9.

Moving to a High-Deductible Plan: An Example I have a friend whos current health insurance plan (covering him and two kids) is costing him $614.63/month with a deductible of $500 and a $20 copay. Hes considering a new policy: $278.08/month with a deductible of $5,600. His tax bracket is 25%. He calculates that the savings on his monthly premiums will be $336.55/month, which is $4,038.60 in a year. Thats incredible savings on the premiums alone! Hes considering using a Health Savings Account (HSA) to stash the difference in plan costs. Policy Old New Deductible $500 $5,600 Monthly Premium $615 $278 SAVINGS Yearly Cost $7,380 $3,336 $4,044

But he knows he cant stop the analysis there. He factors in estimated usage: best case, he says his medical cost for all three people including dental and prescriptions would be $2,000. Hes a young guy, so Im sure thats fair. Under the new plan, hed have to pay all of this $2,000 out-of-pocket, or out of his newly opened HSA. So the $4,038.60 in premium savings minus $2,000 actual medical cost plus $500 in tax savings using the HSA equals estimated savings of $2,538.60 per year. Pretty good, right? He says the worst case scenario would be that he has $5,600+ in medical expenses. He gets 25% tax savings, so of the $5,600 deductible, he would only spend $4,200. His other deductible was $500, so to compare he can subtract $500 from the $4,200 to get $3,700. Which compared to $4,038 (saved above) would give him an actual difference in yearly cost of $338.60 to his advantage. Basically, even if he pays his entire deductible, he comes out ahead. My friend goes on to say, Even in the 15% bracket, my worst case would be that I paid $221.40 more a year than I would have with the other plan, which I believe is worth the risk when the savings are so big. Plus I can roll over from year to year and could get an interest-bearing Health Savings Account. As long as I keep it funded correctly (paying the difference in premium to the HSA until I have it where needed, it should be a great financial situation for me. Once I get it fully funded, I can take the money that I was spending to fund the HSA and put into savings, a Roth IRA, etc.