HDHP worth it?

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runnergirl
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HDHP worth it?

Post by runnergirl »

My employer's HDHP plan has gone up a lot this year. Over $500 for 2014. The CDHP, in contrast, only went up 10%. I chose the HDHP for 2013 because I wanted the HSA for which I deposited the maximum and plan to use for retirement. I calculated the break-even point, after tax savings and employer contribution to a Health Reimbursement Account for the CDHP, to be a little over $1500. In 2013, we are on track (family of 4) to spend less than $1000 out-of-pocket under the HDHP. In 2014, if I chose the HDHP, the break-even point would be around $1000. Thus, if we spent less than $1000, we would be ahead, but any more, we would be behind. How important is the extra tax-free space? Would you take the risk that a family of four (generally healthy adults in mid-40's, two teen-aged children), spend less than $1000?
haban01
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Re: HDHP worth it?

Post by haban01 »

Is there a big spread in the premiums? It looks to me that it may not be worth it then. What about the Max out of Pocket? Is it the same for both? Is it possible that you may be forced onto a HDHP in future years, thus building up your HSA for a really bad health year. Do they cover the same percentages?
Eric | | "Stay the Course" | "Press on Regardless"
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magellan
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Re: HDHP worth it?

Post by magellan »

runnergirl wrote:I calculated the break-even point, after tax savings and employer contribution to a Health Reimbursement Account for the CDHP, to be a little over $1500.
That breakeven sounds a little low, especially if you're getting a tax deduction for the HSA contribution and an employer HSA contribution. Any chance there's an error in your calculations?

Also, are there any differences in the provider networks or drug formularies between the two plans? Is one an HMO and one a PPO? Of course, it could be that this particular HDHP is just a lousy deal.

If you post your premiums, deductibles, co-pays, and out of pocket max for each plan, along with the amount of the employer HSA contribution, we'd be able to offer better input.

Jim
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runnergirl
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Re: HDHP worth it?

Post by runnergirl »

Thank you for taking a look. The details are:

HDHP costs $5828.68/year
deductible is $1500 ind/$3000 family
coinsurance is 80% after deductible is met
out of pocket max is $3000 ind/$6000 family
no HRA contribution by employer
tax savings (28% fed, 8.25% state) is $2223.07 (although some years bumps up to the very beginning of 33% rate - in 2013, some of the $6550 will be taxed at the 33% rate)

CDHP costs $6666.92/year (diff. between HDHP and CDHP is $838.24)
deductible is $1500 ind/$3000 family
coinsurance is 80% after deductible is met
out of pocket max is $2000 ind/$4000 family
HRA of $2000 contributed by employer
tax savings - none

we are a family of two mid-40's adults and two teen/pre-teen children. no chronic illnesses. in both plans, preventative care and immunizations are covered 100% with no deductible. in 2013, the out of pocket expenses add up to around $900 so far due to a couple of minor accidental injuries.

for some reason, the HDHP plan went up by almost $600 for 2014, whereas the CDHP plan went up by only $250. both plans are PPO's. we can elect every year, so we will not be forced to choose HDHP every year.
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magellan
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Re: HDHP worth it?

Post by magellan »

runnergirl wrote:HDHP costs $5828.68/year
no HRA contribution by employer

CDHP costs $6666.92/year (diff. between HDHP and CDHP is $838.24)
HRA of $2000 contributed by employer
Maybe I'm missing something, but if your employer is subsidizing the CDHP with an extra $2,000 contribution to an HRA, compared to nothing for the HDHP, it makes sense that the CDHP is a better deal. Does your employer contribute something to your HSA when you choose the HDHP?

Jim
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runnergirl
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Re: HDHP worth it?

Post by runnergirl »

No they do not. It's like they want people to choose the CDHP and are making it ever more unfeasible to choose the HDHP. I'm not sure why they would do that.

My calculations are:

If we spend 0-$1061.31, the HDHP is a better choice
If we spend $1062.31+, the CDHP is a better choice
The most we could lose by going with the HDHP is $938.69. After that, OOP will have been met for both plans and everything is covered 100%.
an_asker
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Re: HDHP worth it?

Post by an_asker »

I have never heard of the CDHP before - a quick search in google tells me that it is similar to the HDHP. So, what are the pros and cons?

In this situation though, it appears that the CDHP is better, unless I am missing something (in the difference between CDHP and HDHP).
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magellan
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Re: HDHP worth it?

Post by magellan »

Here's another way to think about this that might be worth investigating. What if we assume both plans are fairly priced based on their actuarial value and expected average benefit payout? So for the average participant, the CDHP will pay out $828 more in benefits compared to HDHP. That makes the difference in premiums a wash unless a participant has special knowledge about their expected healthcare spending.

So perhaps the real comparison is between the $2,000 that the employer puts in the FSA vs the $2,223 in after tax savings from the HSA contribution. Limiting the comparison to just this aspect makes the HSA plan a slightly better deal, on average. Plus, you get the benefit of tax deferred investment growth with the HSA.

This analysis assumes that if you're unlucky and end up with the worst-case scenario, your finances won't be severely impacted. Since you suggested that in the worst case you're only out an additional $1k or so, perhaps a bet risking $1k in the worst-case isn't so bad when the average payoff is $223. Even if you experienced the worst-case result every 4 years, you'd still about break even.

What do others think? Any holes in my logic?

Jim
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Re: HDHP worth it?

Post by Two Headed Mule »

No they do not. It's like they want people to choose the CDHP and are making it ever more unfeasible to choose the HDHP. I'm not sure why they would do that.

My calculations are:

If we spend 0-$1061.31, the HDHP is a better choice
If we spend $1062.31+, the CDHP is a better choice
The most we could lose by going with the HDHP is $938.69. After that, OOP will have been met for both plans and everything is covered 100%.
Assuming (1) I am undertanding your plan options correctly and (2) you are maxing out your other tax-advantaged accounts, it looks to me like the HDHP is more attractive, given your anticipated medical needs.

HDHP savings:
After-tax Premium difference: $535 ($838 x .3625 total tax rate)
permanent tax savings on HSA contribution $2374 ($6550 x .3625)
Total $2909

CDHP savings:
Employer HRA contribution $2000

So there is a $909 savings upfront for the HDHP. The family deductibles of the plans are the same, so if you end up having $3000 in medical expenses, that's $3,000 you would have to pay under either plan, and so the HDHP is still ahead by $909. Similarly, for both plans there is co-insurance of 80% thereafter up to each plan's OOP, which is $4000 for the CDHP and $6000 for the HDHP. So after the $3,000 deductible is met, if you incur another $1250 in medical expenses (at 80% coinsurance, another $1000 OOP), you have now spent $4000 out of pocket, and the HDHP will still be ahead by $909. Only after incuring $4,250 does the HDHP advantage start to shrink, since it is still in coinsurance mode up to the $6000 out of pocket max while the CDHP covers everything from there on out. So it seems to me that HDHP is more attractive, but I've also started drinking earlier than I usually do, so there's that.

Two Headed Mule
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