Any reason not do to HDHP/HSA?

[mrigney]

So I've been around long enough to know that HSAs are a great tool. My company has just announced that they will be offering a HDHP/HSA (through Fidelity) and will include at least for 2014 a $1k company gift to the HSA if I enroll. Deductible for the family is $3k, max out of pocket expenses is $8k. Preventitive care is still covered at 100% not subject to the deductible.

My wife and I are 29 and 28, no health issues, we have a 2.5 year old and a second baby due in February. I feel like I should jump on this opportunity, but am wondering if there are any reasons/situations that we SHOULDN'T go with the HDHP/HSA?

[ZiziPB]

Make sure you have sufficient cash flow to cover the out-of-pocket expenses from sources other than the HSA until you have some funds accumulated there.  With a baby due in February, you will probably hit your deductible then, but your HSA will not have much in it if you (and your employer) contribute funds to it through regular payroll deduction over the year.   Also, you have some known health related expenses coming up in 2014 so it should be fairly easy to figure out what will cost you less in 2014 (standard plan v. high deductible plan).  If you decided to go with a regular plan, can you set money aside for uncovered expenses (co-pays, deductibles, etc.) on pre-tax basis through a health reimbursement account?

[Cinder]

My wife and I are looking into the same thing, our employer just started really pushing an HSA/HDHP this year (They had them available last year).  When we looked though, we'd have to either change our Primary Care Physician or have a higher 'out of pocket' and 'deductible' amount for being 'out of network'.  That in addition to my DW only being able to be on a certain type of birth control which isn't listed on the CVS/Caremark lists, otherwise she has issues (either going psyco, loss of appetite, other things like that - she is very low weight, and can never really gain weight). 

Personally, I'd love to be able to go to our current PCP and be on an HSA/HDHP, but they dont' offer one on their network right now. 

[seattlecyclone]

If you have chronic health issues and would probably hit your deductible each year, the HDHP probably isn't for you. Most people who are generally healthy will find it a better option in the long run though.

[ace1224]

if you are generally healthy or you max it out for sure i would say get it.  i love mine

[Dezrah]

My husband and I are on my company's HDHP/HSA and I personally love it.  A big part of that though is my employer contributes $2600/year toward our HSA which is about $70/month more than we spend on routine medication.  Check to see if that $1k is a one time thing or an annual contribution.

I recently asked a coworker with wife, kindergartener, and new baby how he liked the plan.  He didn't seem to actually complain that much, but he did admit that since joining they've had to pay the maximum out of pocket every year.  Those years did include a surgery for the kid and then a childbirth.

We also had a coworker who developed diabetes in the time he joined.  The sudden increase in medical costs meant he could no longer afford to work here.  So if you or your wife have a family history of chronic conditions and you could not afford that $8k/yr then perhaps that plan isn't worth it.

Is it possible for you to run the numbers and compare your birth costs for the first child both with and without the HDHP for the year?  Include columns that account for tax benefits/costs, premium costs, employer contributions, etc.  I suspect you'll actually come out ahead if you stick to a traditional plan for this year and once your child is born and confirmed healthy, then switch.

Hope this helps.

[madage]

My wife has hit her deductible (but not out of pocket max) every year since we first elected the HDHP+HSA option three years ago. Even so, the difference in premiums has saved me money every year, to say nothing of the extraordinary tax advantages my HSA enjoys.

Run the numbers on your particular plan. I know for mine, if an absolute catastrophe occurred, like a car crash putting all four members of my family in the hospital for several days, my overall out of pocket (premiums + uncovered costs) would actually be less on the HDHP than if I elected the PPO.

[mrigney]

So the birth of baby 2 might not make a huge difference b/c we're going out-of-network to a midwife. So, we'd have to meet our current (lower....$600 I believe) deductible but then we'd only get reimbursed for 60% of the cost. So to spare you the running of the numbers, on our current plan, this birth will cost us $1736 out of pocket. If we were going with the HDHP we'd owe the midwife the full amount out of our pocket, which is $2700. So we're talking a $964 difference for that particular event (which in essence would be covered by the $1k my employer would be putting in, I guess).

Don't know if that changes anyone's advice or not? Obviously a lot of this will become more clear once I know the premiums for each.

[BoulderTC]

Hi all - I am interested in this topic too. I have been wanting to switch over to HDHP/HSA because I am the type who literally never goes to the doctor and to pay the higher monthly cost for a normal plan is silly for me.

But, my husband and I talk about maybe potentially having a child in the next couple years (vague, I know). I don't want to steal mrigney's thread, and sorry for being relatively ignorant on the topic, but can someone explain exactly how to "run the numbers" to see how we'd fare either way, assuming normal pregnancy appointments and giving birth is my only medical expense of the entire year (I realize that's unrealistic, but just want to keep it simple). My company also just announced today that they'd provide an employer contribution for people with HSA, but haven't said how much. I admit that I am not super knowledgeable on medical costs, etc. Thanks!

[ZiziPB]

What is the difference in premiums between the plans?  And once you hit the deductible, how much does the high deductible plan cover (i.e. are there any co-pays)?  The plans available from my employer pay 80/20 for the traditional plan and 90/10 for the HDHP.  So while it's not that difficult to hit the deductible amount with the HDHP, reaching the out-of-pocket max is unlikely unless you are seriously ill since the HDHP covers costs in greater proportion. And routine care like annual exams, healthy child, mammograms, etc. are covered 100%.  Also, remember that you are using before tax dollars for your out-of-pocket expenses.  You didn't say whether you take advantage of any type of a flex spending account with your traditional plan.  Does your company provide any resources to help you compare the plans?  My company has all kinds of calculators and estimators you can use to compare your anticipated costs.

[ZiziPB]

Remember also that HDHP is not a "lifetime" commitment.  You can try it for a year and if you feel like it's not for you, just switch back to a regular plan during the following open enrollment period.  You will not able to contribute to the HSA then, but you don't lose any $$ that are already in the account.  You can keep the HSA and continue using it for medical expenses.

[madage]

Hi all - I am interested in this topic too. I have been wanting to switch over to HDHP/HSA because I am the type who literally never goes to the doctor and to pay the higher monthly cost for a normal plan is silly for me.

But, my husband and I talk about maybe potentially having a child in the next couple years (vague, I know). I don't want to steal mrigney's thread, and sorry for being relatively ignorant on the topic, but can someone explain exactly how to "run the numbers" to see how we'd fare either way, assuming normal pregnancy appointments and giving birth is my only medical expense of the entire year (I realize that's unrealistic, but just want to keep it simple). My company also just announced today that they'd provide an employer contribution for people with HSA, but haven't said how much. I admit that I am not super knowledgeable on medical costs, etc. Thanks!

Consider your TOTAL annual out of pocket maximum expenses. This includes:

- premiums
- deductible(s) (you pay 100% until meet deductible, then co-insurance)
- co-insurance (up to out of pocket max)

Note the out of pocket max quoted in your plan literature typically includes deductibles but DOES NOT include premiums.

An example:

1) PPO option

- $300 premium/month
- $500 medical care deductible, then 85% co-insurance
- $1000 out of pocket individual max

Say the total insurance charge for pregnancy and deliver is $5,000 (I'm not saying that's accurate in any way). You pay the first $500 to meet your deductible, leaving a bill of $4,500 that is covered at 85%. Your charge for that would be $675, but $500 + $675 = $1175, which is more than your out of pocket max, so the charge to you would be $1,000. Your TOTAL spending for the year would be $3,600 premiums + $1,000 birth = $4,600.

2) HDHP option

- $30 premium/month
- $2,500 individual deductible, then 85% co-insurance
- $4,000 individual out of pocket max

Total insurance charge is still $5,000. You pay the first $2,500, then 15% on the last $2,500, or $375 for a total pregnancy/delivery bill of $2,875 out of your pocket. Add in the premiums for the year, and your TOTAL spending for the year would be $360 premiums + $2,875 birth = $3,235.

I just made up all these numbers, and I didn't intentionally make the HDHP better, that's just the way it worked out here.

[BoulderTC]

Thank you so much! This makes a lot of sense. I will dig up all the right numbers for premiums, deductibles, actual pregnancy & birth costs in my area, etc. and run the real numbers myself. Thanks a million for the example!

[Rural]

I'm a big fan of our HDHP. Even meeting the full deductible every year is cheaper than simply paying the premiums on the other plans we have available.  Plus my employer kicks in money every year.

[madage]

Thank you so much! This makes a lot of sense. I will dig up all the right numbers for premiums, deductibles, actual pregnancy & birth costs in my area, etc. and run the real numbers myself. Thanks a million for the example!

You're welcome!

[i_am_the_slime]

I'm a big fan of our HDHP. Even meeting the full deductible every year is cheaper than simply paying the premiums on the other plans we have available.  Plus my employer kicks in money every year.

I made a graph of Total Cost to Employee vs. Medical Expenses and plotted our 3 plans (PPO, EPO, and HDHP).  For the entire graph (every dollar of medical expenses up to $50k) the HDHP was lower than the other 2 plans.  It wasn't by a small amount either - $2-3k less.  So HDHP are often cheaper even though a lot of people are scared of them.

[Dezrah]

Hi all - I am interested in this topic too. I have been wanting to switch over to HDHP/HSA because I am the type who literally never goes to the doctor and to pay the higher monthly cost for a normal plan is silly for me.

But, my husband and I talk about maybe potentially having a child in the next couple years (vague, I know). I don't want to steal mrigney's thread, and sorry for being relatively ignorant on the topic, but can someone explain exactly how to "run the numbers" to see how we'd fare either way, assuming normal pregnancy appointments and giving birth is my only medical expense of the entire year (I realize that's unrealistic, but just want to keep it simple). My company also just announced today that they'd provide an employer contribution for people with HSA, but haven't said how much. I admit that I am not super knowledgeable on medical costs, etc. Thanks!

Consider your TOTAL annual out of pocket maximum expenses. This includes:

- premiums
- deductible(s) (you pay 100% until meet deductible, then co-insurance)
- co-insurance (up to out of pocket max)

Note the out of pocket max quoted in your plan literature typically includes deductibles but DOES NOT include premiums.

An example:

1) PPO option

- $300 premium/month
- $500 medical care deductible, then 85% co-insurance
- $1000 out of pocket individual max

Say the total insurance charge for pregnancy and deliver is $5,000 (I'm not saying that's accurate in any way). You pay the first $500 to meet your deductible, leaving a bill of $4,500 that is covered at 85%. Your charge for that would be $675, but $500 + $675 = $1175, which is more than your out of pocket max, so the charge to you would be $1,000. Your TOTAL spending for the year would be $3,600 premiums + $1,000 birth = $4,600.

2) HDHP option

- $30 premium/month
- $2,500 individual deductible, then 85% co-insurance
- $4,000 individual out of pocket max

Total insurance charge is still $5,000. You pay the first $2,500, then 15% on the last $2,500, or $375 for a total pregnancy/delivery bill of $2,875 out of your pocket. Add in the premiums for the year, and your TOTAL spending for the year would be $360 premiums + $2,875 birth = $3,235.

madage did a great job providing numbers, even if they are made up.  One thing he/she forgot to consider though is how taxes play into both sides.  Premiums in either plan and HSA contributions (up to $6,550 in 2014 including employer contribution) are tax deductible.  I'll add that to both scenarios assuming 25% marginal bracket.

PPO:
$300/month or $3,600/year are tax deductible, so you earn $3,600, pay $0 in taxes, and pay for the premium with the $3,600.
$1000 to cover the out-of-pocket maximum is post tax, meaning you earn $1,333, pay $333 in taxes, and pay the out-of-pocket costs with the remaining $1,000.

This means the true total you had to pay is $3,600+$1,333=$4,933.

HDHP:
$30/month or $360/year are tax deductible, so you earn $360, pay $0 in taxes, and pay for the premium with the $360.
$2,875 to cover the out-of-pocket maximum is also tax deductible, meaning you earn $2,875, pay $0 in taxes, and pay the out-of-pocket costs with the $2,875.

The true total for with the HDHP is still $360+$2,875=$3,235.

This only makes the HDHP look more attractive.  (If I'm looking at this right, this is the case regardless of what numbers are arbitrarily picked.)

I'm pretty sure there's a way to deduct your PPO medical costs but I think it only comes in if your medical bills are very high relative compared to your income.

[madage]

madage did a great job providing numbers, even if they are made up.  One thing he/she forgot to consider though is how taxes play into both sides.  Premiums in either plan and HSA contributions (up to $6,550 (for family plan, $3,300 single) in 2014 including employer contribution) are tax deductible.  I'll add that to both scenarios assuming 25% marginal bracket.

PPO:
$300/month or $3,600/year are tax deductible, so you earn $3,600, pay $0 in taxes, and pay for the premium with the $3,600.
$1000 to cover the out-of-pocket maximum is post tax, meaning you earn $1,333, pay $333 in taxes, and pay the out-of-pocket costs with the remaining $1,000.

This means the true total you had to pay is $3,600+$1,333=$4,933.

HDHP:
$30/month or $360/year are tax deductible, so you earn $360, pay $0 in taxes, and pay for the premium with the $360.
$2,875 to cover the out-of-pocket maximum is also tax deductible, meaning you earn $2,875, pay $0 in taxes, and pay the out-of-pocket costs with the $2,875.

The true total for with the HDHP is still $360+$2,875=$3,235.

This only makes the HDHP look more attractive.  (If I'm looking at this right, this is the case regardless of what numbers are arbitrarily picked.)

Added some clarification regarding HSA contribution limits to Dezrah's post.

Thanks, Dezrah, for including the tax implications. I neglected due to time constraints and for simplification. I personally believe the single biggest benefit to an HDHP is the ability to max-out the HSA for the tax benefits. The comment regarding the $2,875 to cover out of pocket expenses under the HDHP is correct so long as the dollars are "passed-through" an HSA.

I'm pretty sure there's a way to deduct your PPO medical costs but I think it only comes in if your medical bills are very high relative compared to your income.

Starting in 2013, medical costs above 10% of AGI may be deducted. There's not a lot of benefit here, even to people with very low income (whom probably pay very little, if any, taxes).

[ZiziPB]

If your employer offers a flexible spending account for medical expenses, you could also pay the PPO out-of-pocket cost with before tax dollars.  However, flex spending accounts are a bit tricky because of their "use or lose it" feature.

[jrhampt]

A couple of issues that I have with the HSA:

It's adding another layer of complication and risk, which I am not actually compensated very much for.  For example, the PPO plan vs the HDHP/HSA plan offered with my spouse's job is only an extra $20 or so per month in premiums. 

My spouse has some knee/hip issues lately, and if he doesn't make it in to see a doctor/have surgery by the end of the year and we switched to an HSA with no time to build up a good balance, we would have higher out of pocket costs.

A co-worker had the HSA for a year but decided to switch back due to monthly management fees on the account which were eating up his balance.

[madage]

A couple of issues that I have with the HSA:

It's adding another layer of complication and risk, which I am not actually compensated very much for.  For example, the PPO plan vs the HDHP/HSA plan offered with my spouse's job is only an extra $20 or so per month in premiums. 

That's fantastic! The premium difference at my company is almost an order of magnitude.

My spouse has some knee/hip issues lately, and if he doesn't make it in to see a doctor/have surgery by the end of the year and we switched to an HSA with no time to build up a good balance, we would have higher out of pocket costs.

Depends on the plan, of course. The out of pocket max for an individual is *typically* less than the annual family contribution limit to the HSA. If you have one year with guaranteed higher out of pocket costs, it makes sense to choose the lower cost plan for that year, obviously.

A co-worker had the HSA for a year but decided to switch back due to monthly management fees on the account which were eating up his balance.

Health Savings Accounts are portable, and there's no limit to the number you can have. If your employer doesn't partner with a suitable custodian, just transfer the funds to a better custodian after the pre-tax contribution.

[stevedoug]

to chime in, I've been on a HSA/HDHP for 2 years, going on 3.
I'm a generally healthy 30yr old.

the tax advantages of the HSA really drew me in, and employer tosses $500 into the HSA each year.
Most of the time I spend that $500 on eyecare (fancy eye glasses, which was dumb). I've finally gotten to the point to max out the contribution and I love the plan.
My favorite feature is being in control. I feel more in control of costs when I'm the one handing over a debit card to the doctor

[mrigney]

So I just got the premiums for the upcoming year. These figures are bi-weekly premiums for me + family.

PPO: $184
HDHP: $203

Say what? Has anyone ever seen such ludicrousness? Why the hell would anyone pay more out of each paycheck to have health insurance that required them to pay more of their own health costs? Am I missing something here? $203 bi-weekly seems ridiculously high for a HDHP. This particular one has a family (aggregate) deductible of $3k in-network, $8k out of pocket maximum (including deductible) and covers 90% after deductible. Wtf? Could someone please explain? haha.

[ZiziPB]

Am I missing something here?

As you said yourself, the company is giving you $1K on top of that if you go with HDHP.  So that will offset the difference in premiums and leave you with additional funds in the HSA.  What are the deductibles and co-pays under the PPO?

[Spork]

I'm not trying to threadjack this at all... but did ACA change the rules for HDHP/HSA?

My employer doesn't offer HDHP... and I'm really close to FIRE.  I'm sort of shopping HDHP on the side just for planning purposes.  I cannot find family HSA compatible plans in my state (Texas).  I can find individual plans... and I can find pointers on hsaconnect.com for family plans, but so far the plans they point out don't really seem to exist in real life.

I took a 3 year sabbatical a while back and I was pretty much sold on HDHP/HSA... just not seeing it as an option any longer. 

Please direct political discussions elsewhere... this is a simple question and I really don't want to spiral the thread out of control.

[mrigney]

The $1k is currently only a 2014 offer to encourage people to hop on board. No guarantee it will be there in 2015. Deductible for the PPO is $900 (aggregate), 80% coverage after deductible, $3k out of pocket maximum.



I put together a graph...y-axis is out of pocket expenses, x-axis is total medical costs. It doesn't include the $1k "bonus" to the HSA, but even if you offset the HDHP line $1k down, it's a pretty small area for which the HDHP is advantageous.

[ZiziPB]

Hmm, it sounds like in your case the PPO plan will be less expensive.  So unless you want to take advantage of the tax deduction for maxing out HSA contributions, it sounds like the PPO is a better choice for you this year.

 As to the $1K being a 2014 only offer, keep in mind that you are making an annual election at this point.  You are not stuck with HDHP for life, you can switch back to a different plan next year.  Your HSA will not be affected by it.

[mrigney]

Yep. Looks like the PPO is the better option. Which I'm pretty disappointed in. Btw, here's the graph with the $1k match included.

Still pretty small range of medical costs where the HDHP is cheaper, and even then the savings are small.

[madage]

I'm not trying to threadjack this at all... but did ACA change the rules for HDHP/HSA?

Yes.

In 2014, plans sold on the individual and small-group markets will have to meet new standards for coverage and cost-sharing, among other things. In addition to providing 10 so-called essential health benefits and covering many preventive-care services at no cost, plans must pay at least 60 percent of allowed medical expenses and cap annual out-of-pocket spending at $6,350 for individuals and $12,700 for families. (The only exception is for plans that have grandfathered status under the law.)

I'm sure there are better sources, this article isn't very informative. I think it comes down to a lot of old plans that qualified for a HSA stopped being offered when the requirement to cover preventive care 100% prior to deductible (among other ACA requirements) went into effect.