Evaluating HDHP/HSA and PPO

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Bobby Ingersoll
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Joined: Tue Oct 20, 2009 6:03 pm

Evaluating HDHP/HSA and PPO

Post by Bobby Ingersoll »

*edited to correct my mistakes

I'll be starting a new job later this month and have the option of choosing a HDHP for my wife and I for the first time.

I am 31, she is 28 both in good health and a few years away from any children (knock on wood). Our household income this year and next will be right on the border of being able to take the student loan deduction, and later the direct Roth IRA contribution (in which case we'd need to convert some traditional IRA money in order to do the backdoor Roth) so these factors may weigh in to the decision process.

Here is where I stand in the evaluation of the two different plans in terms of our contributions and expenses, and would love some feedback.

Tax Bracket: 25%
State: 5%

HDHP/HSA:
Annual Premiums: $2260
HSA: $6150
Yr 1 Tax Savings (if expenses paid out of pocket): $1845
Yr 1 Cost Pre Expenses: $415
Deductible: $5000
Out of Pocket Max: $11000

PPO:
Annual Premiums: $3068
Yr 1 Total Tax Savings:
Yr 1 Cost Pre Expenses: $3068
Deductible: $1800
Out of Pocket Max: $9200

Am I correct that if I estimate our medical expenses to be below $2653 annually the HDHP/HSA will be the better option, but if I estimate them to be above that amount it would be better to go with the PPO? Another layer of complexity is that a FSA is also offered under the PPO.
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archbish99
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Post by archbish99 »

Sounds about right.... You might want to run a quick Excel graph using the coinsurance amounts and compare the curves. This is insurance, so you need to care about the worst case as well as the average.

FSAs are good for predictable expenses (glasses, surgeries you know about at the end of the previous year), but don't do you any good on the unknown. That's what HSAs are better for.
BruDude
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Post by BruDude »

On the PPO plan, after the deductible, are there only fixed-dollar co-payments or do you have to pay a co-insurance percentage like 10% or 20%? Does the PPO deductible and OOP max apply to each person individually or is it combined?

What state do you live in? For $200/month you might be able to get an individual-market HSA policy with around a $5k deductible with 100% coverage after that.
Topic Author
Bobby Ingersoll
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Joined: Tue Oct 20, 2009 6:03 pm

Post by Bobby Ingersoll »

For the PPO I pay 20% after deductible for Inpatient Hospital, Outpatient Surgery, TMJ, Therapy, MedSurg, and other. Family out-of-pocket is on an aggregate basis.

I live in Virginia, but the HDHP/HSA plan is already a $5k deductible with 100% coverage across the board after that as long as in network. I guess the only way to hit the OOP max in the HDHP would be to have something major done out of network.
BruDude
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Post by BruDude »

Bobby Ingersoll wrote:For the PPO I pay 20% after deductible for Inpatient Hospital, Outpatient Surgery, TMJ, Therapy, MedSurg, and other. Family out-of-pocket is on an aggregate basis.

I live in Virginia, but the HDHP/HSA plan is already a $5k deductible with 100% coverage across the board after that as long as in network. I guess the only way to hit the OOP max in the HDHP would be to have something major done out of network.
Your deductible for out of network would probably be separate, so there must be some type of charges after deductible. I would definitely verify that before committing to a plan.

Assuming you're both in good health, each of you could get a separate $3k deductible policy for between $160-$190/month total (depending where you live in VA), which minimizes your OOP expense for each person instead of having to hit the $5k deductible. Personally I'd take two separate $3k deductibles over a single $5k for a healthy couple at the same price point. The post-deductible expenses on the group plan would be the kicker as to whether group or individual would be a better option. Your group premiums might also be pre-tax while individual premiums are paid after-tax.

United Healthcare's decreasing deductible HSA might also be attractive for a healthy couple. They decrease your deductible by 20% each year up to 3 years/50% maximum when you don't meet the deductible that year. Would be around $175-200/mo for a $5k combined deductible with 100% coverage after that.

Even a co-pay PPO plan with a $2500 deductible and 100% coverage after that would run you about $220-260/month, less than your group premiums with a much lower OOP max. Might want to explore the individual coverage option....you can always opt into the group the following year. Just a thought.
Alto Astral
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Post by Alto Astral »

Bobby, we are in a similar situation (me 32 and wife 28)
Bobby Ingersoll wrote:...few years away from any children (knock on wood).
My wife and I found out that if we get pregnant, then we can change our HDHP to PPO only 'after' the baby is born. So all doctor visits etc would be on the HDHP which will likely max out the deductible. The only other time we can change is during the annual enrollment period. So we are leaning towards the PPO option.
Bobby Ingersoll wrote:Am I correct that if I estimate our medical expenses to be below $2653 annually the HDHP/HSA will be the better option, but if I estimate them to be above that amount it would be better to go with the PPO?
Yes, I had a similar post and David Grabiner pointed out the same thing to me: http://www.bogleheads.org/forum/viewtopic.php?t=80585
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magellan
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Post by magellan »

Maybe I'm doing the math wrong, but I think your expenses have to be at least $4453 for the PPO to be a better deal. It's even more if the PPO only pays 80% after deductible and the HSA pays 100% after deductible.

Let's say you have $4453 in medical expenses during the year.

For the PPO, you'll pay $3068 in premiums + $1800 for the deductible = $4868 total (plus more for copays)
For the HSA you'll pay $2260 in premiums + $4453 out of pocket - $1845 in tax savings = $4868 total

Once you factor in the 20% copay for the PPO, it might turn out that you can't lose with the HSA. One snag to consider is how the deductibles work for each plan. Usually they're per person for the HSA. I'm not sure how they work for the PPO. So if both of you have high medical expenses in the same year, the math could be different. Another "fat tail" consideration is how out of network expenses work for each plan in case you have an accident while in another state or something.

Since you can't roll over extra FSA funds, you can't pre-fund an FSA with worst-case expenses like you can with an HSA, so I'm not sure the FSA really helps.
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