In either case, triple tax advantage of HSA is far more, especially due to compound growth.
If you have the cash to be able to deal with $10k of medical expenses in an emergency, HDHP + HSA is a no brainer
1. Money going into the HSA is pre-tax
2. Investment gains from the HSA are not taxed
3. Money used from the HSA for qualifying health expenses is not taxed
That said, there are many restrictions and two of these benefits seem to be included for self-employed individuals. For example, an HSA can not be used for over the counter drugs unless there's a prescription:
https://www.irs.gov/newsroom/affordable-care-act-questions-a...
However, prescriptions can already be deducted without an HSA if one is itemizing:
https://www.irs.gov/taxtopics/tc502
Alternatively, the above link also states that things like office visits to a physician can be deducted, which are things normally an HSA are used for.
Basically, the one benefit that seems unique to an HSA is that the investment gains from the money in the account are not taxed, which is great assuming that this money is used for medical expenses or you make it to 65.
Again, I'm not saying you're incorrect, but it looks like self-employed individuals automatically benefit from 1 and 3 above, assuming itemization. As such, it's seems like the trade off is whether the higher premium, which is less high due to the tax write-off, is worth lower the lower cost of a physician visit. Assuming, of course, we haven't gone catastrophic. What am I missing?
Q39 at bottom of page 18 of following IRS document:
https://www.irs.gov/pub/irs-drop/n-04-50.pdf
Have a baby? Save that receipt showing payment for $5k from your post tax dollars, and let the money in your HSA grow tax free for however long you can, and then when you need it (e.g. in retirement), reimburse yourself for the birthing expenses.
It's the first place your savings should go. It's easiest to just model the HSA as a triple tax advantage savings account as long as you pdf receipts for payments for medical expenses. Which you might not in 20s and 30s, but surely will into 40s and definitely 50s, and you can use it for payments you made for other people's medical expenses too. And even if you need to withdraw from it for an emergency, the penalty is only 10%.
1. Money contributed is tax free
2. There is a $3.5k contribution limit
3. Money can be withdraw tax free prior to 65, at any time, as long as there's a receipt for the qualifying medical expense that occurs after the HSA was established
Then, from what I can tell, the drawback to this approach is that there needs to be enough cash flow to cover for medical expenses. Certainly, money could be withdrawn from the HSA, but the real tax benefit comes from pretax contributions and that capital gains, interest, and dividends are tax free. Overtime these can provide a huge amount of savings, but they need time to develop. Sound about right?
I wonder how the IRS would prevent a tax evader using the same receipts for payments for medical expenses for different withdrawals in different years.