This guest post is brought to you by Eddie Wills, who’s just launched the Gubmints blog of tasty treats for federal employees and veterans.
You don’t have to wait until November to repeal ObamaCare.
Maybe you recently received an email from your employer regarding your 2013 Medical Flexible Spending Account (FSA) that looks like the one I just received:
Subj: IMPORTANT: 2013 Healthcare Reform Changes Regarding Health Care Flexible Spending Accounts
Dear FSAFEDS Participant,
The healthcare reform legislation introduces a change in the maximum amount you can contribute to your Health Care Flexible Spending Account (FSA). Effective for the 2013 Benefit Period the maximum amount you can contribute to a Health Care FSA will be $2,500.
For the Benefit Period beginning January 1, 2013, all individuals participating in a health care flexible spending account will no longer be able to contribute up to $5,000 annually. The new maximum annual amount will be $2,500.
Great. My oldest son needs braces next year. I’m already maxing out my FSA- It’s going to cost me much , MUCH more out of pocket in 2013.
Maybe you’re in the same boat, with a family member who needs:
- Joint replacement
- Boob job Implant Migration Correction
- Elective surgery
- Other recurring medical costs
Exactly how much more is this going to cost you under the Patient Protection and Affordable Care Act (more commonly known as ObamaCare)?
Well, pre-ObamaCare, if you want to pay your Medical Provider $5,000, it only costs you $5,000 after taxes via the Medical Flex Spending Account:
$5,000 in Before Tax Wages → FSA Account → FSA Administrator → $5,000 Medical Payment/Reimbursement (After Taxes).
Note that the FSA bypasses Payroll taxes (6.2% Social Security plus 1.45% Medicare), Federal income taxes (assumed 25% marginal), State income taxes (almost 10% in states like CA), and your money essentially went straight to the Medical Provider.
Let’s look at how that shakes out in 2013, post ObamaCare:
$5,000 in Medical Bill Payments = $2500 + [(1 – (25% + 10% + 6.2% + 1.45%)] * x ;
or x = $2500 / 0.5735 = $4359.
Therefore the 2013 Medical Expense breakdown is:
|Expense||Transaction||Paid to Doctor|
|$2,500.00 Salary Deferral →||→ FSA Account → FSA Administrator →||$2,500.00|
|$4,359.00 Additional Wages →||- $1859 (Income & Payroll Taxes) =||$2,500.00|
|$6,859.00 TOTAL COST With Taxes||$5,000.00 TOTAL PAID for Procedures|
Your 2013 out-of-pocket expenses are $6859 for the same $5,000 in medical procedures… or an increase in your out of pocket medical costs of 37.1 percent (!) If someone can explain to me how this has made medical procedures more “Protected” and “Affordable”, I’d like to hear it.
“Well, I guess I’m stuck with the FSA rules under ObamaCare. Time to suck rope- next year’s medical procedure is going to cost me more out of pocket.”
NOT SO FAST! You can perform a ‘self-repeal’ of ObamaCare by taking out a 401k/TSP loan:
First, max out your 2013 Medical FSA for $2500.
Second, you need another $2500 in your pocket to cover 2013 medical expenses. Get it by taking out a TSP loan for $2500. There will be an application fee of $50 and total interest payments (at the ‘G’ fund rate of 1.25%) of $20. Pay back the loan for 12 monthly payments of $210:
Now your 2013 after-tax costs for $5,000 in medical expenses are:
|Expense||Transaction||Paid to Doctor|
|$2,500.00 Wages →||FSA Acct → FSA Administrator →||$2,500.00|
|$ 50.00 Application Fee|
|$2,520.00 TSP Loan Payments →||$2500 TSP Loan Value →||$2,500.00|
|$5,070.00 TOTAL COST After Tax||$5,000.00 TOTAL PAID to provider|
…and now the ObamaCare increase to your 2013 out-of-pocket medical expenses is only $70, or a 1.4 percent increase!
There’s a hidden expense I did not include, which is the “opportunity cost” of 1 years’ worth of foregone interest payments if the $2500 is not borrowed from your TSP/401k and left alone. You give up $20 if your investment is in the G fund, or if you have a crystal ball telling you to pick the optimum 2013 asset allocation ahead of time (from all 5 available TSP fund choices), you might end up giving up as much as 8 percent on the $2500, or $200.
But a $270 increase in out-of-pocket expenses is still way cheaper than taking it in the shorts and paying an extra $1859 from your hard-earned wages for the same medical procedure.
So, if you have more than $2500 in anticipated medical expenses scheduled for 2013, do your own ‘self-repeal’ of ObamaCare- Take out a TSP/401k loan and Stick It To The Man!
Eddie served seven years on active duty as a Submariner and holds a Master’s Degree in Personal Finance from the College for Financial Planning. He earned his commission from the Naval Academy in 1993 and is looking forward to earning his retirement both as a Naval Reservist and Federal Employee. He can be reached at ejwills AT 1993 dot USNA dot com.
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