how to decide between EPO and high deductible PPO?

[TheBeeKeeper]

my employer is switching health insurance for next year, offering an EPO plan or high deductible PPO.
the coverage for my family will be
EPO - premium will be $2.5K more than the PPO + for the PPO the employer will deposit $1.5K  in an HSA account,
so the PPO is $4K cheaper than the EPO.

But if I assume next year my family will have exactly the same healthcare usage as this year, I will end up paying $4k less in deductible/copay/coinsurance if I take the EPO
This is with just regular Dr. and specialist visits for a couple + 2, no unexpected hospitalizations or anything major.
If even one person will have some unpredictable health expense then the PPO will cost more.

since it's very hard to predict the future, what is the value of the PPO?
I won't be able to contribute much to the HSA, maybe $1K or 2K tops, and I'm not sure what are even the investment options in the HSA since this is a new plan.
It seems to me that HDHP makes sense if you only go to see a primary care doctor, and no specialists and no accidents, or if you are able financially to max the HSA. Am I missing anything?

[leevs11]

I do the EPO, but it's a toss up. The HDHP plan only really makes sense if you take advantage of the HSA for the tax savings and/or have very low health care expenses.

The pro of the EPO is that you never have to make the decision on whether or not to go to the dr for money reasons. That's a nice piece of mind factor.

[TheBeeKeeper]

I do the EPO, but it's a toss up. The HDHP plan only really makes sense if you take advantage of the HSA for the tax savings and/or have very low health care expenses.

The pro of the EPO is that you never have to make the decision on whether or not to go to the dr for money reasons. That's a nice piece of mind factor.

that makes sense.
I think with kids and unexpected doctor visits every year the high deductible plan is not going to come out cheaper.
 
I checked the total bills for 2022 and just for routine stuff my insurance paid between the 4 of us about $10K !!!
This is without even any hospital visits, just stuff like eye doctor, dermatologist, and regular blood work.

[dcheesi]

Every year, I tell myself I should look into switching from our regular PPO to our HDHP plan w/ HSA. Every year, it starts out looking good, only to realize that:

1) It's way more hassle than I'd like to fully utilize the HSA

2) It's a lot of research hassle just to figure out if it's even worth it

...and as I beat a cowardly retreat to the comfortable familiarity of my PPO plan, I tell myself "Next year, I'll really look into this! Next year..."

[achvfi]

Also note that premium you pay is actually

Premium - (Fed+state+fica taxes) on the amount.

[Asalted_Nut]

May I ask what the deducible and out of pocket max are for each plan? Are the coverages (I think I mean co-pays) about the same once you hit the deductible for the HDHP?

I always go back and forth between the piece of mind of a EPO, and the HDHP. But like you our employer also puts in a chunk of $1.4 into our HSA. So for us it has been up-till-now $2800 deductible for the HDHP family plan, and with it being $82ish a month instead of around $450, so I only would have to pay $1400 really until I hit the deductible and then the plans were comparable in terms of how much the co-pays were and such.

So it just seemed a question of well, do I want to pay a total of $5400 (540450/month x12) in order to pay co-pays right off the bat? Or do I want to pay $2,384 (82/month x12 + 2800 - 1400 from employer), and for us we weren't even necessarily going to even hit our deductible so we may pay even less. Granted this year we did end up hitting it.

I'm not sure if all that would apply, especially if you have a lot of visits that may be outside of what would be a co-pay in your HDHP?

[TheBeeKeeper]

May I ask what the deducible and out of pocket max are for each plan? Are the coverages (I think I mean co-pays) about the same once you hit the deductible for the HDHP?

I always go back and forth between the piece of mind of a EPO, and the HDHP. But like you our employer also puts in a chunk of $1.4 into our HSA. So for us it has been up-till-now $2800 deductible for the HDHP family plan, and with it being $82ish a month instead of around $450, so I only would have to pay $1400 really until I hit the deductible and then the plans were comparable in terms of how much the co-pays were and such.

So it just seemed a question of well, do I want to pay a total of $5400 (540450/month x12) in order to pay co-pays right off the bat? Or do I want to pay $2,384 (82/month x12 + 2800 - 1400 from employer), and for us we weren't even necessarily going to even hit our deductible so we may pay even less. Granted this year we did end up hitting it.

I'm not sure if all that would apply, especially if you have a lot of visits that may be outside of what would be a co-pay in your HDHP?

EPO vs HDHP (costs per year)
premium : $7,800 / $5,400
Deductible $800  /  $3700 (family)
copay $20-40 /  20% after deductible 
max out of pocket $4,400 / $7,400

[reeshau]

Do you travel a lot?  If so, does your EPO have a national network?

One of the things I have come to hate about ACA plans is that *none* have non-emergency coverage out of state.  (In many cases, even out-of-metro)  since I've been aware of this, now I have to consider medical travel insurance, even inside the US.  We have one kid, and usually are traveling for family events, meeting lots of people.  Should a worse-than-typical, but not ER event happen, particularly if there are any diagnostics involved, that could become a large price.

My former employer had a Blues PPO plan, and I used to laugh at some billing, which could pass between three of them at a time.  (The state where the care occurred, the state we lived in, and the "home" state of the company, which administered the plan)  Boy, I wish I could even opt for that, now.

[TheBeeKeeper]

Do you travel a lot?  If so, does your EPO have a national network?

One of the things I have come to hate about ACA plans is that *none* have non-emergency coverage out of state.

both options have a national network

[seattlecyclone]

EPO vs HDHP (costs per year)
premium : $7,800 / $5,400
Deductible $800  /  $3700 (family)
copay $20-40 /  20% after deductible 
max out of pocket $4,400 / $7,400

Best case: nobody needs any medical services at all, and you just pay the premiums. HDHP comes out ahead here: $3,900 (after company HSA contribution) to $7,800.
Worst case: you need so much care that you hit the out-of-pocket maximum. HDHP comes out ahead here too: ($5,400 - $1,500 + $7,400) = $11,300, which is less than ($7,800 + $4,400) = $12,200.

But wait, there's more! If you run all your HDHP out-of-pocket expenses through the HSA you don't pay tax on them. So while the $4,400 in potential out-of-pocket costs from the EPO are in post-tax dollars (unless you predict these costs accurately with a use-it-or-lose-it FSA), the potential $7,400 in HDHP out-of-pocket costs can be in pre-tax dollars. If you're in the 22% bracket, plus 7.65% FICA, that would bring the $7,400 maximum down to $5,206 in an apples-to-apples post-tax comparison.

There could definitely be scenarios in between the two extremes where the EPO comes out ahead. It's impossible to model everything, especially when one plan uses fixed copayments for lots of stuff while the other one uses a percentage of the actual cost. If the services you tend to use have high actual costs but low copays that might point to a medium-usage scenario ending up in the EPO's favor.

[charis]

I do the EPO, but it's a toss up. The HDHP plan only really makes sense if you take advantage of the HSA for the tax savings and/or have very low health care expenses.

The pro of the EPO is that you never have to make the decision on whether or not to go to the dr for money reasons. That's a nice piece of mind factor.

This is not accurate, as pointed out by another poster.  If you have high health care expenses, an HDHP can also be the right choice, depending on the premiums, pass through contribution, deductible amount, and % coinsurance.  My family of 4 has had a HDHP for 8 years and I've never made a decision not to go to the doctor for money reasons, and we have had two people with chronic conditions during that time.

[TheBeeKeeper]

EPO vs HDHP (costs per year)
premium : $7,800 / $5,400
Deductible $800  /  $3700 (family)
copay $20-40 /  20% after deductible 
max out of pocket $4,400 / $7,400

Best case: nobody needs any medical services at all, and you just pay the premiums. HDHP comes out ahead here: $3,900 (after company HSA contribution) to $7,800.
Worst case: you need so much care that you hit the out-of-pocket maximum. HDHP comes out ahead here too: ($5,400 - $1,500 + $7,400) = $11,300, which is less than ($7,800 + $4,400) = $12,200.

But wait, there's more! If you run all your HDHP out-of-pocket expenses through the HSA you don't pay tax on them. So while the $4,400 in potential out-of-pocket costs from the EPO are in post-tax dollars (unless you predict these costs accurately with a use-it-or-lose-it FSA), the potential $7,400 in HDHP out-of-pocket costs can be in pre-tax dollars. If you're in the 22% bracket, plus 7.65% FICA, that would bring the $7,400 maximum down to $5,206 in an apples-to-apples post-tax comparison.

There could definitely be scenarios in between the two extremes where the EPO comes out ahead. It's impossible to model everything, especially when one plan uses fixed copayments for lots of stuff while the other one uses a percentage of the actual cost. If the services you tend to use have high actual costs but low copays that might point to a medium-usage scenario ending up in the EPO's favor.

thanks for the analysis!
This all makes more sense now.

To test this further I looked back at our 2022 medical claims and ran the numbers. The EPO came to about $100 more than the HDHP, and that's before factoring in tax savings, which would be a bit less since the higher EPO premium is also pre-tax.

Still, looks like HDHP and maxing the HSA would be the cheapest in all likely scenarios, and I should reduce my 401K contributions up to the employer match to prioritize maxing the HSA first.

Thanks everyone for the insight!
When I asked HR and the insurance broker all they could say is "the HDHP is good if you don't expect to have a lot of medical expenses and the EPO is good for peace of mind".

[charis]

EPO vs HDHP (costs per year)
premium : $7,800 / $5,400
Deductible $800  /  $3700 (family)
copay $20-40 /  20% after deductible 
max out of pocket $4,400 / $7,400

Best case: nobody needs any medical services at all, and you just pay the premiums. HDHP comes out ahead here: $3,900 (after company HSA contribution) to $7,800.
Worst case: you need so much care that you hit the out-of-pocket maximum. HDHP comes out ahead here too: ($5,400 - $1,500 + $7,400) = $11,300, which is less than ($7,800 + $4,400) = $12,200.

But wait, there's more! If you run all your HDHP out-of-pocket expenses through the HSA you don't pay tax on them. So while the $4,400 in potential out-of-pocket costs from the EPO are in post-tax dollars (unless you predict these costs accurately with a use-it-or-lose-it FSA), the potential $7,400 in HDHP out-of-pocket costs can be in pre-tax dollars. If you're in the 22% bracket, plus 7.65% FICA, that would bring the $7,400 maximum down to $5,206 in an apples-to-apples post-tax comparison.

There could definitely be scenarios in between the two extremes where the EPO comes out ahead. It's impossible to model everything, especially when one plan uses fixed copayments for lots of stuff while the other one uses a percentage of the actual cost. If the services you tend to use have high actual costs but low copays that might point to a medium-usage scenario ending up in the EPO's favor.

thanks for the analysis!
This all makes more sense now.

To test this further I looked back at our 2022 medical claims and ran the numbers. The EPO came to about $100 more than the HDHP, and that's before factoring in tax savings, which would be a bit less since the higher EPO premium is also pre-tax.

Still, looks like HDHP and maxing the HSA would be the cheapest in all likely scenarios, and I should reduce my 401K contributions up to the employer match to prioritize maxing the HSA first.

Thanks everyone for the insight!
When I asked HR and the insurance broker all they could say is "the HDHP is good if you don't expect to have a lot of medical expenses and the EPO is good for peace of mind".

People who say this as a rule of thumb are not super familiar with HDHP/HSA plans.  And some employees don't like HSAs because they are worried about having to pay front-loaded medical costs and build up the HSA at the same time during the first year.  For example, on January 1, your HSA balance is 0 but your kids goes to the ER on Jan 2 and you get a $2k bill two weeks later because your HDHP deductible is 3k.  Obviously this will balance out as the year progresses, but you will likely have to pay the bill before you have enough money in your HSA to cover it.  I just earmark $ for the deductible at the beginning of the year because I don't spend my HSA money, I invest it (*has anyone mentioned my favorite benefit to HSAs?*) and I don't want to think about the cost of going to the doctor as a factor.

That's not to say that there aren't some crappy HDHPs, but a lot of people heard that they were good for low medical expenses, years ago, and it stuck.  These plans are usually cheaper because they save insurance companies money, not because people don't go to the doctor when they need to but because they are more likely to not go to the doctor when they don't need to.   

[seattlecyclone]

The EPO provides peace of mind for people who live paycheck to paycheck because most of your medical bills are taken straight out of your pay and you never see the money. For someone who never has $5,000+ on hand to pay their deductible+coinsurance in case they end up in a hospital unexpectedly, the HDHP could be scary indeed. If you do have the ability to build up a cushion of this size, we can see the odds are you'll do better with the HDHP.

Now, there is also some behavioral psychology in play here. This is part of why employers tend to push the HDHP even though on paper it looks like the better plan. People tend to hesitate going to the doctor before they've hit their deductible and will therefore be on the hook for the full cost. This can be especially true amongst the Mustachian community where we tend to scrutinize the value of everything we buy. Don't fall into this trap. Your health is more important than your wealth. You know the HDHP is a better buy and out-of-pocket costs are just part of the deal. Don't be the reason your employer subsidizes HDHP coverage less than EPO coverage. Stick it to the man!

Yes do prioritize HSA contributions over retirement account contributions. The HSA isn't called the Ultimate Retirement Account for nothing.