Choosing between HDHP and HMO

[canisius]

Hello everyone!  Trying to get some objective advice on choosing between health plans at work. 

First one, HMO, has an FSA,
Premium - my part - $157
Deductible - $2500
Co-insurance - 30% after deductible
Out of Pocket - $8150
Out of State is Out of network.  No out of network coverage.
Co-Pay - $30
Specialist - $70
Retail RX - $10


Second one, PPO, HDHP, has an HSA-
Premium - my part - $169
Deductible - $3000 - Out of network - $5000
Co-insurance - 30% after deductible
Out of Pocket - $7000
Out of State is still in network
Co-Pay - 30% after deductible
Specialist - 30% after deductible
Retail RX - Routine is $0.  Others are 20% after deductible.

Other considerations, I am main income provider.  I have medication every 3 months, so that's $40 annually with plan one and $0 with plan two.  I visit a specialist about twice a month.  With plan one it is $70 a visit.  With plan two it will be $130 a visit.  I travel out of state about three weekends a year.  My PCP accepts both plans as do other doctors I may visit routinely. 

[JJ-]

The value of an HDHP comes down to the HSA and whether you can maximize that space. Obviously, the higher tax bracket you are the more valuable that vehicle becomes. Also, you can max it worry free knowing contributions roll over year to year.

It seems that the HDHP doesn't have that much more of a cost to it than your HMO. Which makes me think that it might just be worth it if you can top off the HSA.

In the case studies section, the spreadsheet has a HDHP analysis tab.

A few questions:

Can you maximize an HSA and let it grow tax free, potentially paying oop for medical?
Do you get a pass through/ pass back ? This affects how much you can contribute.
What are the HSA options, who is the provider, do they partner with an investment firm, or are you limited to high fee investment options? Mine is HSA bank and they have a "soft" cash minimum of $1,000 before you can invest, but opened a TD Ameritrade account and pull from the HSA cash account so that cash balance is at 0.

[Dave1442397]

Plan 2 (HSA) will cost you more per year, but it will also allow you to send $7200 to an investment account, and that money comes out of your check before FICA and Fed taxes, saving you money there.

Personally, I send the max to my HSA account every year, have it all going to a Vanguard target fund, and don't make any claims. You can save all your receipts (I scan them and upload them to my HSA provider's website) and that money can be claimed at any time if you need it.

The FSA money in Plan 1 has to be used every year, so while you save some money on taxes, it's not as much as with the HSA, and there's no long-term investment.

Plan 2 is definitely more expensive now, but if you add $7200 to an HSA account every year, the gains alone will soon offset the increased cost.

[yachi]

Something isn't right here.  A HDHP doesn't have prescription coverage prior to meeting the deductible.  If it does, you lose the ability to quality for an HSA.  In fact, if you have the HDHP plan and a separate rider for prescription coverage that covers medication prior to meeting the deductible, you also lose the ability to fund an HSA.  See here, where the IRS responded to this issue directly:
https://www.irs.gov/pub/irs-drop/rr-04-38.pdf

You show a 30% co-insurance, and a 30% Co-pay on the HDHP plan, is this correct, or a typo?

[canisius]

I agree on the advantage on the HSA.  I'll check out the Case Studies Spreadsheet.  I hadn't realized that TAB was there.  Thanks!

Can you maximize an HSA and let it grow tax free, potentially paying oop for medical?
Do you get a pass through/ pass back ? This affects how much you can contribute.
What are the HSA options, who is the provider, do they partner with an investment firm, or are you limited to high fee investment options? Mine is HSA bank and they have a "soft" cash minimum of $1,000 before you can invest, but opened a TD Ameritrade account and pull from the HSA cash account so that cash balance is at 0.

For the most part, yes I could maximize the HSA and pay OOP.  I'll check through the pass through.
They use a local Credit Union for the HSA, but my plan was to keep the minimum balance so there is no monthly maintenance fee, and then transfer it to an account that uses Vanguard. 

The other big issue, is I don't like how the first doesn't allow out - of - state.  I'm unsure of I'm looking at it objectively, but if I did need emergency medical care out of state that could potentially be crippling financially.  Objectively, however, it seems that the first plan would be penny wise and pound foolish and the HDHP would put me in a better position long term.

Something isn't right here.  A HDHP doesn't have prescription coverage prior to meeting the deductible.  If it does, you lose the ability to quality for an HSA.  In fact, if you have the HDHP plan and a separate rider for prescription coverage that covers medication prior to meeting the deductible, you also lose the ability to fund an HSA.  See here, where the IRS responded to this issue directly:
https://www.irs.gov/pub/irs-drop/rr-04-38.pdf

You show a 30% co-insurance, and a 30% Co-pay on the HDHP plan, is this correct, or a typo?

The 30% co-pay was a typo.  I copied my original post and filled it in without paying attention.  Any doctor's, specialist, etc. visit is only 30% after deductible is met (except for annual wellness visits).

It was also a typo on medicine for the HDHP.  My apologies.  It is 20% after deductible.   

[yachi]

I'm unsure of I'm looking at it objectively, but if I did need emergency medical care out of state that could potentially be crippling financially.

This website says in an HMO plan, you are only covered for in-network care, except in medical emergencies, when you may receive coverage out-of-network.

I was camping out of state with my family when my spouse had a medical emergency - we didn't have much chance to check hospitals, in network status, etc.  The doctors basically did the bare minimum to get her back on her feet, and sent us away with directions to check with our care team when we got back home to figure out the underlying cause.  They were very attentive to the fact that they would be an out-of-network solution to our needs.

[JJ-]

The other big issue, is I don't like how the first doesn't allow out - of - state.  I'm unsure of I'm looking at it objectively, but if I did need emergency medical care out of state that could potentially be crippling financially.  Objectively, however, it seems that the first plan would be penny wise and pound foolish and the HDHP would put me in a better position long term.

Read your plan documentation carefully. My suspicion is that their in network rates for services are guaranteed for only the in state network when you have a choice (seeing primary care or specialists). However, the section on emergency services and/or urgent care may apply out of state. You can also call up the plan rep and ask this question specifically and ask there where in the plan documents they are finding that.

I however am used to broad federal health plans so my perspective on what health plans should cover could be biased towards all encompassing. You are right though if you do not get in network coverage for emergency services out of state it may not be a risk you want to take.

[SimpleCycle]

Something isn't right here.  A HDHP doesn't have prescription coverage prior to meeting the deductible.  If it does, you lose the ability to quality for an HSA.  In fact, if you have the HDHP plan and a separate rider for prescription coverage that covers medication prior to meeting the deductible, you also lose the ability to fund an HSA.  See here, where the IRS responded to this issue directly:
https://www.irs.gov/pub/irs-drop/rr-04-38.pdf

You show a 30% co-insurance, and a 30% Co-pay on the HDHP plan, is this correct, or a typo?

This is mostly true, but HDHPs can cover “preventive” meds without copays or cost sharing.  This includes many maintenance meds for chronic conditions.

[DaMa]

I do these comparisons for family and friends a lot.  The tax saving for the HSA are substantial - FICA+Income tax usually more than cover the higher out of pocket.  But this assumes you can fund the HSA.  All the ones I have modeled IRL have lower premiums for the HDHP and that helps fund the HSA.  Even if you pay your claims from the HSA as you go, it's likely a better deal.  Saving them for later is a perk, but don't do it if you need the money back now.

Out-of-network coverage is also nice to have if someone in your family has a rare disorder that would benefit from a very specific specialist.  Especially when you have young children.  If the financial part is pretty even, that would be enough to push me to the HDHP.  Especially if you don't have some major medical centers in your state network (like a Mayo or Cleveland Clinic or a big university system). 

 

[NorCal]

Besides price, ALWAYS check the provider networks.  In my area, a lot of insurance plans are offering cheaper plans by cutting the provider network to minimal levels.

I even found one marketplace plan that only had one doctor within 100 miles, and that doctor wasn't taking new patients.

I'm personally a fan of high-deductible plans, but double check it meets your practical needs before you make a decision.

[Tigerpine]

Correct me if I'm wrong (it's almost my bedtime, so I'm not verifying before posting) but, if you qualify for an HSA by opting for the HDHCP, you don't have to use the financial institution that your employer has partnered with for your HSA account.  Of course, by using another institution, you can't take advantage of automatic payroll deduction for your HSA contribution and the corresponding reduction in witholding.  However, that will be trued up when you file taxes.  Unless your employer is offering to make an HSA contribution to your account, I believe it would be to your advantage to shop around where you open your HSA.

[DaMa]

When your employer takes the payroll deduction, you don't pay FICA or income tax.  When you do it yourself you only save the income tax by deducting the HSA contribution on your tax forms.

[seemsright]

PPO is so much less PITA over all no need to get a referral to go to physical therapy or to the bone dr you want to go to because you fell and crushed a bone in your pinky that turns out to need multiple surgeries and months and months in a cast. Hell even the clinic in Yellowstone took our PPO insurance.

There is more to just the numbers on paper please keep in mind the ease of use. Because time is money.

[JJ-]

Correct me if I'm wrong (it's almost my bedtime, so I'm not verifying before posting) but, if you qualify for an HSA by opting for the HDHCP, you don't have to use the financial institution that your employer has partnered with for your HSA account.  Of course, by using another institution, you can't take advantage of automatic payroll deduction for your HSA contribution and the corresponding reduction in witholding.  However, that will be trued up when you file taxes.  Unless your employer is offering to make an HSA contribution to your account, I believe it would be to your advantage to shop around where you open your HSA.

You are not tied to that HSA provider. However it's not 100% correct if you choose to go with another provider you can't get payroll deductions. I determine where my payroll contributions go with a request to payroll, though employer pass through contributions are sent to the HSA provider selected by the plan. However you can transfer those out. Check your HSA account plans for fees etc before deciding.

[Tigerpine]

When your employer takes the payroll deduction, you don't pay FICA or income tax.  When you do it yourself you only save the income tax by deducting the HSA contribution on your tax forms.

There are ways to get back overpayment of excess FICA taxes witheld.  For example, this.
https://www.irs.gov/instructions/i843

Correct me if I'm wrong (it's almost my bedtime, so I'm not verifying before posting) but, if you qualify for an HSA by opting for the HDHCP, you don't have to use the financial institution that your employer has partnered with for your HSA account.  Of course, by using another institution, you can't take advantage of automatic payroll deduction for your HSA contribution and the corresponding reduction in witholding.  However, that will be trued up when you file taxes.  Unless your employer is offering to make an HSA contribution to your account, I believe it would be to your advantage to shop around where you open your HSA.

You are not tied to that HSA provider. However it's not 100% correct if you choose to go with another provider you can't get payroll deductions. I determine where my payroll contributions go with a request to payroll, though employer pass through contributions are sent to the HSA provider selected by the plan. However you can transfer those out. Check your HSA account plans for fees etc before deciding.

Thanks for the additional information.

[DaMa]

When your employer takes the payroll deduction, you don't pay FICA or income tax.  When you do it yourself you only save the income tax by deducting the HSA contribution on your tax forms.

There are ways to get back overpayment of excess FICA taxes witheld.  For example, this.
https://www.irs.gov/instructions/i843

I was not aware of this.  Thanks!

[seattlecyclone]

When your employer takes the payroll deduction, you don't pay FICA or income tax.  When you do it yourself you only save the income tax by deducting the HSA contribution on your tax forms.

There are ways to get back overpayment of excess FICA taxes witheld.  For example, this.
https://www.irs.gov/instructions/i843

I was not aware of this.  Thanks!

Sure, but before you file that form you should find some source that suggests that you are entitled to a refund of FICA taxes if you contribute to your own HSA. I've never seen that written anywhere. Furthermore I'd expect that if it was a thing it would be covered on either the Form 8889 that everyone who contributes to an HSA needs to fill out already, or the possibility would at least be mentioned in the instructions for that form.

[Tigerpine]

When your employer takes the payroll deduction, you don't pay FICA or income tax.  When you do it yourself you only save the income tax by deducting the HSA contribution on your tax forms.

There are ways to get back overpayment of excess FICA taxes witheld.  For example, this.
https://www.irs.gov/instructions/i843

I was not aware of this.  Thanks!

Sure, but before you file that form you should find some source that suggests that you are entitled to a refund of FICA taxes if you contribute to your own HSA. I've never seen that written anywhere. Furthermore I'd expect that if it was a thing it would be covered on either the Form 8889 that everyone who contributes to an HSA needs to fill out already, or the possibility would at least be mentioned in the instructions for that form.

This is where seeking advice from a professional comes in.  To be clear, I have never filed that form.  I just know it exists.

[ericrugiero]

When I was deciding, I ran the numbers comparing total cost for 3 scenario's. 

Good year with minimal health care needs
Middle of the road year with moderate health care needs
Worst case scenario where we hit max out of pocket

In my case, the high deductible plan had more up-side and at worst it would end up costing us a few hundred dollars more.  It's been a good decision so far and at this point we have enough money in the HSA to offset any years where it might cost a little more.   The HSA is a very nice tax benefit so if you are on the fence I would suggest erring that way.