Assumptions:  “Typical” Self-Employed Family.  Relatively healthy. 28% tax-bracket.  Traditional PPO plan with $3,000 out-of-pocket maximum per person with co-pay features for Dr. visits and Rx.  Family HSA plan with partially funded savings account (assumes $3,750/year).  4 Dr. visits for the year ($60 normal billing) and 3 Rx purchases ($28 generic billing).  One emergency room visit ($750).  Minor out-patient testing ($200).  No hospitalizations or surgeries.

NOTE: It is easy to change any of the variables to reflect your own personal situation.






Health Insurance Premiums

$1,000 deductible per person

80/20 to $10,000 per person

$30 Dr. co-pays/$20 Rx co-pays


$  9,000




Health Insurance Premiums

$7,500 family deductible

100% coverage

(no “co-pays” allowed by law)



$  3,600




Dr. visit co-pays (4 @ $30)

Rx co-pays (3 @ $20)

Out-Patient Tests

E.R. visit (subject to deductible)



Note: only $870 was credited to anyone’s deductible—after deducting $75 “access fee” from ER visit—and even that was broken down per person .  If one person had 2 Dr. visits and 1 Rx, they paid $80 yet only $0 went to their deductible, because co-pays don’t count toward deductibles!



$    120

$      60

$    600

$    745

+ $ 1,525


4 Dr. visits @ $48 net each*

3 Rx @ $35 net each*

Out-Patient tests* ($600 charge)

E.R. visit* ($745 charge)



*after PPO discount applied


Amount credited to family deductible = $1,215

(after subtracting $75 “access fee” for E.R.)



$   192

$   105

$   450

$   543

    + $  1,290


PRE-TAX TOTAL Out-of-Pocket

For Medical Expenses


= $ 10,525


PRE-TAX TOTAL Out-of-Pocket

For Medical Expenses


= $ 4,890


Tax Savings*

$9,000 x 100% x 28%

(100% of health insurance premiums multiplied by 28% tax bracket)




- $  2,520


Tax Savings*

Health Insurance $3,600 x 28%

HSA Deposit $5,800 x 28%


(Note:  There are 2 ways to get a tax deduction—spending OR saving money—notice that the tax savings in the left-hand column is solely from spending money whereas the majority of the MSA savings is derived from saving money—in the savings account)





                 $ 1,008

$  1,624

- $ 2,632


AFTER-TAX Cost of Medical Care For Year


$  8,005


AFTER-TAX Cost of Medical Care for Year


$ 2,258




Balance of Savings Account

For Medical Expenses

(Note: No money saved. It was all paid.)


$ 0







Balance of Medical Savings Account ($5,800 contribution less $1,290 in expenses paid from the account—tax-free)


$ 4,510




AFTER-TAX Cost of Medical Care for Year (Loss)


($ 8,005)

AFTER-TAX Cost of Medical Care for Year—NET GAIN



+ $  2,252






*Presumes that at least one family member is eligible to deduct 100% of health insurance premiums as a self-employed individual.


Isn’t it interesting?  The family with the “traditional” health plan was well-insured, yet ended in the hole to the tune of over $8 thousand for the year. Meanwhile, the family insured under the HSA Plan was equally well-insured and actually ended up ahead of the game for the year on the balance sheet. 


How could this be?  It’s simple.  It’s the magic of saving money—premiums and taxes. The family with the HSA cut their insurance premiums dramatically (over $5,000) and actually stashed ALLof the premiums they saved into a health savings account, for which they received a substantial tax break! They were willing to assume the risk of paying all of their little bills while hedging their bet against the catastrophic loss in a prudent manner.




If we were to re-visit these two families in three years, what would we discover?  If they each had the same medical bills for two consecutive years, the “traditional” family would have a net loss of $24,015 ($8,005 x 3 years) while the “HSA” family would have a positive balance of $13,530 in their savings account—after all out-of-pocket expenses had been paid from the account—plus interest (also tax-free). 


But what’s missing?  Medical inflation.  In reality, based on recent trends, the “traditional” family will experience premium increases averaging at least 15% per year.  That adds up to a total of $22,568 paid in gross premiums in just 3 years (9,000 + 10,350 + 11,902 = $31,252)!  The “HSA” family can also expect rate increases, but at a much lower amount. That's because even assuming the same rate of inflation, the same percentage increase is applied to a much smaller base amount.   Assuming the same 15% annual increase would yield the following: 3,600 + 4,140 + 4,761 = 12,501 in gross premiums paid in those 3 years. 


Just how much will you throw away in additional health insurance premiums (and taxes) before you seriously consider switching from a high-cost traditional plan to a low-cost HSA plan?



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