Go For The Bronze, Maybe! Advice From An Obamacare/HSA Expert

I spoke to the very well-informed Dr. Steve Neeleman (HealthEquity Founder and Vice Chairman, and brother of David Neeleman, JetBlue founder) about getting your health insurance house in order for this coming year, especially if you’re pregnant or thinking about getting pregnant in 2016. It would have been useful for me to have gleaned this knowledge six months ago, but hey. As always, feel free to learn from my mistakes.

FULL DISCLOSURE: This guy’s job is to spread the word about HSAs. He is thus not a thoroughly objective party. Bear that in mind as we proceed.

His first and most vehement piece of advice: “Start putting money in an HSA. Immediately. That requires discipline.”

Sure does. More importantly, though, it requires knowledge of and understanding about HSAs. I had thought, silly me, they were only available through employers. They’re not! Here are some fun facts about health savings accounts:

+ “Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. Generally, an adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA.” (via)

That means that most Bronze-level Obamacare plans and many Silver ones are HSA-eligible. Definitely check the descriptions to find out.

+ “The funds contributed to an account are not subject to federal income tax at the time of deposit.” (via) So, our medical bills in this country are way too high, but at least you can use pre-tax dollars to pay for them.

+ The amount you have in an HSA rolls over from year to year without penalty, so, unlike with an FSA, you don’t have to worry about figuring out how to spend everything you put in before Dec 31.

+ You can withdraw money from an HSA for non-medical reasons, but you’ll have to pay a penalty just like if you withdrew money early from an IRA.

+ As an individual, the maximum you can put it in your HSA in 2015 is $3,350. The contribution limit for a family this year is $6,650.

+ And yes, you can use the money in your HSA to earn more money: you have investment options, just like with your IRA. The interest you generate is also tax-free.

+ You can use HSA money to pay toward your deductible, your out-of-pocket max, and potentially useful health services like acupuncture that aren’t often covered by insurance itself.

+ Basically, assuming you qualify for one, HSAs are a useful companion to your crappy insurance policy, but since no one knows that, no one uses them. In other words, it’s not just me. “The Government Accountability Office (GAO) reported in April 2008 that many individuals enrolled in HSA-qualified health plans did not open tax-qualified HSA accounts, and individuals that had HSA accounts had higher incomes than others.” (via)

Hence Neeleman!

So: to begin with, how do you choose a plan on the Exchanges? You look to see whether your preferred health providers and facilities would be in-network. Then you check out the benefits offered, including the deductible, the co-insurance, and the annual out-of-pocket max. That’s the point at which your insurance company steps in like America towards the end of World War II and says to the Allies, “You’re tapped out. We’ll take it from here.” At which point you, like the Allies, get to look up, exhausted and broken, and say, “WTF took you so long?”

If you’re cool with trading lower monthly payments for a higher deductible, and most of your medical people are in-network, then a Bronze or Silver plan may be for you.

In which case it’s time to look more closely. Here’s Neeleman:

Not every Bronze plan or Silver plan is HSA-qualified. It depends on income level. You have to look and see if the deductible is high enough. If you get Silver and you end up with a HSA qualified plan and you meet certain income limitations, you can end up buying down the deductible. Let’s say you have a 3K family deductible but your income brings it down to 1K — what’s called “risk-sharing reduction” — then you can’t put money in a HSA.

So in some cases Bronze may be smarter than Silver, because with Bronze, you’ll save money upfront, plus you’ll be able to keep the HSA and get a tax deduction. You have to do the math.

Even if you don’t get an HSA-qualified plan this time around, though, Neeleman advises opening up an HSA anyway.

The safest thing is to open an HSA immediately, even if you just put a dollar in it. Then it’s open and you can choose to fund it when you want to.

Let’s say you open it on Jan 1, 2015. You can put money in it until April 15, 2016, and still get the tax deduction for it. But if you haven’t opened it and funded it, there’s a risk. The law says you have to have the account open prior to accumulating a medical expense in order to reimburse yourself [for that expense] from the HSA.

I know, for example, with some certainty, that I will give birth in March 2016. That may cost me, say, somewhere between $4,000 and $6,000. (That’s Neeleman’s estimation. For my own peace of mind, I’m not looking up what the NYC figures are more likely to be.) As soon as I get notification from Oscar that the charge will be $4,200, I can put that exact amount in my HSA and then withdraw that amount the same day to pay the bill.

“No one ever funded their FSA perfectly,” Neeleman said. Comparatively, this is a breeze.

So is my current Bronze plan — with its $3,000 yearly individual deductible and then 50% co-insurance until I’ve spent my yearly out-of-pocket max of $6,350 — HSA-compatible? Should be, says Neeleman. “All HSA plans have to have a high deductible: $1300 for an individual and $2600 for a family.”

(I love that my plan is nearly 3x what the US government agrees for an individual is “high.” It makes sense, though, considering what Mike was reporting recently about how difficult it is for so many of us to lay hands on $2,000 if we need it.)

The Internet agrees, too. I should, in my current state, be eligible.

If I bump up to Oscar Silver though, which I was assuming it would be wise to do — Silver plans are most workers with employer-sponsored insurance get — that plan seems like it would not be eligible. At that point, I’d have to, as Neeleman says, do the math. Is it worth it to pay more upfront for somewhat better coverage and not then be able to use pre-tax dollars to pay my sure-to-be-still-substantial bills? Starting November 15, when the New York State Exchanges open for browsing, I’ll be able to figure that out (possibly using an online tool created for that exact purpose).

Crappy insurance isn’t going away anytime soon. But HSAs do seem to help mitigate the pain. As Neeleman puts it, “The world is changing quickly from a co-pay model to a deductible model, and now this matters.”

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