PPO or HSA?

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TarHeel2002
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Joined: Sun Jun 17, 2012 2:14 pm

PPO or HSA?

Post by TarHeel2002 »

I have always had a PPO in the past but now I am looking at an HSA possibly for 2016. What do you think?
Family of four (all good health - knock on wood). 35, 32, 4, 2
HSA covers all preventative 100% (exams, blood work, pap smears, immunizations, etc)

PPO
premium = $1308/month
deductible individual/family = $500/$1500
OOP limit individual/family = $2000/$6000

HSA
premium = $877/month
deductible individual/family = $2000/$4000
OOP limit individual/family = $5000/$10000

I would get a savings of $5172 in premiums with the HSA in exchange for higher deductibles. I would plan on fully funding my HSA for 2016 ($6750) and beyond. I am in the 25/28% tax bracket - depends year to year. I do have a state income tax. I am leaning HSA. Thoughts??
ved
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Re: PPO or HSA?

Post by ved »

I would go with the HSA.

The difference in OOP limit for family is $4000 between the HSA (10k) and PPO (6k).
Which can be made up in the premium savings (>5k) in one year.

So, the break-even is less than a year.
Of course, this is assuming that the quality of benefits (in-network doctors, etc.) is the same in both plans.
kazper
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Re: PPO or HSA?

Post by kazper »

What is the coverage after you hit the deductible?

I'd probably go for the HSA (I think you mean HDHP). Just realize, the first year can be a little rough because the HSA starts off with 0 in it. So if you have a pretty big expense early on, the high deductible plan might cost you more out of the gate than the PPO. As long as you have some money stashed away for medical expenses/emergencies, this shouldn't be too big of a concern.
Topic Author
TarHeel2002
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Re: PPO or HSA?

Post by TarHeel2002 »

Thank you for the replies. The HDHP has the same in-network coverage as the PPO. I agree - out the the gate the HDHP is a little more risky with 0 put away. I could immediately dump in $6750 in January 2016 if I needed to. It is also my understanding that if I were to exceed the $6750 for 2016 I can save my medical bills and reimburse myself when 2017 rolls around. HSA/HDHP sounds like it might be the way to go. Any other thoughts on this one? Thanks again!
terran
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Re: PPO or HSA?

Post by terran »

TarHeel2002 wrote: ... I agree - out the the gate the HDHP is a little more risky with 0 put away. I could immediately dump in $6750 in January 2016 if I needed to. ...
If you have the money available anyway, don't worry about getting it all into the HSA immediately. You can reimburse yourself from the HSA later even if the HSA didn't have enough to cover the expense at the time the expense was incurred as long as the HSA was open when the expense was incurred. Also, depending on how your employer has it set up, you might not pay FICA on payroll deducted HSA contributions, so that might be a better way to go than transferring in a lump sum.
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archbish99
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Re: PPO or HSA?

Post by archbish99 »

My employer allows a lump-sum from payroll out of the first paycheck of the year (or, I presume, the first paycheck of a new-hire). So a lump sum doesn't necessarily lose the FICA savings. Also, if you're past the SS cap, that savings is only about $100 -- nothing to sneeze at, but also not world-ending.

Check how the deductible on the HDHP works -- that doesn't sound high enough on the individual side if you have family coverage, though I haven't double-checked the minimum. It may be that for a family plan, only the family deductible applies.
I'm not a financial advisor, I just play one on the Internet.
davebo
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Re: PPO or HSA?

Post by davebo »

I'd go with an HDHP/HSA. I technically have a PPO now, but there are all sorts of goofy rules on the deductibles I think it would be easier to just do HDHP. I'm basically paying out of pocket now anyways and it will kick in when I have a big event (similar to HDHP). Just save the max in the HSA.
asif408
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Re: PPO or HSA?

Post by asif408 »

ved wrote:I would go with the HSA.

The difference in OOP limit for family is $4000 between the HSA (10k) and PPO (6k).
Which can be made up in the premium savings (>5k) in one year.

So, the break-even is less than a year.
I vote for the HDHP/HSA as well. The total costs are close in a worst case scenario when you only consider premiums and OOP max, but once you account for the tax savings by contributing to the HSA it looks like the HDHP can't lose. Since you're in the 25/28% tax bracket I estimate you'll save somewhere between ~$1600 and $2300 by maxing out the HSA (highly dependent on tax bracket and whether or not you contribute through a cafeteria plan which would also avoid FICA taxes), but either way it looks like a winner.

I also second terran's comment about not worrying about funding the HSA immediately. If you've got the money outside of the HSA to cover medical costs just put those on a 2% rewards credit card as needed, pay off the credit card monthly, then reimburse yourself down the road when you get the funds in the HSA.
Topic Author
TarHeel2002
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Re: PPO or HSA?

Post by TarHeel2002 »

Great advice. Thanks! Any preference on a HSA custodian/trustee? I would like to build up to my annual family OOP (keep that safe) and then have the option to invest afterwards. Does that sound like an okay idea or should I just keep it all parked in cash/money market and adjust my AA accordingly? I know this is a couple years down the road (meeting the OOP) - just trying to think ahead before I sign up at my local bank with no investment options.
kazper
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Re: PPO or HSA?

Post by kazper »

Most important, make sure your hsa is open BEFORE you incur the expense. Otherwise, it will not be reimbursable.
asif408
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Location: Florida

Re: PPO or HSA?

Post by asif408 »

TarHeel2002 wrote:Great advice. Thanks! Any preference on a HSA custodian/trustee? I would like to build up to my annual family OOP (keep that safe) and then have the option to invest afterwards. Does that sound like an okay idea or should I just keep it all parked in cash/money market and adjust my AA accordingly? I know this is a couple years down the road (meeting the OOP) - just trying to think ahead before I sign up at my local bank with no investment options.
You can have multiple HSA's, so you aren't stuck with one provider if you open one somewhere locally. I have 2 separate HSA's: one with a local bank so I can receive the employer's HSA contribution (wouldn't get it otherwise), and an account with HSA Bank (for investing). I periodically do a trustee-to-trustee transfer of funds from my local HSA custodian to HSA Bank and invest the money. Fortunately my local HSA custodian doesn't charge a trustee-to-trustee transfer fee so I can make many small transfers every year to HSA Bank. Many HSA custodians charge a fee to transfer funds and you can only avoid the fee by doing a rollover (which can only be done once a year). HSA Bank has an excellent selection of commission free Vanguard ETF's and their fees are $66/year if you invest all the money. If you keep $5,000 in the savings account portion there are no fees and you can invest anything above that at no charge if you use the commission free ETFs.

There really is no overwhelmingly great HSA custodian for investing but HSA Bank was the best for my given situation. I have had some issues with them and wouldn't give them a glowing review overall but deal with it because their investment options are excellent and fees are low. Most HSA custodians with investment options charge fees of various kinds and it makes investing less appealing for small amounts. Once you have maybe $5000 or more to invest then I would suggest finding a good HSA investment custodian. Until then it's probably best to find a custodian with low fees, a decent interest rate on the savings account, and no transfer fees as well so when you do decide to invest you can make transfers at no charge.

You might want to do a search for 'best HSA custodian' in the search box and read other Bogleheads' input to get some other advice on HSA custodians. HSA Administrators is another I considered and there is a list of several others (including those I mentioned) on the Wiki page of providers: https://www.bogleheads.org/wiki/Health_ ... nd_options
Dandy
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Re: PPO or HSA?

Post by Dandy »

If you can afford it I'd say stay with PPO. Was in a similar place 20 years ago when my wife came up with a life threatening illness - she is fine now. But when that life changing challenge occurs you want the best doctor you can get not the best in your plan.

I understand having a family and being able to save money and invest it is important and very tempting. All doctors and hospitals are not the same. Even in retirement I passed up on the savings and convenience of having a Medicare supplement and retained my employer PPO as my secondary insurance. That is how much I value being able to choose my medical provider.

Good health and good luck
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grabiner
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Re: PPO or HSA?

Post by grabiner »

Dandy wrote:If you can afford it I'd say stay with PPO. Was in a similar place 20 years ago when my wife came up with a life threatening illness - she is fine now. But when that life changing challenge occurs you want the best doctor you can get not the best in your plan.
That decision has nothing to do with the PPO vs. HDHP decision. If you use a doctor outside the network with either a PPO or HDHP, insurance pays based on a percentage of a "usual and customary" charge, but the doctor is free to charge more. If your insurance has a 20% co-payment out of network, and it says your surgery costs $25,000, it pays $20,000 (or $25,000 if you have already met your out-of-pocket limit), but the surgeon can charge $50,000 and leave you with a bill for $30,000.

In the OP's case, it appears that the total paid for premiums and medical costs, less tax savings, will be lower under the HDHP than under the PPO no matter what happens. The full deductible for the HDHP is more than the premium difference, even before considering the tax savings on the HSA contribution.
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fast_and_curious
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Re: PPO or HSA?

Post by fast_and_curious »

Dandy wrote:If you can afford it I'd say stay with PPO. Was in a similar place 20 years ago when my wife came up with a life threatening illness - she is fine now. But when that life changing challenge occurs you want the best doctor you can get not the best in your plan.

I understand having a family and being able to save money and invest it is important and very tempting. All doctors and hospitals are not the same. Even in retirement I passed up on the savings and convenience of having a Medicare supplement and retained my employer PPO as my secondary insurance. That is how much I value being able to choose my medical provider.

Good health and good luck
Based on OP's previous comments, in this case it sounds like the in-network providers are the same for both the HDHP and the PPO, so it doesn't sound like there would be any difference in the doctors available.

That's also the case for my health plan options - we switched from PPO to HDHP last year and so far it has been working out for us. We max out the HSA contribution and I keep thinking that we will eventually work up a balance to start investing it, but turns out that the small expenses here and there add up enough so that we generally don't have much remaining in the HSA by the end of the year. Still cheaper than the PPO in our case, though, so I'm happy with our decision. In fact, it's open enrollment time at my company again and I'm planning to continue with the HDHP for next year.
Dandy
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Re: PPO or HSA?

Post by Dandy »

If the HSA high deductible plan provides the ability to use providers outside the plan and the co insurance is the same as the PPO then it will preserve your choice and will limit your financial exposure for major medical expenses. The key to me is the ability to go out of network and get very good coverage.

Some plans allow you to go out of network but may have coinsurance of 40% instead of 10 or 20%. So you can go out of network but for a major illness you will pay a steep price. I have no problem with a high deductible insurance - in a major medical issue you usually can self insure the high deductible.
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