ACA Marketplace : HSA, what's the dope? Also, what's with coinsurance?

In My Humble Opinion
1

I’m self employed. That means the first taxable dollar I make, I have to pay 15% tax on it, and it goes up from there.

Right now I just have short term medical insurance because I missed the ACA signup deadline last year. So as I understand it, the money I pay towards ACA premiums is tax deductible (err, apparently it counts as an “income adjustment” instead).

However, for covering deductible and out of pocket expenses, apparently, certain insurance plans are “HSA eligible”. As near as I can gather, I just dump up to $3200 into an HSA account, which i have to open up with a bank, and let turbotax (or similar software) know I did this when it comes to tax time. I don’t pay a penny of taxes on the money and I can use it to cover deductibles and co-insurance. If I *don’t * do this, the government gets something like 25-40% of the money used to pay deductibles and co-insurance. Unless I spend more than 10% of my income in a given year on those expenses.

Anyways, so I tried out the ACA plan finder. Guess what. Apparently, the insurance plan merely needs to have a deductible about $1300 a year and it can be HSA eligible. However, nobody seems to actually offer an HSA eligible plan with a deductible less than $4500. Ouch.

The next gotcha is I can choose “community health choice” or “Molina” or other insurers I haven’t heard of, and get $0 deductible HMO care. Or I can get HMO care with a $4500-$6000 from the Aetna/Blue Cross/Humana for the same premium. Or I can pay even more and get PPO from the big boys, but it *really *costs for that.

The final gotcha is these high deductible plans all say “XXX benefit AFTER deductible”. Basically, if you don’t manage to rack up 6k in medical bills, go eat a dick. And the odd thing about this is they will say “30% coinsurance after deductible.” Yet, the deductible will be about 6k and the out of pocket maximum $6400.

What does this “coinsurance” mean, then? That’s where they try to screw you with 30% of the bill (aka basically make you pay twice the actual cost of the medical treatment you received), except, how can they do that if you already spent 6k on the deductible and are $400 from the out of pocket maximum…

I don’t have any chronic long term illnesses, and I’m well aware that statistically speaking, modest and inexpensive treatments for disease is usually about as good as the gold plated stuff. So why would I want to choose to pay $280 for BCBS HMO with a 6k deductible when I can pay $283 to another firm and get a $0 deductible…

This is a mess. A labyrinth of “GOTCHA” and what feels like a cesspool of bureaucratic criminals trying to steal as much of my money as feasible.

2

Yes, you understand it. As it stands now, Health Plans are dealing with this first few years of the ACA, and it is affecting their pricing. Meaning: at the start of giving more people access, there is a lot of pent-up demand from care that they finally pursue. So the “medical experience” is trending very high right now. United Healthcare has gone on record showing how much they are losing on their ACA business because of this.

It is expected to level out over the next few years, but given the push for quarterly profits, the Health Plans are responding by dialing up their deductibles and expecting some plans to require 30% member obligation on further costs. Basically, at this point, it is a form of “catastrophic care” - it is good to have if you have a sizable one-time or long-term medical event, but not helpful for standard, non-preventive care.

3

Don’t forget SE tax which is another 15%. Your Self-employed health insurance deduction does not reduce that tax.

4

HSAs and high deductible health plans (HDHPs) predate the ACA by over a decade.

They fundamentally are trying to get back to the idea of “health insurance” as “insurance”, e.g. protection from catastrophic loss, rather than “health insurance” as “hidden prepayment program” which through accounting sleight of hand somebody else pays substantially all your medical expenses out of money you already gave them or will give them soon.

And so the HDHP+HSA concept is you will pay a low premium for protection against huge expenses and in turn will fully self-pay all the little routine health maintenance expenses. And the gov’t is willing to subsidize those little expenses by 25ish % by letting you spend pre-tax dollars on them via the HSA rather than post-tax dollars.

For somebody healthy the HSA+HDHP is definitely the way to minimize your annual outlay on health expenses. While simultaneously having protection against being forced into bankruptcy due to a severe injury or illness.

As an example, the total employer+employee cost for my employer’s HDHP is about 25% of the cost for the full up Cadillac plan. Big savings there.

Aside:
IMO it’s always a croc to dump SE taxes into these discussions. All employees are paying both halves of the SE tax themselves also. It’s just a little more hidden. Just like they’re paying the employer’s part of the health insurance premiums. Every dollar an employer spends on taxes or benefits is dollars they don’t have available to spend on wages.

5

Yup. I have never understood the resistance in certain quarters to HDHPs. (Other than the fact that it’s a change.)

I use the analogy of car insurance. For anybody who doesn’t like or doesn’t understand HDHPs, consider what would happen if your car insurance acted like health insurance. Every time you got your oil changed, or got new tires, you would pay part of the bill, and the company would submit the rest of the bill to your insurance company to get paid. It would be a huge hassle. And yet, somehow, that sort of thing is considered desirable by many people when it comes to health insurance.

6

Flyer I’m going to steal this for discussion with my sis.

LSLGuyI’m curious, did you figure this out empirically (as I did) through experience and research or are you in some sort of position where you work (assuming you work) where you would have the relevant information at hand?

7

Agreed.

The reasoned objection to HSA+HDHP is that it isn’t nearly as generous to the employee as the Golden Era plans of the 1970s and early 80s where the employer picked up 100% of all costs and the employees were zero out of pocket all year. But that ship has long ago sailed as employees have directly shouldered an ever increasing percentage of the total costs.

HSA+HDHP merely brings the true tradeoffs into sharp focus. And if somebody (including me) has lived through the Golden Era where all this tradeoff stuff never happened it sure smells like things are moving against your interests. Because they are.

The error is in blaming the messenger, not the message.

8

I don’t have resistance to HDHP.

Here’s the deal.

I can pay ~$280 a month and get a health plan that is “bronze” and one where it is eligible to be used in conjunction with an HSA. But it’s a $4500 deductible, $6k out of pocket.

Or I can pay $283 a month and get a “silver” plan that has a $0 deductible, $2.4k out of pocket.

So in a year where I actually need some medical care, I can pay the same amount of money that year and the insurance starts paying something with the very first dollar I spend…

I’m healthy but I get ingrown toenails or if I get a kidney stone or a nasty cough or some other minor incident, and the insurance will actually cover me.

I get that this basically is “routine care” and that it would make sense for me to pay this out of pocket with tax-free money. Except, the High Deductible Health Plan isn’t saving me any money…

Why would I assume an extra $4500 in financial risk every year in order to save $3 a month in premiums? That is not a good bet.

Well, ok. The other complication is that the $0 deductible plan isn’t run by an insurer I’ve heard of. The blue cross stuff seems to be accepted by everybody including all the big names near me. So maybe that’s why - with BCBS coverage I’d have real insurance from a name brand. No idea what secret gotchas “Molina” or “Community Health Choice” has. I mean, I thought ACA was supposed to require a minimum level of coverage…but maybe if I get a severe injury or illness, these cheaper plans would send me to a shitty hospital?

9

I had an HSA HDHP for four years, partly pre-ACA, before I qualified for [del]single payer socialized healthcare[/del] Medicare. It was a great deal. I was healthy but it covered an annual physical & immunizations with no out of pocket. Meanwhile the premiums were as low as I could get and I had catastrophic backup.

I maxed out my HSA contribution every year, invested it well and it continues to grow. I can use it for future healthcare expenses, even dental or Medicare B if I want.

It seems to me that inspite of all the ACA fears of government run healthcare, US healthcare has been moving in the opposite direction for years.

As employers push more financial responsibility on employees (in HSA/HDHP, higher deductibles, co-pays and co-insurance) the private insurers do the same. The end result is that individuals are responsible for all but catastrophic events.

In other words, everyone must pay their own way which always seems to be touted as a conservative ideal.

10

Don’t forget that HSA money rolls over from year to year. It also collects interest (at least mine does. Or dividends? I have my account with PNC).

So if you put $3500, tax free, in to it this year and only spend $500, you’ve got $3000 left for next year and you can put another $3500 in tax free. Now you’ve got $6500 in the account and, wa-hey, it’s more than your out-of-pocket costs.

11

Yep, unlike employer FSA accounts the money builds year to year and you can invest it just like an IRA (at least my Wells Fargo account does). Then when you spend it is as if you just got a 15% or more (whatever your tax rate is) discount off your deductible/OOP max.

(N.B. The max 2016 contribution is $3350 + $1000 for 55+)

12

Not sure if this answers your question but some of the reasons involve what choices you have in the different systems. The various HMOs (and now various hybrid products) tie you into different networks of care and even within those networks different panels of providers. Is there a primary care provider in the cheaper plan that has the access you want (location, hours, track record of getting people in), that you already know and trust, so on? If you need specialty care does the network include specialists located where you can reasonably go and who you feel comfortable with? What sort of care is explicitly excluded from coverage in the different plans? What is the company’s customer service track record?

13

So I looked more into it, DSeid, and it still makes no sense.

BCBC offers a plan with the exact same coverage that costs $250 a month, with a $4500 deductible. Or I can pay $280 a month and get a $1250 deductible. The slightly more expensive plan is also “silver”, and I’ve read that “silver” plans are preferred by the government somehow and there’s some kind of government assistance to pay the deductible if it’s a silver plan and you don’t report enough income. Saving $30 a month so I can face the risk of having to pay $3000 at any time sounds like a questionable prospect. (essentially I’d have to have 8 years go by without any significant medical bills. I suppose that could happen…)

14

Yeah, you really have to look at what is available to you, including companies, plan types, in-network providers, deductibles, out-of-pocket maximums, etc. And it changes every year. Pre-ACA, I had an HSA plan for three years, as it made sense. Last year, the first year of ACA, there were no HSA-eligible plans that made sense, as apparently you are finding. This year, there is an HSA plan that saves me enough in premiums (due to all of the non-HSA plans going up by 20-30%) that I think I will opt for it.

In 2016, I will pay about the same premium for tremendously worse coverage, with double the deductible and double the out-of-pocket maximum. The other option is to pay nearly double in premiums for a similar plan as I have now. What a crappy choice.

15

I still suspect that you are missing something. Could you provide links to the specific plan options?

If it is the same network, same preferred doctors, covered services, etc. with different deductibles the difference is fairly often in the coinsurance percent. I thought I recalled you being in Texas so I looked there but don’t find those deductible amounts. Still the difference between the two Silver PPO plans there other than the $3000 vs $6000 individual deductible, is that the higher deductible is 100% coverage after deductible is met for covered services and the lower deductible is at 80%. It kicks in earlier but covers less after it kicks in.

16

Figured out what I was missing. It is due to subsidies. I don’t know how much I’ll make next year, so I tried a conservative estimate (20k) and a less conservative estimate (100k). (yeah, it could vary that much)

So what happens is subsidies don’t just affect whether a plan can be used with an HSA, or reduce the monthly cost, they also silently mess around with the out of pocket maximums and deductibles.

Adjusting the numbers, it looks like I can get a BCBS plan with a 3500 deductible and a 3500 out of pocket, HSA eligible, for $279/month. The “Blue Advantage Silver HMO 103”. Or I can pay $295 a month to make the deductible $2000 and the out of pocket max $6850. Not a good choice I don’t think. Further up the ladder, a Gold HMO plan is $342/month at a minimum (and with a higher out of pocket maximum), and it goes up from there - that means I am guaranteed to spend ((342-279)*12 = $756) a year but it’s a loss unless I need that much medical care. That seems like I would lose money most years.

Or on the other end of the scale, I can reduce the premium to as low as $212 a month and have insurance that will only matter at all if I rack up at least $6750 in bills. So another $3000 in yearly financial liability but I save a guaranteed $804 in premiums per year. So if I only get hurt bad enough to need serious medical care in 1 of 4 years, I break “even”. That does agree with my past history, I’ve only ever needed ingrown toenail removals and one major injury over 35 years.

So now I think I have a better idea of the tradeoffs. Feels like playing in a crooked casino.

17

So, ok, looking at it for another pass : the HSA thing makes more sense. It does put me ahead so long as I don’t have a bad string of major medical bills…and you basically sock enough into the HSA for the year you hit those bills. You buy a better, gold plan for the next year if you find yourself diagnosed with a chronic illness. (which…uh…sounds like a serious problem for Obamacare itself…)

If you save $1600/year in premiums (difference between a gold and a bronze plan over a year), you need just 3-4 healthy years before you come out ahead. (as a baseline case I am assuming you put all the premium savings into the HSA, then spend the money the year you actually need it, and upgrade to a gold plan if you need followup care).

It’s actually even larger of a difference because the very act of putting money into the HSA affects your tax liability and at some income levels boosts your Obamacare subsidy.

And if you get desperate for cash you can raid it, at a 20% penalty + income tax. You don’t have that option if you gave the insurance company your money instead. If you get a chronic illness and lose your job, you can also use the HSA money to cover your medical insurance premiums for a while. That option isn’t there if you are giving that same money over to the insurers.

18

In cases where you can’t predict income accurately you will have to catch up at tax filing time. Either paying back a premium subsidy you should not have received or getting a refund because you should have gotten one.

It looks like the cost-sharing subsidies are treated differently, could be a good deal if you can 1) prove a low income probability and qualify for them 2) Have the misfortune to actually need a lot of medical care.

Also, as I mentioned up-thread, there are limits to HSA contributions.