No-Deductible plan or High Deductible HSA plan?

Question

The Company I work for is offering two Insurance options starting this year. One being the No-deductible plan I am currently on, and the other being a 1500$ deductible plan with an HSA that they will contribute 2000$ to annually. The premiums on both are completely paid by the company.

I am 26 years old and relatively healthy. In terms of financial wellbeing I am fully maxing an IRA and 401k, as well as holding a sizable just-in-case savings buffer.

I have heard that HSA's are sometimes used as an additional tax-advantaged retirement vehicle, but I am not sure how that works or if its still true.

Which ends up being the better choice for me/are there parts of the equation I am not seeing.

Answer 1

If the plans are otherwise identical it would seem that the HDHP is superior, as the employer HSA contribution will cover all of your out of pocket costs up to the deductible and then some. However note there are often other differences such as the % coinsurance and copays, as well as max out of pockets between these plans to it might complicate things.

Unlike an FSA, money in an HSA is actually yours, and it acts a lot like a traditional 401k, with the exception that you can withdraw money at any time with no income tax if it is used for medical costs. Deposits are deducted from your taxes like a traditional 401k and the employer can provide a contribution too (as yours clearly does). In retirement you can make non medical withdrawals like a 401k.

Please note the deductible will likely increase if you later want to cover a (potentially future) partner or spouse, usually doubling, so this may change the equation if that is in your future plans.

Update: You say the HDHP has a higher out of pocket, I suspect in that case it will be substantially better value to you if and only if your health care costs are generally reasonably low. If you expect to spend the MOOP each year the non deductible plan is clearly better, as you would receive $2000 in your HSA but pay $4300 in the difference in max out of pocket, giving a $2300 comparative loss in the worst case. If your medical expenses are lower the HDHP is likely better.

I could work out the crossover point but I would need to know the % coinsurance of medical costs after the deductible to figure out at what level of expenses the crossover was.

Answer 2

HDHPs basically exist for people like you describe yourself: people who don't really use healthcare beyond basic vaccinations/well visits, and so really are using insurance for its nominal purpose - insuring against significant expenses.

If you are able to handle the possibility of a major event taking your full maximum out-of-pocket (you say $5800), then it seems like that's the plan for you. You'll likely spend nothing, and can save up that $2000 in a HSA and eventually use it in your retirement if not before.

If a $3800 expense would be impossible to manage, though, I'd take the lower deductible plan. Insurance only serves its purpose if it allows you to manage the risk; if the risk is still a bankruptcy-inducing event, it's not serving its purpose.