My Life in Benefits: Age 25, co-pay plan or HDHP?

This is the second post in our “My Life in Benefits” series. New posts are published the first Thursday of every month in five year increments. Read the first post here.

Remember Sam, the coworker I mentioned when I was talking about commuter benefits? I ended up asking her on a date. Fast forward five years… I’m now 25, she’s 24 and we’re getting married in a few months.

I had no idea weddings were so expensive. Thankfully, one of the perks of marriage is that Sam and I can save on health care. Right now, we’re both paying for separate health plans. Once we get married, we can move under one plan.

The big question (pun intended) is: Which one?

Choosing the right health plan

Her company offers two health plan options: a co-pay plan and a high deductible health plan (HDHP) with an HSA. My company only offers a co-pay plan. In the past, at our respective jobs, we had both signed up for the co-pay plan.

But with the wedding coming up, we are thinking the plan that saves us the most money is the best option. After sitting down and doing the math we found out we would save more with the high deductible plan.

What makes an HDHP a good idea?

There are two components that make the HDHP the right health plan for us:

1. We don’t expect to spend much on medical expenses during the year. Choosing the HDHP allows us to get the coverage we need without the high premiums that often come with a co-pay plan.
2. Enrolling in the HDHP also means we can contribute to the Health Savings Account (HSA) from Sam’s company.

Making sure it adds up

With the HDHP and an HSA, our deductible for the year is $4,000. Our premiums break down to 12 monthly payments of $120 through payroll deductions. Under the co-pay plan our premiums would be $300 per month.

While the deductible is high, the savings from the premium alone sets us up for savings.

Not only are we saving up front on premiums with the HDHP, but we can use our HSA funds to pay for the deductible. The entire deductible.

Other factors to consider

The HSA contribution limit

The IRS puts a cap on how much can be set aside in an HSA. If we set aside the full amount allowed in our HSA for the year ($7,000), it more than covers the deductible. Depending on if your employer contributes to the account (I’ll get to that in a minute), you might not even need to set aside the full amount.

Deductible or maximum out of pocket (MOOP)

While we could set aside $7,000 in our HSA, that’s a bit more than we have to spare comfortably. So, instead of setting aside the full amount, we decided to put enough money in the HSA to cover our $4,000 deductible. If we have some extra funds after the wedding, we are hoping to contribute our MOOP. The MOOP is the most amount of money you will pay for health expenses in a year, without help from insurance.

Does your company contribute to the HSA?

Sam works for a large company, so her employer contributes to our HSA each quarter (called seeding or employer funding). It adds up to a little more than $1,000 over the year. The employer contribution counts toward the overall maximum amount the IRS sets.

In short, because her employer contributes to the account, we only need to contribute $3,000 to reach the $4,000 deductible. Which is a bit more palatable for our wallets.

Maximizing your tax savings

HSAs come with a host of benefits. First, we own the money in the account. Second, funds automatically carry over each year and travel with us (like a 401(k)) if we change jobs. Third, the money we contribute to the HSA is all tax-free. It’s basically the same as a 25% to 35% return on taxes.

How to get started

If your employer offers an HDHP with an HSA, you can learn more by visiting our HSA Basics page. When it comes to your health, you want to choose the right health plan.

Check out these blogs to learn more about what an HDHP with an HSA can offer and if it’s best for you:

• Retirement Savings? HSA, IRA or 401(k)
• Why an FSA is not the same as an HSA
• Live longer with these IRS-approved accounts