One of our primary goals at HSA for America is to help you save as much money as you can. Every dollar you get to keep in your own pocket instead of using it to line the pocket of an insurance company means we have been successful. With the new Health Care Reform exchanges beginning to roll out for 2014, I thought I would share a few more tips for saving money.
Your Adjusted Gross Income (AGI) for the 2014 tax year is what determines how much premium you pay for your health care on the insurance exchange under the Affordable Care Act (or Obamacare). Therefore, if you maximize the contribution to your HSA, you can lower your AGI enough to have a significant impact on the cost of your health insurance.
Lower Income Equals a Lower Tax Bracket
The plans offered by the state health exchanges will be at certain levels; Bronze, Silver, Gold or Platinum. Each plan will provide different benefits. According to the new ACA mandates, if your family earns less than 400% of the Federal Poverty Level, you will not be required to pay more than 9.5% of your AGI for a Silver level health insurance plan.
To make it simpler, 400% of the current Poverty Level for a family of four is $94,200. Therefore, if their income is $100,000 per year, they would not qualify for any tax credits. In addition, they would be responsible for the full premium amount as well as any co-insurance or deductibles.
If this same family purchases an HSA-qualified policy and contributes the maximum amount per family, which is $6,450/year, their income would be lowered to $93,550. In this way, they will then qualify for a tax credit that would limit the amount of premium they would have to pay.
Your Income Also Effects Out-of-Pocket Expenses
Having a lower Adjusted Gross Income does not just mean you will get tax credits for purchasing insurance for your family. It may also affects how much money you are required to pay out of your own pocket before the policy pays 100%. This can be an additional savings that will help make up for the premiums you do have to pay.
Contribute to Your HSA to Lower Your Income
One of the smartest ways to legitimately lower your income is to contribute more to your HSA. The amount of money you contribute is directly deducted from your taxable income. This in turn lowers your AGI. As the new Health Care Reform laws go into effect, how much you pay for your insurance is dependent on your income.
Unless you have a health plan that was in effect before March 23, 20102 (also called a Grandfathered Plan), you will be required to switch your insurance plan to one that complies with the Affordable Care Act mandates. The premiums for plans that go into effect in 2014 will depend on your income in 2014. Therefore, the less taxable income you have can make a considerable difference in how much you will pay.
Increase Your HSA Contribution to Save More Money
Although it might seem counter-productive to increase the amount you contribute to your HSA to save money, it can actually help you pay less for your insurance. For example, if you and your spouse have a combined income of $31,020 and have Silver level health plan, your maximum out of pocket amount is $10,400 per year. If you reduce your AGI by only a dollar, your maximum out-of-pocket expenses drop to $4,500.
Therefore, if you contribute the maximum amount of $6,450 to your HSA, you could reduce your AGI enough to qualify for lower out-of-pocket expenses and premium amounts. This is a win-win scenario for anyone looking to save money on health care expenses.
Smart People Save Money
Beginning in 2014, everyone in the United States is required to either purchase a health plan that is compliant with the Affordable Care Act, or face a tax penalty. If you have a Grandfathered plan, you will probably be able to keep the one you have until the policy renewal, , but everyone else will have to convert to a new plan.
Remember that if your income is near 400% of the poverty level, you should try to lower your Adjusted Gross Income as much as possible before the end of the year. This will determine how much you will have to pay for insurance next year.
For that reason, if you do not have an HSA plan now, you need to purchase one prior to April 15, 2015January 1 in order to make the maximum contribution before the end of the year for 2014. This will lower your AGI for the 2014 tax year. Even if you are not going to qualify for a tax credit for your insurance, an HSA-qualifies health plan contribution will lower your tax bill when April 15th rolls around.
Open Enrollment for ACA-compliant health plans begins on October 1 for plans that will go into effect on January 1, 2014. If you haven’t considered an HSA plan, now is the time to take a closer look at all of the financial benefits to this type of plan.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.