Open Enrollment Begins: Why does this High Deductible Plan not make sense?

[merula]

The time has come to enroll in a health plan for 2015. With all the talk about High Deductible plans, I was itching to switch, but unless I'm missing something, it'll be cheaper to stay with the low deductible.

Regular plan:
$5,500 annual premium
$550 individual/$1,100 family deductible
$8 generic prescription copay, not subject to the deductible
10% coinsurance on in/outpatient care after deductible
$2,500 Health care spending account available (pre-tax)

High Deductible plan:
$4,700 annual premium
$1,300 individual/$2,600 family deductible
Prescriptions/office visits/in/outpatient care: 20% coinsurance after the deductible
$6,550 HSA contribution

Coverage would be for a family of four. Three of us are likely to only need preventative care (fully covered with no out-of-pocket on both plans), the fourth has chronic medical issues and has incurred $30,000 of medical costs so far this year, broken down as follows:

Health plan: $12,300
Provider (discounts?): $16,500
Out-of-pocket: $2,000 ($550 deductible, $200 copays, $1,250 coinsurance)

So, here's what I'd expect for 2015:
Regular plan costs:
$5,500 premium
$550 deductible
$2000 other OOP expenses (bumping this up slightly since we haven't incurred all 2014 costs in the amounts above)
$8,050 total

High deductible plan costs:
$4,700 premium
$1,300 deductible
$4000 other OOP expenses (doubling, since the coinsurance goes from 10% to 20%)
$10,000 total

So, the high deductible plan is substantially more out of pocket if our health spending stays at the same level. All expenses would be pre-tax.

I feel like the only way the high deductible plan makes sense is if everyone covered is the picture of health, because paying the deductible for even one moderate health incident would wipe out all the premium savings. Unless I'm totally missing something. Help?

[retired?]

With an ongoing medical issue, you're right......you could essentially add the deductible to your premium since you are fairly sure you'll use it.

I went with it b/c, aside from our son having asthma, there are no ongoing issues.  Ours for a family of 4 is 6400 per year.  Preventative not covered (to have basics covered would have been an extra 200 per month, so I figured we'd cover that ourselves), deductible is $5k per individual and $12 per family.  We are in Texas.

I may switch to pay the extra $200 per month.

For comparison, my previous employer's plan, had I elected to do COBRA was $1700 per month!  Ouch.

[kendallf]

One thing you can check on is whether the HDHP offers a "premium pass through", as many employer sponsored plans do.  This means they contribute to your HSA, essentially refunding part of your premium to the HSA.  My premium pass through is $1500 a year.  This would make your costs closer to a wash, but in your situation, the 10% vs. 20% co-insurance is probably the deal killer. 

[chicagomeg]

The only thing I would check before deciding is the max out of pocket on the HD plan. A lot of times, it's the same as the deductible, although the 20% coinsurance makes me think it might not be in your case. Worth double checking though.

[ZiziPB]

Also check what the out of pocket max is and how it works under each plan  - is it a per person or family basis.  Under the HDHP I have, the family deductible amount has to be reached before co-insurance kicks in, but the OOP max is applied on an individual basis (so if one member of the family has serious health expenses, the plan will start covering 100% if that person's individual OOP max is reached).

Having said that, it appears that the premium difference between a conventional plan and the HDHP is not significant enough to consider it in your situation.  Unless your employer supplements it with a hefty HSA contribution...

ETA: I re-read your post and want to add that understanding the out of pocket max and how it works under each plan is really important and may be the deciding factor in your situation given how high the expenses are.  Things to look at are: is OOP max calculated on individual or family basis and whether the deductible amount counts towards the OOP max.  These vary from plan to plan and could make a huge difference if medical costs are in the range 10s of thousands of dollars.

[MDM]

The premium for a high deductible plan can be a much lower fraction of the traditional plan than you have here.  Given that, it's not surprising that traditional may be better for your situation.

A good example of why one needs to examine specifics and not rely on generalities.

[seattlecyclone]

I feel like the only way the high deductible plan makes sense is if everyone covered is the picture of health, because paying the deductible for even one moderate health incident would wipe out all the premium savings. Unless I'm totally missing something. Help?

I don't think you need to be "the picture of health" for an HDHP to pan out, but an expensive chronic condition might make the HDHP a bad choice. Yes, if you have a serious non-chronic illness or injury, you might pay more that year for your health care under an HDHP, but the idea is that a generally healthy person will have more years where an HDHP is cheaper than years where it isn't. You're assuming a little bit more of the risk for yourself, and reaping the rewards in the long run.

[Iron Mike Sharpe]

What are the tax savings for $6550 being sent to the HSA?  If this is through an employer, remember this money gets to bypass the FICA tax too.

[Sid Hoffman]

The time has come to enroll in a health plan for 2015.

Sorry, but this is only true if you're shopping the Medicare plans.  Although originally required by law to begin October 15th, Obama delayed open enrollment for all non-Medicare plans to not happen until 1 week after the election.  The implication is because rates will be significantly higher this time around than they were last time.

[rubybeth]

The time has come to enroll in a health plan for 2015.

Sorry, but this is only true if you're shopping the Medicare plans.  Although originally required by law to begin October 15th, Obama delayed open enrollment for all non-Medicare plans to not happen until 1 week after the election.  The implication is because rates will be significantly higher this time around than they were last time.

Unless this is her employer's plan options. :)

[MrsPete]

We did the high deductible plan for years, and it was a good choice.  However, I think the price difference between "full coverage" and the plan we had was much greater -- I'm thinking we paid only like 2K per year for insurance.  Admittedly, it's been years ago, and I could be remembering wrong.  But then, our plan also paid less than yours:  Regular doctor visits for, say, a case of strep throat (and then the antibiotic) were 100% out of my pocket. 

Only problem we had during that time:  The doctor's office gives a BIG discount (like 1/3) for not using insurance . . . but essentially no one uses it, so it's constantly a problem -- they'd bill us wrong, we'd fuss over payment. 

Why we stopped:  My husband had an emergency overnight hospital stay, and in the process discovered he has a rather expensive chronic condition.  Paying the hospital stay almost completely on our own was fine -- after all, though the bill was high, we'd saved MUCH more than that over the years in NOT paying high premiums.  But now he has more frequent doctor visits and medication, and we need "full coverage". 

The results:  Back then, it worked GREAT for us.  We did it for about 15-18 years, and we only "lost" twice:  Once was the year our second child was born, the other was the year that one child broke an arm.  Other than those two years, we WON big time in the premium-savings game.

[Sid Hoffman]

Sorry, but this is only true if you're shopping the Medicare plans.  Although originally required by law to begin October 15th, Obama delayed open enrollment for all non-Medicare plans to not happen until 1 week after the election.  The implication is because rates will be significantly higher this time around than they were last time.

Well turns out I was wrong about the ploy to delaying ACA Open Enrollment to after the election was a way of forcing the insurance companies to keep their rates secret.  BCBS of NC already stated their ACA / Healthcare.gov rates are going up 13% for 2015 which is confirmation that the already somewhat high rates are going up by dramatically more than the rate of inflation.

Separately, the government announced Social Security payments would rise by 1.7%, which is supposed to be a rough approximation of the rate of inflation, so to me, seeing healthcare go up 13% while inflation is supposed to be around 2% is further evidence that the current law desperately needs some form of price controls and cost containment added to it.

I'm just stunned the insurers were even allowed to talk about what their rate increases would be before the election.  I was clearly wrong about this being like the NSA's deal where the NSA demands information and then forbade companies to even tell anyone that they provided information to the NSA.  The sad part is that it still seems likely that things will have to get a whole lot worse before anyone is willing to talk about a genuine overhaul of our healthcare system to something like the Swiss model.

[AccidentalMiser]

I didn't read every post in this thread in detail.

If the difference in premium is only $800 per year and you have regular medical bills, HDHP is probably not worth it.

In our case, the difference in premium is much more substantial (more like $3000/year) and we almost never go to the doctor so the HDHP is perfect for my family right now.  I sure like that 6550 tax deduction and the 1200 per year my employer gives me.

[YoungInvestor]

If you include the deductible in the cost of insurance, most plans with a deductible will be more expensive than another equivalent plan with a lower deductible, since there's a fair chance you won't be using it.

[merula]

Thanks, everyone!

One thing you can check on is whether the HDHP offers a "premium pass through", as many employer sponsored plans do.  This means they contribute to your HSA, essentially refunding part of your premium to the HSA.  My premium pass through is $1500 a year.  This would make your costs closer to a wash, but in your situation, the 10% vs. 20% co-insurance is probably the deal killer. 

No premium pass-through. I double-checked the plan details. Too bad, that'd make a lot of sense.

mlipps and ZiziPB: The HD plan total OOP is $13,500 for a family. Ouch. More than twice the total OOP for the regular plan.

What are the tax savings for $6550 being sent to the HSA?  If this is through an employer, remember this money gets to bypass the FICA tax too.

My HCSA money gets to bypass FICA, too. The disadvantage is the use-it-or-lose-it, but I get 3 months of the following year to use the money. So, this year, 2013's HCSA remainder paid for 2014's deductible.

The time has come to enroll in a health plan for 2015.

Sorry, but this is only true if you're shopping the Medicare plans.  Although originally required by law to begin October 15th, Obama delayed open enrollment for all non-Medicare plans to not happen until 1 week after the election.  The implication is because rates will be significantly higher this time around than they were last time.

Unless this is her employer's plan options. :)

Correct, this is my employer's plan.

Sid Hoffman: I agree that I'd much rather see a single-payer system, even though I'd likely pay more than I currently do. I think the premium increases are going to vary state-to-state, and are likely to be higher in states that didn't implement the Medicare expansion (which, I believe, includes NC). My state does have the Medicare expansion, and the announced increase for 2015 is 4.5%. My premiums are up 3.5%. Yes, it's more than inflation, but we're also seeing more demand for healthcare services as a result of an aging population.

[Iron Mike Sharpe]

My HCSA money gets to bypass FICA, too. The disadvantage is the use-it-or-lose-it, but I get 3 months of the following year to use the money. So, this year, 2013's HCSA remainder paid for 2014's deductible.

Double check this.  An HSA is not use-it-or-lose-it.  An HSA you can hang on to unspent money for decades and let it compound.  At age 65, you can withdraw it as if it were an IRA or you can use it to pay for medicare premiums.

The FSA is what is use-it-or-lose-it.

[PathtoFIRE]

The FSA is what is use-it-or-lose-it.

With the caveat that starting in 2015, you can roll over $500 to the following year in the Health Care Flexible Spending Accounts (HCFSA)

[FarmFam]

I actually did a detailed analysis of a comparison of my husband's company health insurance and mine.  My husband's company offered a high and low deductible plan while my company only had a low deductible plan.  My goal was to show my company that the employees can benefit from the option as well.

From my comparisons, the high deductible won even with chronic illness.  But it was because there is a max out of pocket for individual and family.  This was based on a family of four with one with chronic illness.  However, the difference between my husbands company choices and yours, is that there doesn't seem to be a max of OOP.  You shouldn't have to pay more than the max individual OOP in my husband's company. 

Also, another big difference with my husband and yours is that the high is half the cost of the low.  That doesn't seem to be the case in your company's insurance.

Therefore, as others said, it depends on the individual's company plans and family situation what is best.  You have to run all the numbers for your situation.  But I would check on that OOP.  It doesn't seem right that you should pay out of pocket more than the max for the individual.  Everything should be paid 100% after that.

[Sid Hoffman]

Looks like my company announced their options and healthcare cost for the traditional plan is up by 7.0%.  This has me re-thinking if I want to stick with their traditional healthcare plan or switch to one of their HSAs.  The whole HSA deal seems impossible to make sense of, especially since the law says I can contribute $6650, my company says I can only contribute $5450, and in neither case does it say if those contribution limits include or exclude the cost of the health insurance.  Does anyone know if the cost of the insurance is part of the limit?  So in order to stay under $6650, would I need to limit my contribution to only $5300/year because $1350+5300 = $6650?

I'm still not 100% sold on this being helpful or not, because in order to keep the money safe for a large medical expense, you need to have it invested in treasuries, but invested in treasuries ensures you get no meaningful ROI.  Putting it in stocks means you might contribute $5000 to the HSA and have it get cut in half by another stock market crash right before you have an expensive medical event.  This seems like an awfully big gamble to be making with your own health and finances.  It's like it's the opposite of how insurance is supposed to work: the individual takes on all the risk of their health AND the economy at the same time.

[kendallf]

If you're going to invest your HSA money in stocks, my assumption would be that either you should reserve one year's deductible in cash or have other reserves outside of the HSA to do the same. 

The HSA is valuable as an investment vehicle because of its tax avoidance, and the most straightforward way to accomplish this is to pay for routine medical expenses out of pocket and let the HSA money ride.  Document your expenses and you can withdraw that money, even far in the future, tax free.

[Franklin]

If you're going to invest your HSA money in stocks, my assumption would be that either you should reserve one year's deductible in cash or have other reserves outside of the HSA to do the same. 

The HSA is valuable as an investment vehicle because of its tax avoidance, and the most straightforward way to accomplish this is to pay for routine medical expenses out of pocket and let the HSA money ride.  Document your expenses and you can withdraw that money, even far in the future, tax free.

Thanks Kendall.  Exactly my plan and I'm glad someone mentioned it.  This will be my first year that my company offers an HSA and I plan on using it mostly as a retirement/investment vehicle. 

I did notice that my HSA plan has no co-pays, so I should make out on that with my child's chronic visits and prescriptions.  Max OOP is $6500, but only $1500 in the PPO plan.

[chicagomeg]

Looks like my company announced their options and healthcare cost for the traditional plan is up by 7.0%.  This has me re-thinking if I want to stick with their traditional healthcare plan or switch to one of their HSAs.  The whole HSA deal seems impossible to make sense of, especially since the law says I can contribute $6650, my company says I can only contribute $5450, and in neither case does it say if those contribution limits include or exclude the cost of the health insurance.  Does anyone know if the cost of the insurance is part of the limit?  So in order to stay under $6650, would I need to limit my contribution to only $5300/year because $1350+5300 = $6650?

I'm still not 100% sold on this being helpful or not, because in order to keep the money safe for a large medical expense, you need to have it invested in treasuries, but invested in treasuries ensures you get no meaningful ROI.  Putting it in stocks means you might contribute $5000 to the HSA and have it get cut in half by another stock market crash right before you have an expensive medical event.  This seems like an awfully big gamble to be making with your own health and finances.  It's like it's the opposite of how insurance is supposed to work: the individual takes on all the risk of their health AND the economy at the same time.

No, your premiums don't reduce your contribution eligibility. It's possible your company has put their own arbitrary cap on your contributions for whatever reason. Or it's possible they're just wrong...I would just set your payroll up to contribute the federal max by the end of the year next year & see what happens. Worst case scenario, your contributions get stopped early, big deal.

Personally, we're keeping the first year of contributions uninvested, which is close enough to our deductible. Then, I'm going to wait until we have another $2,500 or so accumulated to start investing to make the fees worthwhile. My husband also works for an investing company, so adding more investments means more to report quarterly for compliance, so that also makes me want to wait to make it worth the hassle. We're young and basically never go to the doctor though, so our calculus might be different than yours.

[Sid Hoffman]

No, your premiums don't reduce your contribution eligibility. It's possible your company has put their own arbitrary cap on your contributions for whatever reason. Or it's possible they're just wrong...I would just set your payroll up to contribute the federal max by the end of the year next year & see what happens. Worst case scenario, your contributions get stopped early, big deal.

Personally, we're keeping the first year of contributions uninvested, which is close enough to our deductible. Then, I'm going to wait until we have another $2,500 or so accumulated to start investing to make the fees worthwhile. My husband also works for an investing company, so adding more investments means more to report quarterly for compliance, so that also makes me want to wait to make it worth the hassle. We're young and basically never go to the doctor though, so our calculus might be different than yours.

OK, so... in theory you can just use your HSA as an IRA, is that right?  You don't pay your premiums with the HSA and you don't have to even pay your medical expenses with the HSA if you don't want to.  Is it basically just an IRA you can use as a healthcare safety net?  Is that how I should be looking at it: a way to tax shelter money separate but equal to my 401k in most respects?

Suppose I retire early, like in 10 years or something.  Can I pay my ACA healthcare premiums from the HSA?  Like build up my HSA for the next 10 years, then use that HSA account to pay my healthcare premiums?  I can't even get basic answers to this stuff or make sense of the HSA Wikipedia page even, so I know it's bad if even Wikipedia doesn't make sense.

[The Architect]

OK, so... in theory you can just use your HSA as an IRA, is that right?

Yes, only better - you get a debit card that allows you to use money from the HSA on qualified medical expenses. IIRC, that included over the counter meds.

You don't pay your premiums with the HSA and you don't have to even pay your medical expenses with the HSA if you don't want to.  Is it basically just an IRA you can use as a healthcare safety net?  Is that how I should be looking at it: a way to tax shelter money separate but equal to my 401k in most respects?

Yep.

Suppose I retire early, like in 10 years or something.  Can I pay my ACA healthcare premiums from the HSA?  Like build up my HSA for the next 10 years, then use that HSA account to pay my healthcare premiums?

I don't know about this one. Doctor's visits, ER trips, meds, etc. etc are a go, but insurance premiums? No idea.

[Sid Hoffman]

I don't know about this one. Doctor's visits, ER trips, meds, etc. etc are a go, but insurance premiums? No idea.

Thanks for the help on the other parts, here is what I found from a quick internet search:

Your HSA money can be used toward insurance premiums, but only specific types such as: long-term care coverage, health coverage while you are unemployed and federal health care continuation coverage (COBRA). If you are 65 and older, HSA funds can also be used to pay for any health insurance except Medicare Supplement policies.

I read that to mean that if you are genuinely early retired, you can indeed use the HSA money because you are unemployed.  Sure, you're unemployed by choice, but if the standard is that you have to be unemployed to use the HSA to pay your insurance premiums then it does seem like a possibility I could build up the HSA for the next 10 years then deplete it paying for ACA coverage for the 15ish years after that (or until the HSA money runs out) until I qualify for medicare.  If I take part-time jobs here and there, it looks like I just have to pay my premiums using payroll pay instead of HSA pay, which is probably smart anyway since the HSA accounts would otherwise grow in value tax-exempt.

[FarmFam]

I think there is some confusion here on HSA's or maybe I am confused.

Can you use HSA as an IRA?

It doesn't work the same.  What ever you have left in your HSA account at the end of the year, you have to pay taxes on.  Also, lets say the maximum contribution is $5000 this year, and you only spent $1000 and still have $4000 next year, you can only add $1000 next year.  The maximum contribution is also the maximum you can have in the account.

At least this is what I thought.  I just looked it up and am glad I am wrong and don't know where I got this idea from.

It seems like a great idea to keep putting in the maximum per year and use it when you retire to pay the premiums.

Now my question would be, where can you open an HSA account that would make it a good investment? 

[chicagomeg]

I think there is some confusion here on HSA's or maybe I am confused.

Can you use HSA as an IRA?

It doesn't work the same.  What ever you have left in your HSA account at the end of the year, you have to pay taxes on.  Also, lets say the maximum contribution is $5000 this year, and you only spent $1000 and still have $4000 next year, you can only add $1000 next year.  The maximum contribution is also the maximum you can have in the account.

At least this is what I thought.  I just looked it up and am glad I am wrong and don't know where I got this idea from.

It seems like a great idea to keep putting in the maximum per year and use it when you retire to pay the premiums.

Now my question would be, where can you open an HSA account that would make it a good investment?

Nope, you're confused. The max is per year & there are no taxes ever if you use the money for qualified medical expenses. After retirement age, you are allowed to take the money out & spend it on non-medical expenses & pay income taxes on it, like you would if it were a 401k. As long as you use it for medical expenses though, you don't pay any taxes on it, ever.

Although, I would not liken an HSA to an IRA because that glosses over its single largest benefit--no FICA taxes on contributions, which no other account allows you to do (except maybe FSA? but that's not really the same level of usefulness).

[Sid Hoffman]

Although, I would not liken an HSA to an IRA because that glosses over its single largest benefit--no FICA taxes on contributions, which no other account allows you to do (except maybe FSA? but that's not really the same level of usefulness).

Oh wow, that I did not know about.  It appears that would be another 7.65%, is that right?  As you said, even 401k contributions are still after the FICA withholding.  I may gross about $120,000 in 2015, which means that income above $118,500 would not be subject to FICA anyway.  So if I only contributed $1500 to my HSA, there's kind of no benefit from a FICA standpoint, although a huge benefit in terms of gross income.  However that next $3500 would decrease both my gross income, which should be in the 25% federal and 4.25% state bracket, plus 7.65% FICA.  All together, that's 36.9% of taxes.  That makes it sound really attractive to go for the HSA.

[Emilyngh]

Sorry, but this is only true if you're shopping the Medicare plans.  Although originally required by law to begin October 15th, Obama delayed open enrollment for all non-Medicare plans to not happen until 1 week after the election.  The implication is because rates will be significantly higher this time around than they were last time.

Well turns out I was wrong about the ploy to delaying ACA Open Enrollment to after the election was a way of forcing the insurance companies to keep their rates secret.  BCBS of NC already stated their ACA / Healthcare.gov rates are going up 13% for 2015 which is confirmation that the already somewhat high rates are going up by dramatically more than the rate of inflation.

Separately, the government announced Social Security payments would rise by 1.7%, which is supposed to be a rough approximation of the rate of inflation, so to me, seeing healthcare go up 13% while inflation is supposed to be around 2% is further evidence that the current law desperately needs some form of price controls and cost containment added to it.

I'm just stunned the insurers were even allowed to talk about what their rate increases would be before the election.  I was clearly wrong about this being like the NSA's deal where the NSA demands information and then forbade companies to even tell anyone that they provided information to the NSA.  The sad part is that it still seems likely that things will have to get a whole lot worse before anyone is willing to talk about a genuine overhaul of our healthcare system to something like the Swiss model.

http://www.huffingtonpost.com/2014/08/21/obamacare-premiums-2015_n_5691773.html

"The average increase for Obamacare plans will be 8.2 percent next year in 29 states and the District of Columbia where data about health insurance premiums for 2015 are available, according to PricewaterhouseCoopers, which has conducted the most thorough review to date. That's significant, but it's a little lower than the 10 percent annual rate hikes typical before the Affordable Care Act, according to a recent analysis published by the Commonwealth Fund."

[chicagomeg]

Although, I would not liken an HSA to an IRA because that glosses over its single largest benefit--no FICA taxes on contributions, which no other account allows you to do (except maybe FSA? but that's not really the same level of usefulness).

Oh wow, that I did not know about.  It appears that would be another 7.65%, is that right?  As you said, even 401k contributions are still after the FICA withholding.  I may gross about $120,000 in 2015, which means that income above $118,500 would not be subject to FICA anyway.  So if I only contributed $1500 to my HSA, there's kind of no benefit from a FICA standpoint, although a huge benefit in terms of gross income.  However that next $3500 would decrease both my gross income, which should be in the 25% federal and 4.25% state bracket, plus 7.65% FICA.  All together, that's 36.9% of taxes.  That makes it sound really attractive to go for the HSA.

Yes, that's one of the biggest benefits!!! Remember, your insurance premiums are also not subject to FICA, so if those are anywhere close to $1500/year, you might be able to get even more of the benefit from the HSA that you're estimating!

[Franklin]

Time for the requisite Mad Fientist Link:

http://www.madfientist.com/hsa/