Tuesday, December 12, 2017

Making a True Comparison between Liberty (or any healthshare) and Traditional Health Insurance

Given my wife and I are self-employed we have the ability to deduct health insurance premiums paid from our income when filing our taxes. However, Liberty, or any healthshare, is not insurance, thus you cannot deduct your monthly share amount as health insurance premiums. Further, with a healthshare ministry you cannot contribute to a Health Savings Account (HSA). In 2018 my wife and I would be eligible to contribute up to $6,900 to an HSA. Thus, when comparing costs you should consider the total cost of health insurance, with the tax effect, to your healthshare cost. While your healthshare cost is still likely to be less you should be fully informed on costs before making a decision. For example, when thinking through our cost options for 2018 we performed the following analysis:

Monthly Cost
Yearly Cash Cost
HSA Contribution
Tax Savings
Actual Yearly Cost
Oscar (with HSA)

A few notes on the columns above:

Liberty Monthly Cost – Our monthly cost with Liberty is not just the $450 monthly share amount. In our situation we also needed to consider a) the $60/mo. we pay for dental insurance (but would be included in the Oscar plan we were comparing to), b) the $29 a month it costs to enroll in SavNet which was an option we chose and c) the $135 enrollment fee which is just over $11/mo if your prorate it ($135/12=$11.25).

NOTE: I haven't corrected the analysis above but there is not an extra cost for SavNet. We are charged $449 a month and that includes SavNet. Thus, the monthly cost for Liberty would be approximately $520 as opposed to the $550.

HSA Contribution – A HSA, or Health Savings Account, is an account that certain high deductible health insurance plans allow you to contribute to. It allows you to contribute money, tax free, to an account where you can invest the money or use the money for qualified healthcare needs. If you have no healthcare needs, or if you’d rather pay for those needs out of pocket, you can invest the money in your HSA to use for future healthcare needs (or even use in retirement!). These are great accounts and the plan we were evaluating with Oscar offered an HSA. In 2018 a family may contribute up to $6,900 in an HSA, while an individual may contribute $3,450.

Tax Savings – There are no tax savings by enrolling in Liberty or any other healthshare. However, with traditional insurance, you can deduct the cost of your monthly premiums from your income as well as any contributions to a HSA. To calculate your tax savings from these deductions you need to estimate an effective tax rate (the % of dollars earned that go towards taxes). Using our estimated effective tax rate we estimated we would save approximately $5,845 in taxes by deducting our health insurance premiums and contributing the full amount to a HSA, which we did in 2017. Thus, our yearly cost for the Oscar plan being developed was actually $9,623 vs. $15,468.

As you can see, despite the tax savings the Liberty cost was still roughly $3,000 less a year based on premiums alone. However, as a family we felt we were taking on risk by switching to Liberty – it was the unknown. Thus, there was probably a premium we would be willing to pay to go with traditional insurance. The question we asked after this analysis was:

Is it worth it to pay $3,000 more a year, or $250 more a month, to have the comfort any catastrophic health care needs would be covered efficiently by a traditional insurer?

Beyond Premiums

Keep in mind this analysis did not take into account actual medical costs beyond monthly premiums. For example, in our situation, we would be responsible for medical expenses up to $6,500 for an individual and $13,000 for a family. With Liberty we would be responsible for costs up to $1,500. In 2017 our family had responsibility for approximately $3,000 in medical costs (after our insurers discount with the health provider). If we incurred similar costs in 2018 we would receive an additional $1,500 in savings by enrolling with Liberty. We would be responsible for costs over $1,500 if we went with the Oscar plan, whereas costs over $1,500 with Liberty are shareable (i.e. covered).