Those who have had to switch over to Obama Care (ACA) now see the horrors and nightmares that were predicted by the Republicans. One area that has “shocked” people is the increase in deductibles. “With a basic bronze plan the minimum deductible is usually $5,000, with no first dollar coverage except for preventive care.”
The “shock” factor is that most people, who previously had a personal or company plan, had a $50 up to $500 deductible. [Important note: I am 100% against this government takeover of 1/6th of our economy. The long range plan by the present administration is to go to a single payer system like the bankrupt Medicare and Medicaid programs. I need you to understand my position before my next statement.)
The only positive point of the ACA is that it is making people aware of the true cost of healthcare. First off, in a typical company plan a family may have paid $400/month in premiums while the company subsidized them by contributing $1,600/month as the company’s portion of the monthly premium. With low monthly premiums and low deductibles, well, people ran to the doctor for every little sniffle. Under Obama Care people must now be more responsible and self reliant (What a concept! Ah yes, an old American tradition coming back into vogue.) Since people will have to pay the first $5,000 of medical care (plus a huge increase in their monthly premiums) – they may use my dad’s old remedy for illness instead of going to the doctor so rapidly- He always said… “Rub some dirt on it!”
But let’s talk about the real cost to you of this $5,000 deductible. Using a 40% marginal tax bracket (39.6% is the top Federal bracket plus 3.8% Obama care tax on net investment income and not counting, Social Security taxes, state or local taxes)… you need to earn $8,400 so that your net after Federal taxes is about $5,000. This $5,000 is available to pay for the higher deductible. One other “gotcha”, for high tax bracket people, is the phase out and/or decrease in deductible medical expenses so you may not be able to “write off” any of the $5,000 you spend out of pocket. Therefore, what did the $5,000 in high deductible really cost you: $8,400. See above.
Would you like to learn a way to make the $5,000 be deductible now and not be taxable in the future. [If your advisor did not discuss this with you please contact us at firstname.lastname@example.org. If you are your own financial advisors and did not know about this… contact us at email@example.com and “fire” yourself as advisor.]
Health Savings Accounts, HSA, are a wonderful solution to the problems listed above. If you will be on the hook for the $5,000 deductible you might as well set up an HSA for the tax benefits. Here is a summary of many of the HSA benefits:
• Allowable contributions for 2014 are $3,300 for those younger than 55 with individual health insurance up to $7,550 for those over 55 with family coverage.
• The payments into your HSA are tax deductible (this sort of looks like a deductible medical IRA).
• Earnings in HSA are untaxed; Distributions are tax free if used to pay qualified health care costs.
• There are no income limits or phase outs for a tax deduction. (Deductions are above the line on your tax return). This helps those whose tax benefits are keyed to adjusted gross income or modified AGI. These HSA deductions can help reduce exposure to the 3.8% surtax.
• Your subsidies under ACA are based on modified AGI so this deduction may help provide a subsidy for you by lowering your modified AGI.
• Once you are over 65 any money left in the HSA can be used for any purpose even if not medically related, and, it would be a great supplement to Medicare in your retirement years.
• Using the HSA you are paying for your medical expenses with pre tax versus after tax dollars (above).
• These are not “use it or lose it” accounts. It stays in the account growing untaxed until you decide to use it.
• You can use monies in your HSA for uncovered medical, dental, vision etc.
• HSA are portable which is good for those whose company plans will be switched into Obama Care next year, or, if they lose their job.
• Let’s sum up the economics. As noted above the $5,000 deductible actually costs you at least $8,400 (since taxes have to be taxen out to have $5,000 available). Instead, if you put $5,000 into your HSA, in the 40% tax bracket, you will save $2,000 off your tax bill. So your REAL out of pocket this way with the HSA will be $3,000. This is the tough question… which is better for your health budget?… spending $8,400 or $3,000? Duh!
Need ideas?… Contact us at firstname.lastname@example.org
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