HSA Worksheet
Use this handy worksheet to see how an HSA will benefit you financially.
Traditional Plan
STEP 1 Enter current insurance premiums
(annual)
__________
STEP 2 Subtract annual tax-savings:
Premium deduction (100% for
self-employed)
__________ (premium x 100% x tax rate)
HSA
contribution
_______- 0 -
STEP 3 SUB-TOTAL Annual Expense __________
STEP 4: Add any additional out-of-pocket expenses,
such as deductibles, co-pays, co-insurance, and
expenses not covered by insurance to arrive at a
NET Annual
Cost:
__________
HSA-Qualified Plan
STEP 1 Enter HSA-Qualified Health Plan
Premium
__________
STEP 2 Subtract annual tax-savings:
Premium deduction (100% for self-employed) __________ (premium x 100% x tax rate)
HSA contribution (100% of amount
contributed)
__________ (deposits x tax rate)
STEP 3 NET Annual Cost* __________
*From this total, do not add expenses paid directly out of the HSA savings account. With an HSA, you are saving dollars to use for future medical expenses that may, or may not, ever occur. Plus, you are getting a 100% tax-deduction for every dollar saved, regardless of whether those dollars are ever actually needed for medical expenses.
Please note: The biggest "mistake" people make in "comparing" a traditional plan to an HSA plan is that they mischaracterize money deposited into the HSA savings account as an "expense." But these are dollars truly being saved. The law allows a 100% tax-deduction for each dollar saved. You are saving in advance for future medical expenses that may never occur, and you are getting an intant, 100% tax deduction for the money deposited into the savings account each year. If $60 is withdrawn to pay a doctor's bill, it is fundamentally incorrect to characterize that $60 withdrawal as an "extra out-of-pocket" expense that year, in view of the fact that the money has already been set aside for this very purpose--and you got a 100% tax-deduction in the year in which you originally deposited that money.
EXAMPLE
A working example using Jack & Jill's hypothetical family will help illustrate the math. Their traditional PPO plan with Acme Ins. Co. costs them $7,500 a year in premiums (soon to be raised by over $1,500 per year, but we'll just use the current premium to be more conservative). Their new HSA-Qualified policy will cost $3,200 in premiums. They plan to deposit only $4,300 into their HSA account. (Note that this is the exact amount they are saving in premiums. What they should do, of course, is contribute the maximum amount they're eligible for--$5,800 a year.)
STEP 1 Current Ins.
Premium
$7,500
STEP 2 Subtract Tax-Savings:
Self-Employed
- 2,100 (7,500 x 28% estimated tax-bracket)
HSA
- 0
STEP 3 Net premium
cost
$5,400
To this, Jack & Jill would need to add any additional out-of-pocket costs, such as co-pays, co-insurance, deductibles, and expenses not covered by insurance. Let's assume they have a good year, incurring only 6 doctor's visits (retail price $60 each) and one emergency room visit for $850 (assume they have a policy deductible of $2,500, with an additional $100 emergency room "fee"). They have a $30 co-pay per Doctor visit and must pay the entire $850 for the emergency room visit.
STEP 4 ADD:
Co-pays
$
180 (6 doctor's visits x $30 copay each)
Deductibles
$
850 (One E.R. visit @ $850)
Total
out-of-pocket
$ 1030
Plus net premium
cost
+ 5400
TOTAL ANNUAL COST $ 6,430
Compare to HSA-Qualified Plan
STEP 1 HSA
Ins.
Premium
$
3,200
STEP 2
Subtract Tax-Savings:
Self-Employed
- 896 (3,200 x 28% estimated
tax-bracket)
HSA
- 1,204 (4,300 x 28% estimated tax-bracket)
STEP 3 Net
premium
costs
$ 1,100
HSA Account
In order to receive the $1,204 tax-savings, Jack & Jill have decided to contribute $4,300 to their HSA savings account. Thus, at the beginning of the tax-year, they have a balance of $4,300 in the account (discounting any interest earned). If they incur the same medical expenses as above, those funds will come directly from their HSA account, and not "out of their pockets." It is true that the dollars are no longer in their original pockets, but the money still belongs to Jack & Jill--it has been saved for future use in a special tax-sheltered savings account. Ordinarily, money must be spent in order to qualifiy as "out-of-pocket" expenses. (Think about that--it's a HUGE difference!)
Balance of HSA at beginning of year
$4,300
Less medical expenses
incurred
$1,120 ($850 E.R. visit and 6 Dr's Visits @ $45 each, after PPO discounts)
Net Balance
(Carry-over)
$3,180
Bottom line: Jack & Jill have $3,180 left-over after paying all of their health insurance premiums and medical expenses for the year. To this, they will add another $4,300 next year, and the next, etc., each year receiving another 100% tax-deduction for making those contributions.
Of course, when Jack & Jill withdrew the $1,120 to pay their medical expenses for the year, there was no withdrawal penalty and no income tax due on those dollars under the HSA program. Additionally, since they receive about $1,200 each year in tax-savings for their $4,300 HSA contribution (4,300 x 28% tax-bracket), they are correct in stating that the $1,120 was actually money that would have gone to Uncle Sam in taxes anyway, if they had not established an HSA. Thus, the Government has effectively subsidized Jack & Jill's medical expenses in full for the year!
It is also worth noting that if Jack & Jill had experienced a really good year and incurred no medical expenses, their net healthcare costs would have been $5,400 (net premium cost under traditional plan) compared to $1,100 (net premium cost under the HSA plan). Plus, they would have saved $4,300 to use for future medical expenses, money which will help them at retirement if it is not needed toward medical bills along the way.
WoW!
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