Disclaimer: I have nothing to do with the University of Nebraska benefits office. My understanding of the plans was derived from what I was able to gather on their website and by attending the new plan open houses. Before making any decisions you should call the benefits office and discuss your questions with them.
The new University of Nebraska Medical Center (UNMC) health plans, starting in January 2019, offer amazing opportunities to save money now and for retirement. The biggest one, of course, is the introduction of a Qualified High Deductible Health Plan (QHDHP) that allows you to contribute to a Health Savings Account (HSA).
(If you don’t know what an HSA account is, think of it the same as a Flexible Spending Account (FSA) that you get to keep year after year without losing it. If you are still struggling with the concept, please take a few minutes and read about HSA here first).
University of Nebraska employees should seriously consider QHDHP this upcoming open enrollment season. I ran the numbers and the QHDHP plan is the cheapest of them all if your medical expenses are $250,000/year or $10/year when you consider the tax savings that come from maximizing the HSA.
The University of Nebraska is offering 4 different health plans:
Low option (high deductible): $131/month for a family
Basic option: $307/month for a family
High option (very low deductible): $532/month for a family
QHDHP: $131/month for a family
You can contribute up to $2,650 to an FSA (Flexible account) if you enroll in plans 1, 2 or 3. Money that is not used in the calendar year goes away. If you contribute the max to the FSA ($2650), tax savings would be $450 for the median household marginal tax rate (17%) or $1166 for the higher marginal tax rate (44%). This is only if you have $2650 or more in out of pocket expenses. If you have less out of pocket expenses than what you contributed, you lose the difference.
You can only contribute to an HSA plan if you enroll in plan 4. You are not allowed to contribute to both an HSA and an FSA plan in the same year. Only one is allowed. The maximum family contribution for the HSA is $7000 for a family. If you maximize the HSA, you can save up to $1190 for the marginal tax rate of 17%, and up to $3080 for the marginal tax rate of 44%.
Using Excel, I calculated the total spent on healthcare with each of these 4 plans with hypothetical medical expenses ranging from 0 to the out of pocket maximum. I did all of that for In-Network providers only. More savings could be achieved if using the new Preferred Tier providers from NE Med, but these calculations do not take that into account.
Total health expenses include premiums, deductibles, and co-insurance. All plans have an out of pocket maximum, so I ran the calculations until all the plans reached that.
I ran calculations assuming no FSA or HSA contributions and also assuming maxing out FSA or HSA and with 2 different tax brackets. On the horizontal axis, you will find the hypothetical medical expenses incurred during the year. On the vertical axis, you will find the total spent on healthcare (premiums plus out of pocket).
No contributions to FSA (Flexible account) or HSA
If you are not putting a penny in either the FSA or HSA, you are making a huge money mistake, but your best bet is either the low option (if you plan to spend less than $12,500 on medical expenses, or the basic option if you plan to spend more than $12,500. I really don’t know why the high option exists since you always loose with that plan.
Max FSA or HSA, Assuming median American household income of $56,000 (marginal tax rate of 17%, 5% Nebraska and 12% Federal)
For those households earning median American incomes of around $56,000, it would seem that the low and QHDHP options make sense for low expected yearly medical expenses (under $12,500) and the QHDHP and basic options makes sense for higher expected yearly medical expenses. However, I consider the QHDHP the best option because:
- Medical expenses are an unknown no matter how healthy you feel today.
- Money left in the HSA will compound at an average of 7% a year and be free of pre-tax contributions and post-tax withdrawals.
Max FSA or HSA, Assuming the highest marginal tax rate possible (marginal tax rate of 44%, 7% Nebraska and 37% Federal)
The superiority of the HSA becomes even more evident for the high-income earners who have absolutely no excuse not to sign up for the QHDHP and contribute to a HSA.