Healthcare, taxes, and the HSA solution

I looked like a grumpy Republican.

Receipts were flying out of my printer, my wife was calling out numbers from across the room, and I was looking at an invoice for private school tuition that cost as much or more than my college education. Meanwhile, my itemized property tax receipt was showing that $864.98 the country taxes on my home go to fund the local school district, the school district my kid doesn’t attend.

I grumbled.

On 360-something days out of the year, I am a scruffy, neohippie who eats granola and bleeds from his heart like a drunk pig that stumbled into a knitting needle factory. On the days I actually look at where my income goes, I turn into a wingnut for a couple of hours. It passed quickly. I was reminded and fully understood that part of growing a community and country is helping to educate its people. And in the grand scheme of things, a few hundred bucks a year is a small price to pay for that.

On the other hand–and this was what had me reeling–my wife and I sat down and calculated to the penny how much we spent on healthcare costs in 2009. The following number represents out-of-pocket costs for insurance, doctors, hospitals, labs, and pediatric dentistry.

$24,677.91

That’s right. Of the money I earned in 2009, nearly $25,000 of it went to the healthcare industry. Now, yes, we paid out-of-pocket to have a baby delivered, and that accounted for around $8,000-$10,000 of the cost. Insurance represented around $9,500 in premiums. That still left $5,000-$7,000 of extraneous medical costs that insurance didn’t pay for and that were not related to having a baby.

Now, we didn’t have the best year in 2009. Income-wise, we tanked pretty bad due to the vagaries of–oh, it doesn’t matter. The point is, we were fortunate to even be able to pay $24,677.91 in medical costs at all. It’s not been too many years ago that the same number represented more than my yearly income. Now, it’s the amount that I paid for the cost of being healthy in one year.

See, we’re healthy people. I go to the doctor when my arms are falling off or I’m pretty sure I died already. My wife does all the preventative stuff and the kids get their shots. Apart from the odd baby ear infection, we don’t spend a lot of time letting the white coats tell us that we have the common cold and there is nothing they can do. We appreciate doctors and know we’ll need their talent someday, but for now, we’re fortunately healthy people.

So, $25,000 to be healthy for a year. That’s with insurance. Take from it what you will. I’m out of political arguments. I know I could buy a car with that money. I could put a down payment on a new house. I could buy into the World Series of Poker twice and still have money left over. I still can’t fathom it, despite the fact the money is gone and there is nothing I can do about it.

It was time to make lemonade. While 2009 sucked in a number of ways, the stars aligned a bit for us. See, the law allows taxpayers to deduct medical expenses for every dollar they spend over 7.5% of their gross adjusted income. So, because I had a pretty rotten year on the income front, I can take a sizable deduction on that big medical bill figure I keep ranting about. That means my end-of-year tax bill (the check for which I’ll be writing this week) won’t be nearly as hard to swallow.

While that’s all well and good, it’s just a practice in giving money away if I keep paying out the nose for medical costs. Fortunately, I have some very good friends who counseled me in the ways of the Health Savings Account (you all know who you are, so thank you).

As of today, I no longer pay $940 per month premiums to Blue Cross Blue Shield of South Carolina. I am now the proud owner of an HSA. My monthly insurance premium is less than half of what I was spending before. I deposit money into my HSA account on a pre-tax basis. Whatever I don’t use from the HSA in the coming year, I can roll over to the next year without penalty. Sure, I have a pretty high deductible, but on the off-chance I actually end up spending that much, everything is covered after that. So the upshot of all of it is that in the best case scenario, we are completely healthy in 2010 and end up spending less than half on insurance premium than we would’e spent if we stuck with Blue Cross Blue Shield. In the absolute worst case scenario, we spend exactly what we spent on Blue Cross premiums and don’t have to pay a penny more.

It’s a weird place to be, I’ll admit. I’m screaming about taxes, and in the same breath screaming about how out of control the healthcare system is. If anything, though, I’ve worked the solution as best I can. It’s still not fun, but I guess the forefathers never promised us an easy road, did they?

Brad Willis

Brad Willis is a writer based in Greenville, South Carolina. Willis spent a decade as an award-winning broadcast journalist. He has worked as a freelance writer, columnist, and professional blogger since 2005. He has also served as a commentator and guest on a wide variety of television, radio, and internet shows.

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8 Responses

  1. You know i work for a major insurer that begins and starts with the letter A. I have gone the HRA (Health reimbursement account route for the last three years). I too am healthy as an ox thanks to strong Italian stock. My company give mes $300 a year towards my $1800 single person deductible. I put in $65/paycheck to also cover the deductible.
    Whatever I dont use rolls over and accumulates much like an IRA does.

    Why I love it. It comes with a debit card. I can use the debit card to pay myself back for my dental deductible and copays I have to come up with as well as for OTC drugs like Prevacid for the agita I get for carrying a few extra pounds as well as the generic claritin i buy at Costco cause its cheaper as well as other supplements like Acidophilus and flaxseed oil to ward off all those things that come with middle age. I use the debit card only for healthcare expenses even though I have enough money accumulated now to fund a whole bunch of poker tourney buys.

    What i like also is that anymoney i accumulate and dont use Ill have at retirement for a medi-gap plan. I can use this Healthcare IRA to pay for the premiums.

    i obviously get this stuff since i work in the field and have always done financial planning/benefits work. The hardest part is educating the consumer. Most people dont want to take the time or responsiblity to understand the different offerings. there no longer are human resource people to guide you thru what plan to pick as there was when I came out of college. Its all online and lets face it people would rather twitter and watch reality TV then take responsibility for their own personal financial planning. And lets face it healthcare is a big part of our finances as you well point out.

    Im glad i have smart educated friends who are excellent writers who get this!!

    See you at Mohegan

    Lori

  2. Astin says:

    Quick question – why private school?

  3. otis says:

    Thanks, Lori (and you were one of the people I was thanking…)

    Astin–Short answer: South Carolina. Long answer has a lot more to do with our son’s age, personality, brain wiring, and our family’s way at looking at the world. We may not keep him in private school for the duration of his education, but right now, it’s the right thing for him.

  4. gamecock says:

    Two solutions (one requires government intervention):

    1.) You change your coverage to a better insurance plan, or one with less coverage based on the acceptable risk that you are healthy.

    2.) The government takes over your health insurance, you pay more taxes, you get “free” health care that consists of everyone’s money. Of course you will be paying for their’s as well.

    Here’s a question. It isn’t socially necessary for you to transfer $50K to a random ne’er do well to extend his life by 6 months. Why should society as a whole do it?

  5. Astin says:

    Gamecock: That’s a tired argument. Otis as touched on it in the past. Anybody using a US hospital is already paying for that ne’er-do-well with the 3000% charges on sundries, supplies, and double-billing practices. It’s already a tax, just levied by a private company instead of the government. So the question is if the taxes everyone is forced to pay would be lower than the hidden recouping already in place.

    Otis: Ah. Unless this is still Montessori he’s in, which I recall suggesting myself. I’m definitely a supporter of that sort of program in the early years, as it’s far more fruitful than playing with alphabet blocks and trying to colour within the lines. I’m always concerned about private school as kids get older though, as I believe parental involvement is a far larger factor in educational success than the actual schools. Granted, there are exceptions at either end of the scale. A terrible school or a truly excellent one makes a difference, but the middle ground that most fall into seem to have less of an effect.

    Then there’s the people I went to University with who came out of private schools. Nearly all of them failed and retook first year because they weren’t socially adapted to handle interacting with the masses. Then again… South Carolina.

  6. otis says:

    Astin–Montessori is great and fit our kid perfectly. As for the future…well, I’m expecting a flying car before I make any decisions.

  7. Astin says:

    Keep the kid engaged and educated and maybe he’ll provide you with one. Or at least a jetpack.

  8. Su says:

    I have a High Deductible Health Plan with a Health Savings Account. If you are someone with very high health care costs or very low health care costs I think it is the way to go as far as insurance goes these days.

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