How do you evaluate HDHPs?

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AtlasShrugged?
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How do you evaluate HDHPs?

Post by AtlasShrugged? »

Bogleheads....That time is almost upon us. Yes, November and choosing employer health coverage. I have a traditional PPO (Empire BCBS) and I max out an FSA, but am eyeing the HDHP options that we have. The problem is that I am stuck. How do I evaluate whether moving to an HDHP is the right move? Because if I choose wrongly.....whoa.

For those who have an HDHP, how do/did you make the decision to switch?
Do you have a family member with a chronic health condition? I especially want to hear from HDHP participants with this circumstance.
Do you find that you are paying healthcare expense out of pocket, rather than using the funds you set aside?
Did your company offer you an incentive (like $500, $1000) to switch?
Does 'Employee + one' mean the same deductible as a family?
Do you find that you avoid going to the doctor right away...do you let things develop before seeing an HCP?
How do you pair a limited FSA with the HDHP? What has been your experience?

Yes, I read the wiki. It was a good general overview, but not good enough where I can assuage my concerns.
“If you don't know, the thing to do is not to get scared, but to learn.”
middistancerunner
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Re: How do you evaluate HDHPs?

Post by middistancerunner »

The first thing you should do is multiply the monthly premium of each plan option * 12, and subtract any incentives. This is the cost out of the gate for each plan. A plan can be very generous in what it covers (or very stingy) but if this delta in premiums is high, then one plan starts out way way ahead.

In my case, (and these numbers are approximate but basically accurate):

HDHP + HSA: 12*150 - 500 (HSA contribution) = $1300.
“Core plan”: 12*220 = $2640.

So right off the bat the HDHP gives me $1340 in my pocket that I can spend on medical care before it will have cost as much as the core plan.

Second, you should tally up your normal/predictable medical expenses, and whether they are in and out of network, and plug them into the plan structure to see how much they will end up costing you under each. Add that amount to the premiums paid calculated above.

Third, think about the variance in your expenditures - how predictable are they, really? What would each plan cost you in a bad outcome, like an unexpected emergency hospital visit to an out of network ER? Some HDHPs have almost no out-of-network coverage, but others are perfectly fine, just with a somewhat higher deductible/out of pocket max compared to the Core plan. My HDHP is of the latter type. I would avoid an HDHP with any obvious holes or gaps in coverage, where you are left completely uninsured for some categories of events.

The HDHP often makes a lot of sense for people with chronic conditions, because they always meet the deductible anyways. For example, suppose my HDHP deductible in the previous example was $2500, and my Core Plan deductible was $1500. So while the deductible for the HDHP is higher, it doesn’t tell the whole story, because of the premium differential. So for the HDHP the most spending I will have up to the deductible is $1300 + $2500 = $3800, but For the Core plan spending will be $2650 + $1500 = $4150. For plans like this, in almost every situation the HDHP ends up cheaper. You can do similar calculations for the Out of pocket maximum. Economists say the HDHP “dominates” the PPO when the premium differential is so high that at every spending level, you spend less.

In fact, recent health economics research suggests that employers are *so* enamored of HDHPs that they have set premiums for them low enough that in many workplaces they actually mathematically dominate the other options. So in those situations most people should choose the HDHP (still, many do not!)

Your other questions:
>The HSA my employer has is easy to use for reimbursement (Health Equity), and so I always get my (currently low) out of pocket expenditures reimbursed. I have built up a tidy sum in there since I switched.
>The family deductible on my plan is higher than individual, but there is no + 1 option..... You should consult plan documents, but it’s definitely possible the deductible will be different. In my particular circumstance this deductible difference is meaningful and makes the family plan less attractive. Your mileage may very much vary on this - if you have one family member that guarantees the deductible will be met, then the plan may basically be a free lunch for the rest of the family.
>I am more hesitant/discriminating about doctor visits, but health economics suggests this might be a good thing.
>I don’t think you can fund an FSA in the same year as an HSA.
rantk81
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Re: How do you evaluate HDHPs?

Post by rantk81 »

middistancerunner wrote: Tue Oct 23, 2018 7:29 am In fact, recent health economics research suggests that employers are *so* enamored of HDHPs that they have set premiums for them low enough that in many workplaces they actually mathematically dominate the other options. So in those situations most people should choose the HDHP (still, many do not!)
This is 100% exactly the case with my employer.

For my "Employee Plus 1" plan, the differential in payroll premium (plus HSA-contribution-match-incentive) is a difference of more than $4000 !!!

The deductible on the HSA plan is only $1200 more than the non-HSA plan, and the out-of-pocket-maximum for the HSA plan is only $3000 more than the max on the non-HSA plan.

The only way someone would ever possibly "win" with the non-HSA plan, is if they have some really bizarre medical-spending-pattern in one year where they have a huge amount of office visits with co-pays, but meanwhile, sparingly little, if no other expenses that were subject to the co-insurance. Really not a real-world scenario if you ask me. I've created some spreadsheets that model a lot of "sample scenarios", and the HSA plan wins handily in every single scenario.
aristotelian
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Re: How do you evaluate HDHPs?

Post by aristotelian »

You are asking all the right questions. Not sure if it was mentioned, but I look closely also at the Out of Pocket Max and try to get an idea of the worst case scenario under each plan.

My employer makes the HDHP a no brainer due to a generous max HSA contribution that completely covers the deductible.

I invest the HSA using Lively, and cover expenses out of cashflow.

LP-FSA is perfect companion for dental and optical. We try to do our exams in the fall and then delay treatments until the following year so that we know how much to set aside in the FSA.
asif408
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Re: How do you evaluate HDHPs?

Post by asif408 »

As others have suggested, you have to do the math. Calculate your annual total costs in these three situations:

Worst case scenario: Hit OOP Max
Middle case: Reach deductible but no more
Best case: No care needed or all care is covered preventative care, so only costs are premiums

In my personal situation, in the worst and the best case, the HDHP is better by a country mile. It is only in the middle case that the traditional plan wins, and only by a little. The OOP max on the HDHP is half of the traditional plan in my situation. Yours may differ.

You have to consider, in each case, the premium costs, the OOP max and deductible differences if applicable, and the savings from HSA contributions, assuming how much you plan to contribute. These are all influenced by your tax bracket. You also have to remember that HSA contributions are not subject to FICA taxes if done through a cafeteria plan, which is an additional savings. Also check if coverages differ between the plans. At one point my HSA plan covered more of the expenses, while with the traditional plan some expenses, such as prescription drug charges, did not apply to the OOP max. I think these rules may have changed but you'll have to check.

So in each case, the math looks something like this: Annual premiums+total cost of care-tax savings from HSA contribution-tax savings from premiums=annual cost
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Edie
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Re: How do you evaluate HDHPs?

Post by Edie »

We are incredibly lucky with the insurance premiums for all of the options at my employer, but the HSA still wins out by a large margin.

Subtracting the employer HSA contribution from the premiums, the HDHP costs us $25 a year. The other plans cost >$3000 in premiums, with no contributions to any savings. That's a big difference off the bat.

We are also lucky in that our OOP max on our HDHP is quite low ($4000 for the family), but it could be a couple thousand higher, and it would still be a better choice for us than the PPO or EPO options through my employer. My spouse has multiple chronic issues, and I know we will hit our OOP max every year and budget for it. If our OOP max was higher, we would spend more out of the maxed HSA account, but as it currently sits, I reimburse less than $1000 each year, and that's because I try to reimburse all of the small dollar (lots of $10) copay prescriptions so I can stop tracking them. Larger cost prescriptions (>$50 to $100) are left for reimbursement in the future.

You have to run the math for your situation, and it could be a helpful exercise to ask coworkers if they use the HDHP plan, and see how prescriptions are handled. At my previous company, the copays that were available for the PPO plan were not available for the HDHP plan, meaning on the HDHP plan, we were spending more up front on the prescription costs. My current employer has the same copays across all three plans, so while pharmacy is still our largest expense, it's spread across the year, instead of being very front-loaded.
Texanbybirth
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Re: How do you evaluate HDHPs?

Post by Texanbybirth »

AtlasShrugged? wrote: Tue Oct 23, 2018 6:52 am Bogleheads....That time is almost upon us. Yes, November and choosing employer health coverage. I have a traditional PPO (Empire BCBS) and I max out an FSA, but am eyeing the HDHP options that we have. The problem is that I am stuck. How do I evaluate whether moving to an HDHP is the right move? Because if I choose wrongly.....whoa.

For those who have an HDHP, how do/did you make the decision to switch?
Do you have a family member with a chronic health condition? I especially want to hear from HDHP participants with this circumstance.
Do you find that you are paying healthcare expense out of pocket, rather than using the funds you set aside?
Did your company offer you an incentive (like $500, $1000) to switch?
Does 'Employee + one' mean the same deductible as a family?
Do you find that you avoid going to the doctor right away...do you let things develop before seeing an HCP?
How do you pair a limited FSA with the HDHP? What has been your experience?

Yes, I read the wiki. It was a good general overview, but not good enough where I can assuage my concerns.
Sounds like you and I are in the same boat. I hope the below is helpful.

- We did a financial evaluation, with the help of some posters here. It would behoove you to post the specifics here, and there are some really bright people who would respond.
- I have a chronic health condition with expensive prescriptions. I meet my individual individual deductible by March each year.
- We use our HSA to pay for expenses. I wish we could pay out OoP because I know the tax advantages of HSA funds, but it's just not feasible for us, and it probably never will be.
- My employer offers a significant incentive to switch.
- No, we each have our own deductibles. However, if any two people in my family meet their deductibles then the family deductible is met, too. That was the case this year by March.
- No way. We have small kids and my wife is pregnant. We're very blessed, and I'm very thankful, that we have the means to take care of ourselves, and that means going to the doctor when it's necessary. We don't go for colds or allergies and the like, and we DO NOT use those minute clinics or pop-up doctor's offices. We all have PCPs/pediatrician. We are not rich and medical does take up a larger percentage of our budget than probably it does for other people.
- I just did that this year. We have HDHP/HSA, and I got LASIK, which means we also got to use the LFSA to pay for it. This will be a great additional tax break for us. It worked flawlessly, and less than a week after the surgery the money from the LFSA was in our checking account. I will continue to pay out of payroll deductions for the LFSA until the next open enrollment period.

If you have detailed info on your medical expenses over the last few years, there is a personal finance toolbox Excel spreadsheet that has a tab to evaluate PPO vs HDHP. Ah, here is the link! It's HDHP Analysis.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
MI_bogle
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Re: How do you evaluate HDHPs?

Post by MI_bogle »

rantk81 wrote: Tue Oct 23, 2018 7:46 am
middistancerunner wrote: Tue Oct 23, 2018 7:29 am In fact, recent health economics research suggests that employers are *so* enamored of HDHPs that they have set premiums for them low enough that in many workplaces they actually mathematically dominate the other options. So in those situations most people should choose the HDHP (still, many do not!)
This is 100% exactly the case with my employer.

For my "Employee Plus 1" plan, the differential in payroll premium (plus HSA-contribution-match-incentive) is a difference of more than $4000 !!!

The deductible on the HSA plan is only $1200 more than the non-HSA plan, and the out-of-pocket-maximum for the HSA plan is only $3000 more than the max on the non-HSA plan.

The only way someone would ever possibly "win" with the non-HSA plan, is if they have some really bizarre medical-spending-pattern in one year where they have a huge amount of office visits with co-pays, but meanwhile, sparingly little, if no other expenses that were subject to the co-insurance. Really not a real-world scenario if you ask me. I've created some spreadsheets that model a lot of "sample scenarios", and the HSA plan wins handily in every single scenario.
Same for me, but more so. The family HDHP plan with HSA has 2500 in yearly premiums and 2500 in employer HSA contribution. The deductible is 5000 and the OOP max for the HDHP is about 8000.

The traditional PPO family plan has almost 28,000 in annual premiums alone. Just insanity. I sure hope nobody is picking that plan.
deltaneutral83
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Re: How do you evaluate HDHPs?

Post by deltaneutral83 »

I look at the HDHP premium savings and the OOP max for HDHP/PPO, and am aware of the deductible but not necessarily concerned with that one. In my case (and most others I see) the HDHP has cheaper premiums and cheaper OOP max. I am not in a position to where I have to scout out and deliberate over medical expenses that cost $1-5k on an annual basis and crunch every possible scenario as you will see others calculate as I am only concerned with the out of pocket max. Once admitted into the hospital or lots of health care administered in the ER, I just count on the OOP max for the year. I have seen plans that I thought were unsual where the OOP max was abnormally higher on the HDHP or the premium savings were minimal or non existent and the PPO might actually make sense for my situation, but those situations were rare.
Thegame14
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Re: How do you evaluate HDHPs?

Post by Thegame14 »

IT depends on your situation and your expecations of usage. Most years we worry about how much we have to pay in premiums. Next year we are having a baby, so we are more concerned with Out of Pocket Max.

Employee +1, does NOT Mean family, it means parent + child.
welldone
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Re: How do you evaluate HDHPs?

Post by welldone »

We, too, use an HDHP with an HSA. My best advice is to make sure you can handle the OOP maximum of your plan (if you choose to switch to an HDHP). We've hit ours the past two years (>$10K) and if your finances cannot stand repeated hitting the OOP max - then HDHPs probably aren't for you. If you can handle repeated OOP max 'hits', then you may find you really like the other benefits.
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AtlasShrugged?
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Re: How do you evaluate HDHPs?

Post by AtlasShrugged? »

We did a financial evaluation, with the help of some posters here. It would behoove you to post the specifics here, and there are some really bright people who would respond.
What specifics need to be posted. I gather you'd need the following:

Annual premium cost
Employer contribution toward HSA
OOP maximum for the year
Deductible
HSA administrator: Fidelity (I already know this piece)
My estimated annual medical cost for the last 2-3 years?
“If you don't know, the thing to do is not to get scared, but to learn.”
Texanbybirth
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Re: How do you evaluate HDHPs?

Post by Texanbybirth »

AtlasShrugged? wrote: Tue Oct 23, 2018 12:30 pm
We did a financial evaluation, with the help of some posters here. It would behoove you to post the specifics here, and there are some really bright people who would respond.
What specifics need to be posted. I gather you'd need the following:

Annual premium cost
Employer contribution toward HSA
OOP maximum for the year
Deductible
HSA administrator: Fidelity (I already know this piece)
My estimated annual medical cost for the last 2-3 years?
Those would be very useful. If you look at the Google Sheets doc in the link I sent, it also asks for tax rate and co-pay % after deductibles are met.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
middistancerunner
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Re: How do you evaluate HDHPs?

Post by middistancerunner »

Also, in case anyone is interested, here is the working paper I mentioned:

https://www.nber.org/papers/w24392

One other point to mention is that you should probably be mindful to check in on your decision every few years, to make sure the premium remains low enough to justify. That paper suggests that the reason HDHPs are often cheap is because HDHPs are selecting for low-risk / low-cost enrollees. HDHPs are a relatively new thing (and are newly so popular among employers) so as more people figure out how they work and are less fearful of them, the average enrollee cost may go up as the plans are not solely opted into by people who are young and healthy.
FIREmeup
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Re: How do you evaluate HDHPs?

Post by FIREmeup »

Things I considered....

Are they the same network?
What is the potential yearly cost for me?

I would use them the same either way...unless I read you incorrectly it seems like you asked will you let an ailment go longer to not use your HDHP. NO, I would never.

HDHP has a yearly price that was 30% cheaper including the deductible, and I got to contribute to an HSA.

Two interesting things...

Make sure you are being billed towards your deductible. My kid had an in depth allergy test...got a bill for $200 not through insurance. When we gave them the health insurance info again they said they had it but the billed rate we'd have to pay would be $1100. They say most people rather pay cheaper...even though it doesn't go towards deductible. Given we were expecting a birth of another child that year, we knew we'd blow the $4k deductible out of the water so we paid the $1100. This is certainly part of the problem for why health insurance cost is out of control.


AND two, my experience do not pay bills from your provider until your insurance company tells you which one to pay....good luck trying to recoup money from a doctor or convincing the health insurance company to try and change their calculation for your deductible. Sheesh.
LiterallyIronic
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Re: How do you evaluate HDHPs?

Post by LiterallyIronic »

AtlasShrugged? wrote: Tue Oct 23, 2018 6:52 am For those who have an HDHP, how do/did you make the decision to switch?
Do you have a family member with a chronic health condition? I especially want to hear from HDHP participants with this circumstance.
Do you find that you are paying healthcare expense out of pocket, rather than using the funds you set aside?
Did your company offer you an incentive (like $500, $1000) to switch?
Does 'Employee + one' mean the same deductible as a family?
Do you find that you avoid going to the doctor right away...do you let things develop before seeing an HCP?
How do you pair a limited FSA with the HDHP? What has been your experience?
1. Didn't make the decision to "switch," I've always gone exclusively with the highest deductible possible. Pre-ACA, my wife and I were on a plan with a deductible of $11,100 per person. That plan doesn't exist any more. Now my wife's deductible is $7,500 and mine and our toddler's are $4,000 each.
2. We don't have healthcare expenses. Toddler's wellness checkups are covered. Got sick? Drink some orange juice and sleep it off. Weird random event like breaking your glasses? Pay cash.
3. No incentive.
4. I don't know.
5. I don't go to the doctor.
6. We have HSA instead of FSA, so I don't know.

That all being said, we did have a healthcare expense once in the past. And it was a doozy. We had a baby. My wife had health insurance, including maternity coverage. Too bad insurance covered nothing. We paid all $12,100 out of pocket, when I expected to only pay up to the $7,500 maternity deductible. Now I'm jaded and would drop my coverage if it wasn't free through my employer and my toddler only gets it if I have it, since I can't insure just my kid and not myself through my work coverage.
FeesR-BullNotBullish
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Re: How do you evaluate HDHPs?

Post by FeesR-BullNotBullish »

I’ll preface this by saying DW and I recently switched from an HDHP under the ACA to an employer subsidized PPO: If you or a family member regularly visits a doctor, I offer caution against an HDHP. DW and I had HDHPs for the past 5-6 years. DW has chronic health issues.

Recently DW got a job that offers a health insurance benefit. It was an easy decision to “splurge” on the PPO because the premium is less than the crummy HDHP we had previously.

I never realized how much of a burden the HDHPs were until we got our new plans. I always encouraged my wife to seek whatever treatment she needed because I realized the treatment was less expensive than a better health insurance plan. However, my mathematical analysis didn’t hold up to the hurt and resentment DW felt every time she got an unexpected bill or a hefty charge for prescription meds. Yes, unexpected bills are the norm with chronic health issues because nobody at the facility knows what anything costs.

Another important benefit to our PPO is that it is more comprehensive than our HDHP was. We can choose among a much broader range of doctors and hospitals. Furthermore, under our HDHP there were several times we paid out of pocket for care and medication that didn’t count towards our deductible.

Thanks to our new health plans, my wife is seeking treatments she has delayed. The chronic health issues still exist, but it is priceless for me that she no longer puts off her medical needs.

To answer your questions:
We switched from HDHP to traditional PPO and it was a great choice.
DW has chronic health issues. She put off care under our HDHP. Now that we have a traditional PPO, she is actively seeking better treatment.
Yes, we paid out of pocket. Unfortunately, we didn’t take advantage our H.S.A. like we should have.
DW’s company offers an incentive to switch to HDHP in the form of deposit into our H.S.A. We are happily foregoing the incentive for the benefits of a traditional PPO.
I don’t know about the ‘employee + one’ question.
Yes, with the HDHP, we avoided medical professionals to our detriment.
I don’t know about FSAs.
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Re: How do you evaluate HDHPs?

Post by grabiner »

I use an HDHP, after working out the numbers. (For me, it is all numbers, because I compared an HDHP and a non-HDHP from the same provider.)

Compare the day-one cost of the HDHP and non-HDHP, what you will pay if you never see the doctor for anything other than a free annual checkup. For the HDHP, this is the premium, less any employer contribution to the HSA, less the tax savings on contributing your own money to the HSA.

Then compare your likely medical expenses. The worst case is usually if you exactly hit the HDHP deductible, as HDHPs tend to provide better coverage than non-HDHPs once you have met the deductible.

Depending on how your employer subsidizes the plan, you may find that the HDHP is close to break-even in the worst case; this happens with the US Government plans, for example. More often, the HDHP will be better if you have high or low medical expenses, but worse if you come close to the deductible.
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