to “save and invest” HSA dollars to provide a lifetime of benefits.

Now Until Retirement:

  • Covers current health care expenses
  • Covers future expenses up to age 65

At Retirement, a pool of tax-free money to pay for:

  • Medicare premiums: Part B and Part D
  • Expenses not covered by Medicare: deductibles, co-insurance, physicals, dental and vision
  • Long Term Care (LTC) insurance premiums
  • Un-reimbursed TLC expenses

Also, at Retirement:

  • Supplement your retirement income (taxed like IRA)
  • Final expenses (taxed like IRA)

 Step 4: OPTIONAL

A bottle of champagne for your agent!

“I often tell people that when they reach age 65, they will have a tremendous urge to buy me a bottle of very expensive champagne. Why? If you follow my advice, you will have a nice sized balance in your health savings accounts to help pay the costs not covered by Medicare.”

– Bob Hopper, PhD

Think of an HSA as a “Medical IRA” (IRA = Individual Retirement Account). That is, money you are saving now for your future medical needs.

Triple Tax Benefits

  • Tax deductible contributions to health savings account
  • Tax-free growth while in HSA
  • Tax-free withdrawals for qualified medical expenses.

 Pay Expenses Over a Lifetime

You can use your health savings account to pay qualified medical expenses including doctor visits, labs and x-rays, hospital expenses, surgeons, dental, vision, prescriptions, over-the-counter medications and alternative care.

During retirement you can pay Medicare Part B and D premiums; deductibles and copays; as well as expenses not covered by Medicare such as dental, vision and annual exams, etc….

Bob’s opinion:
“I believe that the large majority of people under age 65 should seriously consider having a health savings account. It provides a way to plan and save for the future. It is the smartest way to finance health care expenses now, and in the future.”

“As I often say in the workshops that I conduct for the CPA society, “HSAs are the only legal way to launder money; money is totally tax free when used for qualified health care expenses.”

Having “tax free” HSA dollars may be better than having low copays for doctor visits.

The major benefits of health savings accounts are due to the ability to use “tax free” dollars to pay for health care expenses. It is often true that using tax free dollars is better than having office visit copays and much better when you’re faced with large and unexpected medical bills. But, to understand the magical powers of a health savings account, you need to understand taxes. Ugh.

The taxes that are withheld from your paycheck –

When you earn wages, your employer is required to withhold three types of taxes before you get your paycheck:

Example: Single Filers earning $36,901 to $80,350
Married Filers earning $73,801 to $148,850

TAX TAX RATE
Federal 25.00%
Social Security 6.25%
Medicare 1.45%
TOTAL TAXES WITHHELD: 32.65%

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We will round to 33% for simplicity sake.

So, for every $100 you earn, your employer is required to withhold $33 in taxes (33% x $100 = $33). You would then be left with $67 in your check. Keep this in mind as you read on to learn about how health savings accounts (HSAs) reduce your tax liability.

The basics of HSAs

In order to qualify for a health savings account you need to have a high deductible health plan that ALSO does NOT have copays for office visits and prescription drugs. Not having copays can sometimes worry employees. It shouldn’t and here’s why. Insurance plans without copays have lower premiums, which allows you to put money into a tax-free health savings account that you would otherwise be paying towards a higher premium for a plan that provides copays.

Let’s look at an example of someone who is age 40.

Plan Monthly Premium HSA Contribution
Silver 70 $355 $0
Bronze 60 HSA $280 $75/mo or $900/yr
DIFFERENCE $75

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Which is better – to pay an additional premium of $75 monthly to get a Silver 70 health plan that offers copays for office visits and prescription drugs? Or is it better to put that additional $75 into a health savings account. The key to understanding is best determined by knowing how much you need to earn in order to afford a copay.

Let’s look at a typical office visit copay

If your copay is $50, you need to earn a larger amount, since your earnings are taxable. In our earlier example, we determined that if your annual gross income as a single taxpayer is between $36,901 and $80,350 ($73,801 – $148,850 for married filers) you would be paying 33% (rounded) in taxes (Federal, Social Security and Medicare). So, how much do you have to earn in order to be left with $50 to pay your doctor’s office copay?

How we get there mathematically:

  • Amount earned = Amount of copay ÷ (100% – tax bracket)
  • Amount earned = $50 ÷ (100% – 33%)
  • Amount earned = $50 ÷ 67% = $75 (rounded)

That means that the “real cost” for you to pay that $50 copay is $75, since that’s what you must earn to have enough left over after taxes to pay the copay.

Ballpark it with this quick method:

For people who fall within the 20-28% Federal tax bracket (including our example above), there’s a simple “ballpark” method to figure out how much you need to earn to pay a medical bill. Simply compute one half of the bill and add that amount to the total bill.

In our example, the bill is your copay, which is $50. One half of $50 equals $25. Add $25 back into the total copay of $50 and you get $75. Therefore, you need to earn $75 in order to pay a $50 copay.

NOTE: This method only works for taxpayers falling within the 20-28% Federal tax bracket, which is most people.

The HSA-qualified health plan negotiated fee versus a copay

When you have an HSA-qualified health plan with NO copays, you pay a negotiated fee to see the doctor. For example, a family practice or general doctor might charge $100+ for someone without insurance but when you show your insurance card, you get the negotiated fee which might only be $65 for a simple office visit.

You’ll recall from the chart above, the Bronze 60 HSA health plan allowed you to put $75 each month or $900 a year into the HSA and avoid paying taxes. So, when you pay that $65 negotiated doctor fee, you do so with tax-free money out of your HSA account!

As a reminder, with the Silver 70 or any non HSA-qualified health insurance plan, you need to earn $75 just to have $50 left over for the doctor’s visit copay.

Conclusion – Often paying for routine doctor visits with your HSA ($65) will be roughly the same as what you need to earn to pay a copay (earn $75). When you understand taxes, then you can figure out how much you have to earn.

So, is an HSA-qualified health plan right for you?

Assuming you fall into the 20-28% Federal tax bracket, like many Americans, then YES an HSA-qualified health plan is right for you.

Using tax-free dollars from your HSA will make visits to the doctor about the same as paying a copay for a doc