Switched my health insurance from a premium plan to an HDHP

[elysianfields]

We're a healthy (no chronic conditions or long-term medications) family of four serving in a European country - I work in the US Foreign Service.

After reading the Mad Fientist's blog post calling Health Savings Accounts (HSA) "The Ultimate Retirement Account" (http://www.madfientist.com/ultimate-retirement-account/), I decided to compare our Platinum health insurance plan with a High Deductible Health Plan (HDHP) offering.  So far, the HDHP costs us less and provides access to the HSA, without any change in access to medical care (since we're overseas, all medical care is considered "in-network").

Premiums:

Platinum Plan: $148.25 / pay period => $3,854.50 / year with no access to an HSA (though I made use of the use it or lose it Flexible Spending Account (FSA))

HDHP: $116.18 / pay period => $3,020.68 / year minus my employer's $1,500.00 contribution to the HSA => $1,520.68

Deductibles / Co-Pays:

Platinum Plan: $500 family deductible, then 10% copay (for most services), max family out-of-pocket $5,000

HDHP:  $3,000 family deductible, then 5% copay (for most services), max family out-of-pocket $12,000, which we could cover without difficulty

Benefits of the Platinum Plan not available in the HDHP:

Orthodontia covered 50% up to $1,000 per child vs. no coverage at all.
Massage Therapy 40 visits / person / year vs. no coverage at all.
Chiropractic 40 visits / person / year vs. 12 visits / person / year.

...and a few others that we don't use...

Since my wife is an EU citizen and can work in our host country, she is also taxed by and contributes to the host country national health care system.  Fortunately, this system does cover orthodontia with some limits (I have two teenagers, both of whom needed orthodontia.  The older one is done, the younger one just started).  I also could have enrolled in a Limited Expense Health Care FSA (LEX HCFSA), which covers out-of-pocket dental and vision care expenses.  I didn't realize this until after the FSA enrollment period was over, and may re-enroll next year.

Our particular HDHP uses HSABank for the HSA, and has negotiated a sweet no-fee deal, so we don't need a minimum balance in the HSA to avoid fees.  In addition to the employer contributions, I've had my HSA contributions deducted directly from my pay, reducing my Federal, State, OASDI and Medicare taxes.  Though this also reduces my Social Security benefits over the long term, we're planning our retirement without considering SS at all.

HSABank allows me to invest my HSA funds in TDAmeritrade, which gives me access to most investment products.  I've chosen to invest in the no-fee ETFs in the following ratio (though I'm considering using Dual Momentum):

IVV (S&P 500 Equivalent) 25%
VO (US Mid-Cap) 25%
VB (US Small-Cap) 25% - yes, I know I'm overweighting small- and mid-cap stocks compared to a Total Stock Market ETF
VEA (International Developed Markets) 15%
VWO (International Emerging Markets) 10%

I'm down a little bit, but not worried about short-term sideways or declining markets.

I've scanned all our medical expenses this year and tracked them on a spreadsheet.  I'll only submit them to the insurance company if we meet the $3,000 deductible; in the meantime, I can let our investments grow and then withdraw the cash when I need it (the MadFientist blog post discusses this further).

Obviously the math can change if you visit the chiropractor frequently or need medication or services for a chronic condition.  For us, this has worked great, increased our forced savings, and reduced our taxes.  Furthermore, I can always change plans again during Open Season if I need to.  YMMV.

FIRE-wise I have a little more than 10 years to go to qualify for a government pension, after which I see no reason not to retire.

Cheers,

Elysian Fields

[h2ogal]

I did the same as you....Read the Mad Fientist and switched to the high deductible plan...more for the HSA than anything else. 

[Sister C]

Great link! After reading the article I see that I have been viewing my HSA as a tax free savings account, when in fact it is much more useful to approach it as an investment/retirement account.

[Bill76]

I just recently did the math on our premium plan vs. the HDHP/HSA option.  We're anticipating some significant medical expenses over the next year after our new baby is born, and I was wondering if it made sense to go back to the premium plan for 2016.

Using the cost comparison tool provided by our insurer, I couldn't come up with a single scenario where the premium plan resulted in less out-of-pocket spending than the HDHP/HSA for in-network treatment.  When you factor in the higher premiums for the lower-deductible plan and the company contribution to the HSA, you always come out at least a little bit ahead on the HDHP, even if you have a major event requiring surgery and hospitalization.  But of course, people would FREAK OUT if they eliminated the other plan.

The online tool wouldn't do calculations for out-of-network stuff, but I would imagine that the premium plan could win in some of those scenarios.  The only time that would be a loss for us would be an emergency surgery and hospitalization, in which case we probably wouldn't even notice a little bit more tacked onto the hundreds of thousands of dollars we'd owe for out-of-network care.

It makes me glad we've been taking advantage of the HSA for the last couple of years!

Edit: based on the numbers in your post, the math works differently for your options.  I'm just sharing my story to encourage others to do the math on their own plans!

[Pav]

We elected for the HDHP/HSA during open enrollment last September. Our first child was born this year on Jan 7th, and we hit our High Deductable $3k and our Out-of-Pocket Max additional $3k with the labor/delivery. Now, nearly all in-network Dr. visits, Specialists, Emergent Care visits, and meds are 100% covered.

We only had enough in our HSA at the begining of the year to cover our deductable. We had to play catch up, funneling funds from our EF through the HSA to knock out the big bills. I'm still contributing ~$100 weekly to the HSA and we will hit our max contribution in October. Then we will obviously stop contributions, and bump up our take home pay, which will inturn replenish the EF.

When I ran the numbers, the higher premium plan would still cost more, given our scenario.

[ender]

Love the user name.

I have it on another site myself :)

[Need2Save]

It warms my heart to see new converts!!   The HDHP and HSA is not so scary but so many people don't take the time to read up and educate themselves.  The article by Mad Fientist is one of the best I have every seen.  I wish more people would channel their initial knee-jerk reaction to these plans as being the worst thing ever dreamed up to one of the best ways to maximize savings and investing.  I just hope they don't change the tax rules any time soon! 

[Paul der Krake]

People don't realize that maxing out an HSA is already roughly a 2k gift from taxes (assuming in 25% bracket and paycheck deduction that bypasses FICA), and that's before you even factor in the tax free growth goodies! Now if only I could convince my employer to put in some money of their own to sweeten the deal even more...

[elysianfields]

Checking back in three years later...

Premiums:

Platinum Plan: $163.40 / pay period => $4,248.40 / year with no access to an HSA, up 10.22% in the interim

HDHP: $136.78 / pay period => $3,556.28 / year, up 17.73% in the interim; minus my employer's $1,500.00 contribution to the HSA => $2,056.28, up 35.22% (gaak!)

HSA investments:

Since opening my HSA investment account in 2015, my balance has reached > $28,200.00; I've made about 20% on my total portfolio.  I did this by:

- Contributing the maximum every year (limits are $6,900 in 2018, $7,000 in 2019);
- Making all my contributions via payroll, saving not only Federal and State, but also OASDI and Medicare taxes;
- Investing my contributions as soon as they hit my HSA account (not market-timing);
- Investing in a broad set of commission-free ETFs available at TD Ameritrade;
- Automagically reinvesting dividends and capital gains in more shares of those ETFs;
- Not using any of my HSA contributions to reimburse myself for our medical expenses - I track these religiously and scan all the receipts for safekeeping and substantiation of subsequent withdrawals.

When TD Ameritrade changed their list of commission-free ETFs, I kept the previously-invested amounts in the previous funds, with auto-reinvestment turned on.  I now invest my new funds in the new ETFs, which enjoy lower expense ratios than the Vanguard options:

Ticker   ETF Name                               Portfolio portion  Expense Ratio

SPDW   SPDR Developed World ex-US              15%              0.04%
SPEM    SPDR Emerging Markets                      10%              0.11% - Yes, I'm overweight here (see below)
SPLG    SPDR Large Cap                                  25%              0.03%
SPMD    SPDR Mid Cap                                    25%              0.05% - Yes, I'm overweight here (see below)
SPSM    SPDR Small Cap                                 25%              0.05% - Yes, I'm overweight here (see below)

Over the long term, smaller and medium-sized companies tend to outperform larger-cap stocks.  This makes sense, as smaller companies often grow quickly to become mid-sized or large companies.  I realize that many small companies go belly up or are purchased by other companies; that notwithstanding, smaller-caps enjoy outperformance.  Consequently, I've deliberately over-invested in those portfolios compared to what you'd find in the SPTM (SPDR Total Stock Market).

I believe the same will be true for emerging markets versus developed country markets, and therefore also invest a larger portion in SPEM vice SPDM.

YMMV.

[Arbitrage]

Going to make the HSA jump next year (first time it'll be available to me).  Benefits aren't quite as good as they probably are for others, given that:

(a) For whatever reason, the premium is >90% of the premium on my current PPO plan
(b) California sucks and is one of three states to tax HSAs
(c) I won't benefit much from the lack of payroll tax on contributions, due to being over the SS Wage Base (yeah, I know, cry me a river). 
(d) I do use FSA and will lose that.  Not enough predictable expense to use a LPFSA.

Nevertheless, it's still attractive to me and my family.  $1500 employer contribution (taxed by CA, unfortunately) and $5400 personal contribution upcoming.  If all goes to plan and we move out of state in a few years, we shouldn't be taxed on the growth, at least (aside from whatever dividends are thrown off during our remaining time here).