Company cutting down health costs

[JG EA]

I have a client that is being given a choice for 2012 to pay more in premiums than he is paying now or take a high deductible health plan, pay much less, and open a HSA which the company will fund the first year only.

But the clients costs to fund a HSA in future years will also be similar because he has been funding a Sec 125 to pay out-of-pocket medical expenses now.

I plan to just give the tax comparisons and refer the client to an insurance agent for overall insurance potection either way. But I would like to understand what is happening here:

In looking it over it seems that he will definitely save money but the future medical costs will be hinged upon only whether he stays healthy or not. Is that the conclusion you have reached in this type of change?

[Lion]

Hdhp/hsa

My husband's employer moved to a HDHP with an HSA a couple of years ago; company funded half for employee only for first year or maybe three. The first part of the year feels like a burden with everything out-of-pocket until meeting the high deductible, but it's all being paid via our HSA VISA with pre-tax dollars and doesn't impact our personal operating checking account at all. The HSA turns what had not been beneficial medical deductions never meeting 7.5% into pretax monies to pay medical expenses. And, if we don't use them all, we don't lose it like with a 125 but save them like another IRA (essentially allowing us to MORE than MAX out our retirement savings each year). I really don't see any downside except for that first year until you contribute enough to pay your bills and finally get the deduction on the tax return -- but your client will have his company fund his HSA, so money's in it to pay his bills and he doesn't have to wait until filing his tax return to get his break. And, his medical premiums (probably withheld from his pay) will go down so more take-home pay.

Lay it out for him on a spreadsheet with higher medical premiums/lower take-home pay with his 125 plan vs. lower premiums for HDHP/higher take-home pay with his HSA. Of the two choices he has (three, if he wants to pay for private insurance), I would expect the HDHP/HSA combo to cost him less the first year and in the long run.

[JG EA]

Thank you very much. This is extremely helpful.

[Lion]

Hsa

If he doesn't spend everything in his HSA, it carries forward until he does need it for medical expenses. And, once he reaches 59.5, he can spend it on anything with no penalty, just income tax. He can pay long-term care insurance premiums with an HSA. Read his plan. His company is probably hosting an informational meeting he can attend. He can't contribute to an HSA once on Medicare, but he can continue to spend from it.

[Gretel]

In addition to what is said already: One difference between Cafeteria and HSA is that HSA is tax saving only, while Cafeteria is also saving SS.

[JG EA]

Now I'm reading where it seems pretax 125 can be in a HSA - do you agree?

[S T]

Question

HSA can be pre-tax

Depending on the plan - yes Sect 125 can be added with an HSA module

Here is a link from one plan that has some info - but you will need to look at the Client Plan as they are all so different it seems - just providing this link as it seemed to give some info http://yourhsaadmin.com/MC/pdf/Emplo...ding_Guide.pdf

Hope this helps

Sandy