How to Choose Between & HSA Health Insurance & a Traditional Plan

Choosing the type of health insurance that is most beneficial to you and your family has become complicated. Traditional health insurance typically involves a low deductible and higher up-front premiums. An HSA (health savings account) tied to a HDHP (high deductible health plan) will have a much higher deductible, but a lower premium. Different plans will also cover different services. Figuring out which of these plans is best for you and your family is going to take some homework and number crunching.

Instructions

• 1

  Calculate the cost of premiums for both plans each year. This is pretty straightforward and the cost of the HDHP will always come out to be less, but this is only one part of the puzzle. Write down the difference in price.

• 2

  Calculate the out-of-pocket cost of your prescription medications under each plan. A traditional health insurance plan will have a copay on your prescriptions while a HDHP will only give you a discount. If you have many brand name prescriptions, the cost with a HDHP plan will run up quickly. Typically, you will save on this expense with a traditional plan. Write down the difference in price.

• 3

  Calculate the cost of the number of doctor visits you typically make in a year. Once again, the HDHP will not cover the cost of doctor visits until your deductible is met. A traditional health plan will save you on cost each doctor visit. Write down the difference in price.

• 4

  Calculate your tax savings with an HSA. Depending on your tax bracket, you can get a tax break of up to 7.65 percent from federal income, Social Security and Medicare taxes (this is if your income tax rate is 25 percent). Write down the tax savings.

• 5

  Calculate your HSA tax-deferred growth. Although this number is more complicated to calculate, it is important in figuring out which plan is best for you and your family financially. The money that you invest into an HSA goes in before taxes are paid and it grows tax free. After retirement, this money can be used for non-medical purposes without penalty. Over the long run, this number will become large.

• 6

  Add your HDHP premium savings, tax savings and tax-deferred growth income together. Subtract the cost of your prescriptions and doctor visits until your HDHP deductible is met (remember that once it's met everything switches over to co-pay or no pay depending on your plan). If you still have a positive number then HSA with an HDHP is the way to go, if you have a negative number then go with a traditional health plan.