Right now, the only control we have over our health expenditures is limited to whether or not we seek to have a particular healthcare service (see a doctor, have an x-ray, etc.). We do not even have influence over the prices charged for healthcare services rendered. It’s no wonder why Explanation of Benefits pages (EOBs) are so confusing! HSAs are intended to put us in control and in the know.
You can use the formula below to assist you in determining whether an HSA is right for you. Go through these steps for a traditional benefit plan, and then a qualifying higher deductible plan and compare the costs side by side. Of course, for the traditional plan there is no HSA contribution, so skip the steps concerning HSAs when calculating your costs for those plans. Here is how:
1. Calculate your premium—the amount that is deducted from your paycheck each month for health benefits. If you are comparing a traditional lower deductible plan and a higher deductible HSA plan, you need to know both premium amounts. List these amounts in your notes side by side. (Use annual expenses.)
2. Estimate the amount of medical expenses you expect for the coming year. We have given you a guide on how to estimate this in previous columns. Remember, since no co-pays are allowed for routine medical visits and prescription drugs in HSA plans, your medical expense estimates should be higher when looking at an HSA. For traditional plans, use the co-pays listed for doctor visits and prescription drugs in the benefit schedule of our previous column.
3. Total these two figures. This is your pre-tax out-of-pocket medical expense.
4. Calculate the contribution to the HSA and multiply that by your tax bracket. You can find your bracket by determining your net income from last year’s tax return, and then checking it against this table on the IRS website. Most people’s contribution to their HSA is the difference between the amount of premium they would pay with the traditional lower deductible health benefit and the premium they will pay with the higher deductible HSA premium. (Again, use annual contributions.)