HSA (or PPO) and a baby

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TarHeel2002
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HSA (or PPO) and a baby

Post by TarHeel2002 » Mon Jul 16, 2018 8:51 pm

We are entertaining the thought of an addition to the family. Two insurance plans to choose from. Keep the existing HSA or switch to a PPO for the birth year. Here's the nitty gritty.

HSA:
overall deductible for the family = $4,000
out of pocket limit for the family = $10,000
Premium = $1,175/month
The plan begins to pay at 80% after the family deductible has been met (if I'm reading this right).

PPO
overall deductible for the family = $1,500
out of pocket limit for the family = $12,000
Premium = $1,645/month
The plan begins to pay at 80% after the family deductible has been met.

The HSA has the triple tax benefit associated with it (if I can keep the money invested). Double tax benefit if I need to spend it. I was hoping to not spend the HSA down if possible and pay out of pocket and keep the receipts. These are all in network costs.

I ran this by my insurance agent earlier today and she was pushing me to keep the HSA. After typing it all out..without much calculation..I lean toward the HSA as well. Thoughts are appreciated. Thank you!

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grabiner
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Re: HSA (or PPO) and a baby

Post by grabiner » Mon Jul 16, 2018 9:03 pm

TarHeel2002 wrote:
Mon Jul 16, 2018 8:51 pm
We are entertaining the thought of an addition to the family. Two insurance plans to choose from. Keep the existing HSA or switch to a PPO for the birth year. Here's the nitty gritty.

HSA:
overall deductible for the family = $4,000
out of pocket limit for the family = $10,000
Premium = $1,175/month
The plan begins to pay at 80% after the family deductible has been met (if I'm reading this right).

PPO
overall deductible for the family = $1,500
out of pocket limit for the family = $12,000
Premium = $1,645/month
The plan begins to pay at 80% after the family deductible has been met.
What is your tax bracket? I will assume 22%, with premiums paid by payroll deduction. (I ignore the Social Security savings from payroll deduction, because that is close to break-even in lower Social Security benefits.)

So the PPO costs $19,740 for the year, reduced by $4343 tax savings, for a day-one cost of $15,497; this is what you pay if you never see a doctor for anything except free preventive care.

The HDHP costs $14,100 for the year, reduced by $3102 tax savings. You also get a $1518 tax saving on the $6900 you contribute to an HSA (compared to, say, contributing it to a Roth IRA, where it would also grow tax-free). This gives a day-one cost of $9580.

So the HDHP comes out ahead of the PPO unless the difference in medical costs is more than $5917. With a $4000 deductible, the HDHP is almost surely better. Having a baby will likely consume the entire HDHP deductible, since you'll have to pay everything until you meet the deductible. You'll still come out ahead.

Often, having a baby is a good reason to get out of an HDHP for one year, because the birth usually uses up the whole HDHP deductible and is just a few hundred dollars on a conventional plan. But your cost difference is enough that the HDHP still wins.
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47Percent
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Re: HSA (or PPO) and a baby

Post by 47Percent » Mon Jul 16, 2018 10:45 pm

In your case it is really easy -- especially if child birth is within the year you are considering.

Even in the most normal of pregnancies and deliveries, you will blow through the deductibles:

Premium difference = $5,640; So in essence your PPO deductible is $7,140; (Apples to apples)

PPO Calcs:
The sweet spot where you would spend below $10K ==> Copay < $2,860;
@80% payment, that would be $14,300
PPO start paying at $1.5K; So PPO oop at $10K when medical charges are $15.8K

HSA Calcs:
HSA starts paying @ $4K;
HSA oop = $7,140 (PPO deductible as above) when medical charges = $19.7K

Check: When medical charges are $15.8K, HSA oop = $4K+0.2*$11.8 = $6.36K
Check: HSA oop = Max $10K when medical charges = $34K


So HSA is better for all cases where medical charges are below $19.7K and for all cases above $15.8K.
You read that right.. It is better in 100% of the cases.

The above doesn't even include the tax benefits of HSA, and your ability to reduce your AGI with possible other benefits. Make sure you check out the networks, though.

Please double check the calculations.. This was done on the fly.

28fe6
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Re: HSA (or PPO) and a baby

Post by 28fe6 » Tue Jul 17, 2018 6:20 am

For the last 2 of my babies I kept my HSA plan. I think I front-loaded some contributions so I could pay out of HSA funds more easily IIRC. I also had the babies at home which saved a lot of money. I don't think I even hit my deductible.

deltaneutral83
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Re: HSA (or PPO) and a baby

Post by deltaneutral83 » Tue Jul 17, 2018 7:49 am

If what the OP has posted is correct, then this is a basic math problem. $1,500 Deduc on PPO, $4,000 on HSA, OOP max $10k on HSA, $12k on PPO. The increased monthly premium for the PPO over the HSA $470. Multiplied by 12 months is $5,640. The difference in HSA Deduc and PPO Deduc is $2,500 more on the HSA, countered by $5,640 delta in premiums savings (ignoring the FICA payroll deductions as this is another issue and without knowing the OP's income, not applicable). On top of this and again, higher out of pocket on the PPO vs HSA. No brainer, HSA. As mentioned above, even if you had nothing but preventative care, your costs are higher with PPO, as well as if you max it out. There is no in between either where the PPO makes out.
Last edited by deltaneutral83 on Tue Jul 17, 2018 8:08 am, edited 1 time in total.

TarHeel2002
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Re: HSA (or PPO) and a baby

Post by TarHeel2002 » Tue Jul 17, 2018 8:05 am

Thanks for crunching the numbers for me. I will stay with the HSA (with confidence) going forward. FWIW I am married filing jointly in roughly the middle of the 24% tax bracket.

masteraleph
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Re: HSA (or PPO) and a baby

Post by masteraleph » Tue Jul 17, 2018 8:07 am

I'll add one more component, which is that the OP may have an FSA available to them if they're using the PPO. In which case, knowing about the baby, they would presumably fund the full $2700 into the FSA (if we're talking 2019) (this would cover up to $7500 of health expenses pretax, since you'd have $1200 in copays and $1500 in deductible). The end result, though, still works out to an advantage for the HSA, especially because they can choose to fund the HSA after the fact if they want, or have leftover money in the HSA.

Wellfleet
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Re: HSA (or PPO) and a baby

Post by Wellfleet » Tue Jul 17, 2018 8:11 am

Are there any scenarios where an HSA doesn't make sense? Every thread I see looks like a no-brainer. I plan to make the switch next year. The NY Times had a really good article about comparing plans last fall.

Rupert
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Re: HSA (or PPO) and a baby

Post by Rupert » Tue Jul 17, 2018 8:39 am

Wellfleet wrote:
Tue Jul 17, 2018 8:11 am
Are there any scenarios where an HSA doesn't make sense? Every thread I see looks like a no-brainer. I plan to make the switch next year. The NY Times had a really good article about comparing plans last fall.
Yes. PPOs often have much lower deductibles and broader provider networks. PPOs also often have better prescription drug coverage. As this case exemplifies though, you have to make the decision on a case-by-case basis. Neither PPOs nor HDHPs/HSAs are categorically better in every case.

masteraleph
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Re: HSA (or PPO) and a baby

Post by masteraleph » Tue Jul 17, 2018 8:49 am

Wellfleet wrote:
Tue Jul 17, 2018 8:11 am
Are there any scenarios where an HSA doesn't make sense? Every thread I see looks like a no-brainer. I plan to make the switch next year. The NY Times had a really good article about comparing plans last fall.
In this case or in general?

In this case, the difference in premiums ($5640) is significantly less than the difference in deductibles ($2500), and then everything above the deductibles is the same for a while, until you hit the max out of pocket, which is actually lower on the HDHP than the PPO. So this is a really easy case, especially with the baby on the way.

Sometimes, though, people come along with a minimal difference in premiums, or where the PPO has no deductible and only copays to start, or where the HDHP is in network only but the PPO has out of network benefits. In those cases, there are different calculations to do, and potentially different results depending on whether you're expecting the use of the hospital versus just preventative care, or even where the PPO might be more expensive but not require referrals, where as the HDHP does.

deltaneutral83
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Re: HSA (or PPO) and a baby

Post by deltaneutral83 » Tue Jul 17, 2018 9:32 am

masteraleph wrote:
Tue Jul 17, 2018 8:49 am
Sometimes, though, people come along with a minimal difference in premiums, or where the PPO has no deductible and only copays to start, or where the HDHP is in network only but the PPO has out of network benefits. In those cases, there are different calculations to do, and potentially different results depending on whether you're expecting the use of the hospital versus just preventative care, or even where the PPO might be more expensive but not require referrals, where as the HDHP does.
I still haven't seen a plan numbers wise where the OOP max ( i.e. hospital admission) or nothing all year long doesn't favor the HSA plan over PPO when you include the premiums + OOP Max. Its those middle ground amounts where I've seen some PPO plans come out, but I just don't know how you can plan on that in advance. For me, I look at these types of plans over at least a 3 year stretch unless we are having the one off discussion regarding health care you can actually plan for (pregnancy), which is the case for this thread (however, it heavily favors HSA based on plans offered). So even if you have a year where the PPO did better in the middle ground, are you to expect this scenario mathematically to work out year over year vs. the HSA?

masteraleph
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Re: HSA (or PPO) and a baby

Post by masteraleph » Tue Jul 17, 2018 9:53 am

deltaneutral83 wrote:
Tue Jul 17, 2018 9:32 am

I still haven't seen a plan numbers wise where the OOP max ( i.e. hospital admission) or nothing all year long doesn't favor the HSA plan over PPO when you include the premiums + OOP Max. Its those middle ground amounts where I've seen some PPO plans come out, but I just don't know how you can plan on that in advance. For me, I look at these types of plans over at least a 3 year stretch unless we are having the one off discussion regarding health care you can actually plan for (pregnancy), which is the case for this thread (however, it heavily favors HSA based on plans offered). So even if you have a year where the PPO did better in the middle ground, are you to expect this scenario mathematically to work out year over year vs. the HSA?
I've seen some people post them- usually situations where the employer pays a substantial percentage of the premiums, but doesn't contribute to the HSA. The total amount might be greater for the PPO, but not what the individual is paying.

47Percent
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Re: HSA (or PPO) and a baby

Post by 47Percent » Tue Jul 17, 2018 10:33 am

Wellfleet wrote:
Tue Jul 17, 2018 8:11 am
Are there any scenarios where an HSA doesn't make sense? Every thread I see looks like a no-brainer. I plan to make the switch next year. The NY Times had a really good article about comparing plans last fall.
Yes..

1) Networks. It is just undeniable that all networks are not the same. The only HSA plan(s) available may not be with good network(s)

2) Psychology. Some people will delay or forego seeing doctors if it means that decision ends up costing a big amount. This may lead to worsening health situations. In some cases the reason of delay is self-diagnosis "Oh it is not that serious", and in some cases it is just poor relationship with money. In any case, the problem is real.

The problem with 2) can be addressed by instituting a reverse model of co-pay. That is allocate a $1,000 pot per person for minor ailments (over and above preventive procedures allowed per ACA), and refund a percentage (30%?) of the unused portion of that at the end of the year. But the issue is it makes it even more complicated, and of course, there is money interests.

Absent that, we should be aware of 2) and overcome that by mentally budgeting some healthcare expenses from all the savings bounty we get from HSA!

Glockenspiel
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Re: HSA (or PPO) and a baby

Post by Glockenspiel » Tue Jul 17, 2018 10:40 am

I did this calculation last year during open enrollment when we knew we were having a baby in June and I created an out of pocket cost curve, based on different amounts of health care spending. The results were if you maxed out your deductible and OOP cost, the HSA was better. The HSA was also better if you didn't spend hardly any money. The only time the PPO was better was the middle ground where you are spending a fair amount of health care dollars, but not quite maxing out your deductible.

47Percent
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Re: HSA (or PPO) and a baby

Post by 47Percent » Tue Jul 17, 2018 11:06 am

Glockenspiel wrote:
Tue Jul 17, 2018 10:40 am
I did this calculation last year during open enrollment when we knew we were having a baby in June and I created an out of pocket cost curve, based on different amounts of health care spending. The results were if you maxed out your deductible and OOP cost, the HSA was better. The HSA was also better if you didn't spend hardly any money. The only time the PPO was better was the middle ground where you are spending a fair amount of health care dollars, but not quite maxing out your deductible.
That is true in general. But in most cases the sweet spot is very narrow...

something like gambling that your medical costs would fall between $12K and $15K. Only betn. $12k and $15K you would come out ahead with PPO. That is hard to know at the beginning of the year.

In some cases the sweet spot is not just narrow, but it flips out and there is no sweet spot. I suspect that's what this particular case is as per my rough b.o.t.e. calculation above in this thread.

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Artful Dodger
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Re: HSA (or PPO) and a baby

Post by Artful Dodger » Tue Jul 17, 2018 11:57 am

TarHeel2002 wrote:
Mon Jul 16, 2018 8:51 pm
We are entertaining the thought of an addition to the family. Two insurance plans to choose from. Keep the existing HSA or switch to a PPO for the birth year. Here's the nitty gritty.

HSA:
overall deductible for the family = $4,000
out of pocket limit for the family = $10,000
Premium = $1,175/month
The plan begins to pay at 80% after the family deductible has been met (if I'm reading this right).

PPO
overall deductible for the family = $1,500
out of pocket limit for the family = $12,000
Premium = $1,645/month
The plan begins to pay at 80% after the family deductible has been met.

The HSA has the triple tax benefit associated with it (if I can keep the money invested). Double tax benefit if I need to spend it. I was hoping to not spend the HSA down if possible and pay out of pocket and keep the receipts. These are all in network costs.

I ran this by my insurance agent earlier today and she was pushing me to keep the HSA. After typing it all out..without much calculation..I lean toward the HSA as well. Thoughts are appreciated. Thank you!
I've read through most of the responses, and I would agree the HSA plan should be better. One thing you did not include are the individual deductibles and out of pocket limits, and those can make a big difference in how the claim is paid.

You mention the HSA plan is $4000 family deductible and $10000 out of pocket, and the PPO plan is $1500 family deductible and $12000 out of pocket limit. Traditional medical plans like PPOs almost always have individual deductibles and the family limit is two or three times the individual deductible, with out of pocket limits set similarly. So, in your case, you may have a $500 deductible with a $4000 out of pocket, a $500 deductible with a $6000 out of pocket, or a $750 deductible with a $6000 out of pocket. HDHP HSA compatible plans commonly have aggregate deductibles, but sometimes individual. So, your HSA plan probably has a $4000 aggregate deductible which would be met by one family member. The family deductible is also aggregate, but some limits were introduced in 2016 to cap individual expenses. If your plan is ACA compliant, an individual's expense is limited to $7350 ($7150 for 2017 plans), not the aggregate HSA out of pocket limit.

With a high cost claim for mom, normal for baby, mom would hit the the $4000 or $6000 PPO out of pocket, as well as the $7350 HDHP/ACA out of pocket. Again, I think the HSA will be better mostly because you are saving $470 a month in premium which will far exceed any claim savings in the PPO plan. The HSA deduction is additional gravy.

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grabiner
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Re: HSA (or PPO) and a baby

Post by grabiner » Tue Jul 17, 2018 7:40 pm

Wellfleet wrote:
Tue Jul 17, 2018 8:11 am
Are there any scenarios where an HSA doesn't make sense? Every thread I see looks like a no-brainer. I plan to make the switch next year. The NY Times had a really good article about comparing plans last fall.
It depends on your own situation, particularly because employees may offer different subsidies for different plans. At the DC Bogleheads a few years ago, I did two comparisons of HDHPs versus traditional plans for Virginia residents: government employees and people buying silver plans on the ACA exchange. For government employees, the day-one cost difference was about equal to the HDHP deductible, making the HDHP a clear winner. For the ACA exchange, the cost difference was about half the deductible, making the HDHP more expensive if you have high medical costs.

There is also one important non-financial consideration. Many people with HDHPs are reluctant to seek medical care when they need it, because of the cost. If you would think twice about a $100 doctor's bill, or consider not filling or halving a $200 prescription, you should use a plan with low co-payments for your own health.
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TarHeel2002
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Re: HSA (or PPO) and a baby

Post by TarHeel2002 » Sat Aug 11, 2018 12:12 pm

Okay so I'm going to revive this thread for hopefully the last time. I called my insurance company yesterday and they informed me that I have a $4000 deductible per person...then 80/20 coverage (insurance/copay) up to $6550. Then it covers 100% on that person. 10k max out of pocket for the family. This is different than what I assumed (you know what they say about assume)...

Anyway so I'm thinking now I'm looking at 4k deductible for DW, 4k deductible for baby and then 80/20 coverage for both of them up to $6550 or 10k total out of pocket which ever comes first. I anticipate easily hitting 10k out of pocket during the birth. I will have the cash to cover it. Does the HSA still make sense for me?

Thanks!

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grabiner
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Re: HSA (or PPO) and a baby

Post by grabiner » Sun Aug 12, 2018 12:56 pm

TarHeel2002 wrote:
Sat Aug 11, 2018 12:12 pm
Okay so I'm going to revive this thread for hopefully the last time. I called my insurance company yesterday and they informed me that I have a $4000 deductible per person...then 80/20 coverage (insurance/copay) up to $6550. Then it covers 100% on that person. 10k max out of pocket for the family. This is different than what I assumed (you know what they say about assume)...

Anyway so I'm thinking now I'm looking at 4k deductible for DW, 4k deductible for baby and then 80/20 coverage for both of them up to $6550 or 10k total out of pocket which ever comes first. I anticipate easily hitting 10k out of pocket during the birth. I will have the cash to cover it. Does the HSA still make sense for me?
You'll need to check how maternity is covered. Well-baby visits should be free as preventive care, but if the mother and baby are both charged for hospital bills following delivery, then you are likely to use up both deductibles. My estimate was that the cost difference would need to be $5917 for the conventional plan to be better. (You may also be able to save a bit more with the conventional plan if your employer allows you to use a Flexible Spending Account; you cannot use an FSA with an HSA unless the FSA is limited to dental and vision, and not all employers even offer than option.)
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