[Matt]

I am starting a new job and have access to an HSA for the first time!

My new employer has a PPO medical insurance option as well as a High Deductible Health Plan (HDHP) that is eligible for the triple tax advantage Health Savings Account (HSA).

I really want to start an HSA but when I break down the numbers the HDHP/HSA option doesn’t seem that desirable after all.

PPO/FSA Option:

• Premiums paid pre-tax
• Deduct/co-pays paid with FSA (use-it or lose-it)
• Our typical med expenses < deductibles

HDHP/HSA Option:

• Premiums paid pre-tax
• Deduct/co-pays paid with cash or part of HSA
• Our typical med expenses < deductibles
• Plan to max out the HSA $7,750/yr contributions

RESULT:

• PPO option is $5K/yr cheaper in premiums + forecasted expenses
• HSA option saves $2K/yr in present year taxes
• PPO option is $3K/yr cheaper net after taxes

So if I take that $3K/yr savings and stick that in a taxable brokerage it feels like the PPO is the better option, especially if I’m in the zero capital gains tax bracket when I’m retired. But am I missing a FI angle somewhere?

I would really like to hear if anyone else has found the HDHP/HSA to not always be a slam dunk.

[Kelly]

I’m very surprised by those numbers — my HDHP premiums are about half the price of the standard PPO because about half the money goes into the HSA.

And then even if I spent enough to hit the deductible, I’d still have saved money because of the included HSA contribution plus the tax savings on my additional contributions.

Is there no included contribution to your HSA? Are the HSA premiums significantly more expensive than the PPO? Is the deductible higher than the anticipated savings?

[Danielle]

Is your employer matching of giving any HSA money to you just for having? Also how does your plan account for prescriptions – are any expenses included in HDHP where they’re not as part of PPO? Another thing to consider is out of pocket max. When is your next Open Enrollment?

You can try HDHP for partial year and change.

Would you also like to explore: Anyone here a Federal Employee? Where would we be able to sign up for an HSA?

[Cica]

Typically PPO premiums are not cheaper. Because they have lower deductibles, and lower out of pocket maximums. How come your company is offering cheaper PPO?

HDHPs are usually great for those who are super healthy and won’t get to use their HSA, can be ok with just preventative care, and have maybe one or two Dr visits a year where they pay out of pocket. Or maybe they take preventive drugs, which are 100% covered even before deductibles. It’s also good for those who are super sick, because they get to meet their deductible and OOP maximums fast, at lower premiums and the. The healthcare is ‘free’ the rest of the year.

They are typically not a good choice for anyone in the middle with $3,000-$10000 in expenses, anyone needing drugs that are brand name and not preventive, or anyone with behavioral health therapy (weekly) because you end up paying hundreds of dollars for each session before you come close to meeting the family deductible. If you have BH therapy then PPO with copays is always better.

[Michael]

Have you accounted for the growth potential of the HSA over time? A lot of folks use the HSA to cover current year needs, sort of a tax free clearing account. Some folks invest their HSA funds and cover current year medical expenses out of pocket.

Between my wife and I, we treat our HSA like the “third IRA” contribution and save up our annual medical receipts so we can tap it for past medical expenses.

You can check also: HSA rollover question

[Mwikali]

Insurance is insurance, I wanted the best possible insurance for my family without thinking of Dollar costs.

After COVID and working in healthcare I saw so many families go bankrupt due to medical debt.

Choose wisely or have have a lot of money to self insure.

[Meghan]

Are you including the HSA contributions as part of the expenses for the HDHP? In most cases, the premiums are significantly cheaper for the HDHP than PPO. I’ll try to give you an example from my previous employer to illustrate, using 2023 FSA/HSA max numbers:
– HDHP premium w/3500 individual deductible (adult+children) biweekly: $80 pretax
– PPO premium biweekly 1800 individual deductible (adult+children) $175 pretax
– HSA max 7750/year (298 biweekly)
– FSA max 3050/year (117.30 biweekly)

In my case, employer contributed 500 to HSA but for the sake of this example, it doesn’t sound like that is the case for you so I won’t include that.

Deduction from paycheck biweekly:
– HDHP + HSA 378
– PPO + FSA 292.30

My husband has his own PPO plan through his job. We have three kids and our family’s main health expenses have included orthodontia for two kids and a few dental procedures. Most of our doctor visits are preventative (well checks for 3 kids and myself that were all covered). I do remember paying OOP (not with the HSA) for a few sick visits at $140/visit when we had the HDHP. So we could pretend for the sake of comparison that our health expenses totaled 3050 and we paid for all of that using either HSA or FSA.

At the end of the year, we would still have 4700 in the HSA that could be invested for long term growth or used for future health expenses (or both). I left the job that had the HSA option 2 years ago and we still have $15000 in that HSA account, most of which is invested that we don’t plan to touch until retirement (barring a medical catastrophe).

In my comparison, the difference in upfront cost between the two equals 2228.20 in premiums, but what I would have left at the end of the year is 4700 (or potentially more depending upon health spending) in the HSA that I get to keep, invest and pay for any future medical expenses tax free. The main variables are the difference in premium cost/deductible and whether your employer contributes to your HSA. But the comparison should not only include the upfront cost to you, but what you will have left growing tax free at the end of the year.

I hope that was helpful. It might help if you gave specific numbers for premiums and estimated out of pocket costs if you feel comfortable, because it’s hard to really see the difference in long-term savings potential not knowing the specifics.

[Author]

Posts