5. Calculate your tax savings. Do this by multiplying the total in Step 3 by your tax bracket.
6. Calculate your after-tax cost for medical care. To do this, subtract the tax savings you calculated in Step 5 from the pre-tax medical expense from Step 3 above. This is what it actually cost you for medical expenses and coverage for the year.
7. Lastly, if you have an HSA, subtract whatever your balance is at the end of the year from your after-tax cost in Step 6 above. The balance in your HSA is the contribution you made in Step 4 above minus the estimate in Step 2 above. Do this because this money has been saved and sits in your HSA account for use in ensuing years.
By comparing your expected costs using an HSA to what you would pay by purchasing more traditional lower deductible coverage, you can see what savings, if any, you would achieve by going the HSA route. If that savings is high enough, you probably will be better off choosing a Health Savings Account. If there isn’t much different between your expected costs using an HSA, and your expected costs using a traditional health coverage plan, you might feel more comfortable going with traditional coverage, since there is a lower risk of having to pay more out-of-pocket.
Deciding whether you benefit from using a health savings account is complicated. Hopefully the formula above will help you—email any questions you might have to AskHealthCue@thcn.com. Also, check out this issue of HealthCue for a lengthier explanation of the formula and some examples that may be helpful. There are a number of online HSA calculators as well—the best one we’ve seen is at www.ceresgp.com/HSA.
