high deductible vs. PPO calculation--high deductible always wins?

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28fe6
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high deductible vs. PPO calculation--high deductible always wins?

Post by 28fe6 » Sat Nov 03, 2018 8:06 am

This happens to me multiple times. I calculate cost of my company's HSA/HDHP option and the PPO option, and I conclude the HDHP option is better. I did this even when I knew I was going to have a baby that year. Others at my company don't agree with me, and think I'm crazy for going with the high-deductible plan when I know I might have some health expenses. Am I calculating correctly?

We are generally healthy but this year I anticipate some minor outpatient specialist expenses. So I thought it would be a good year to get the PPO plan, but once again it seems like I can't lose with the high-deductible plan.

HDHP yearly premiums: $2600 (plus $1000 contribution to HSA, so really $1600)
PPO yearly premiums: $4100

HDHP family, in-network deductible: $5000
PPO family, in-network deductible: $2000

HDHP family, in-network out-of-pocket max: $10,000
PPO family, in-network out-of-pocket max: $10,000

HDHP annual cost if I never go to the doctor: $1600 (including $1000 HSA seed money. Actually $760 if I count the 12% tax on $7000 HSA max)
PPO annual cost if I never go to the doctor: $4100

That's $2400 more for the PPO, in the best-case scenario. Now what if I have catastrophic health problems? Well the OOP max is the same for both plans. So if I'm perfectly healthy, I save $2400 with the HDHP. If I have catastrophic expenses, there is no difference. How can there be any middle case where PPO is actually better? I suppose if you spend between $2400 and 10,000, PPO could be cheaper?

quantAndHold
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by quantAndHold » Sat Nov 03, 2018 8:22 am

The difference is in the middle. You will hit that $10k out of pocket max much more quickly with the HDHP. Most people are somewhere in that middle ground. If you have the PPO, you’ll only hit the out of pocket max if you have major medical issues. With the HDHP, a normally healthy person with a small number of minor issues will hit the max pretty easily. The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.

Basically, if you’re very sick or very healthy, you’re clearly better off with the HDHP. If you’re somewhere in between, it’s not so obvious.

fulltilt
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by fulltilt » Sat Nov 03, 2018 8:24 am

28fe6 wrote:
Sat Nov 03, 2018 8:06 am
This happens to me multiple times. I calculate cost of my company's HSA/HDHP option and the PPO option, and I conclude the HDHP option is better. I did this even when I knew I was going to have a baby that year. Others at my company don't agree with me, and think I'm crazy for going with the high-deductible plan when I know I might have some health expenses. Am I calculating correctly?

We are generally healthy but this year I anticipate some minor outpatient specialist expenses. So I thought it would be a good year to get the PPO plan, but once again it seems like I can't lose with the high-deductible plan.

HDHP yearly premiums: $2600 (plus $1000 contribution to HSA, so really $1600)
PPO yearly premiums: $4100

HDHP family, in-network deductible: $5000
PPO family, in-network deductible: $2000

HDHP family, in-network out-of-pocket max: $10,000
PPO family, in-network out-of-pocket max: $10,000

HDHP annual cost if I never go to the doctor: $1600 (including $1000 HSA seed money. Actually $760 if I count the 12% tax on $7000 HSA max)
PPO annual cost if I never go to the doctor: $4100

That's $2400 more for the PPO, in the best-case scenario. Now what if I have catastrophic health problems? Well the OOP max is the same for both plans. So if I'm perfectly healthy, I save $2400 with the HDHP. If I have catastrophic expenses, there is no difference. How can there be any middle case where PPO is actually better? I suppose if you spend between $2400 and 10,000, PPO could be cheaper?
What are the coninsurance amounts like?
The most likely scenario isn’t that you will hit the max or never to to the doctor. If you have kids, count on a lot of office visits.

Are the network of doctors the same?

Those premiums seem really low to me. Is it possible the employer is paying more of the premium to get people to switch?

SlowMovingInvestor
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by SlowMovingInvestor » Sat Nov 03, 2018 8:28 am

28fe6 wrote:
Sat Nov 03, 2018 8:06 am

HDHP yearly premiums: $2600 (plus $1000 contribution to HSA, so really $1600)
PPO yearly premiums: $4100

HDHP family, in-network deductible: $5000
PPO family, in-network deductible: $2000

HDHP family, in-network out-of-pocket max: $10,000
PPO family, in-network out-of-pocket max: $10,000

HDHP annual cost if I never go to the doctor: $1600 (including $1000 HSA seed money. Actually $760 if I count the 12% tax on $7000 HSA max)
PPO annual cost if I never go to the doctor: $4100

That's $2400 more for the PPO, in the best-case scenario. Now what if I have catastrophic health problems? Well the OOP max is the same for both plans. So if I'm perfectly healthy, I save $2400 with the HDHP. If I have catastrophic expenses, there is no difference. How can there be any middle case where PPO is actually better? I suppose if you spend between $2400 and 10,000, PPO could be cheaper?
One thing to remember -- doctor visits are typically billed at co-pay for PPO plans ($35-$50). HDHP plans bill the insurance cost of a visit (could be $150+, more for specialists). So if you have a number of doctor visits, but without specific 'procedures', the HDHP cost runs up quickly.

The way to avoid that is to bundle up minor health issues, and save them for your annual physical if you can -- that way, they should be free.

In general HDHP plans are better in most circumstances -- but you should be prepared for some frustration if you try and get provider costs so you can compare them !

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ClevrChico
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by ClevrChico » Sat Nov 03, 2018 8:32 am

SlowMovingInvestor wrote:
Sat Nov 03, 2018 8:28 am


The way to avoid that is to bundle up minor health issues, and save them for your annual physical if you can -- that way, they should be free.
Unfortunately, if a problem is found with the annual preventative physical, that gets it's own code and billable item. If you have an HDHP, you're paying for that part in my experience.

HDHP still pretty much wins every time. Even with the birth of a child, the HDHP was better financially for us.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by jharkin » Sat Nov 03, 2018 8:36 am

quantAndHold wrote:
Sat Nov 03, 2018 8:22 am
The difference is in the middle. You will hit that $10k out of pocket max much more quickly with the HDHP. Most people are somewhere in that middle ground. If you have the PPO, you’ll only hit the out of pocket max if you have major medical issues. With the HDHP, a normally healthy person with a small number of minor issues will hit the max pretty easily. The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.

Basically, if you’re very sick or very healthy, you’re clearly better off with the HDHP. If you’re somewhere in between, it’s not so obvious.
Not necessarily true across the board, you have to look at the specific number of the plans in question.

The plans my employer offers have in network OOP max of
* 2,000/4,000 for the PPO
*3,000/ 6,000 for the HDHP

In my case Ive run the numbers and with pretty much any conceivable level of care used (from nothing, to middle range, to catastrophic) the HDHP comes out ahead.

Granted my plans are VERY heavily subsidized by my employer to make this work... Not everybody will be in the situation, but still, you have to do the calculations.

dcabler
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by dcabler » Sat Nov 03, 2018 8:41 am

Just did the same calculation for my family. In our case, the choice is between two HDHP's, one with a higher deductible but the company pays 100% of the premiums, and one with the minimum deductible allowed to still be HDHP, but for which we would pay a small-ish premium. Their own examples show what I concluded: Unless it's really a catastrophic year for us, the no-premium option wins. And in the case of a catastrophic year, because of the max-out-of-pocket, but premium option only won by a smidge....

Traveler
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Traveler » Sat Nov 03, 2018 10:08 am

There are a few instances where the PPO might make more sense, but in general, I prefer to have lower premiums which are sunk costs and don't calculate into out of pocket maximums

28fe6
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by 28fe6 » Sat Nov 03, 2018 12:01 pm

I didn't know that premiums didn't count towards OOP max... I've thankfully never got close to my OOP max. I will re-do the calculations. This does make the PPO look even worse...

I suppose advocates of the PPO might accuse me of only looking at the bottom line and not taking into account what I got for my money. You could say that PPO might "always be more expensive", but if you need care, you actually get more care per marginal dollar. Maybe. It's so complicated!

Another consideration is I have an HSA with a balance. I can use the HSA funds for copays, even in a year where I have a PPO plan, fully realizing the tax deferral benefit of the HSA funds. I understand the argument for saving HSA funds, but I have all other tax-advantaged accounts maxed so using HSA funds doesn't cost me any increased taxes but only costs some small benefit of potential tax-free growth.

CRC301
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by CRC301 » Sat Nov 03, 2018 2:15 pm

SlowMovingInvestor wrote:
Sat Nov 03, 2018 8:28 am
...
The way to avoid that is to bundle up minor health issues, and save them for your annual physical if you can -- that way, they should be free.

...
^^^^ Most of the providers I know aren't a big fan of this. If you do want to do this let them know ahead of time so they can allot more time for the visit. Also some insurance plans only allow so many procedures/codes per visit so you may end up having to come back in for another appointment anyways.

---------
As for which insurance plan to choose; we always found that the HDHP plan was always net cheaper when we were just Employee+Spouse. This was true at all medical costs up to OOP maxes for each plan (OOP Max + Premiums was always lower for the HDHP plan). It baffled me at first but I spoke with some co-workers and they told me I forgot to account for the different prescription drug coverage between the plans. For the HDHP plan, prescriptions drugs are paid for at the negotiated rate and they count towards the deductible. On the non-HDHP plans the prescription drug coverage was separate from medical and was co-pay based. If a family had expensive prescription drugs, then the non-HDHP ended up being significantly cheaper in a lot of cases. Also, the out-of-network coverage was a bit more generous in the non-HDHP plans if I recall.

crazygrow
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by crazygrow » Sat Nov 03, 2018 2:27 pm

Remember that companies negotiate rates with insurance carriers. My company always lands in the area that you are seeing (HDHP almost always better) somewhat on purpose. THey want people on those plans and seeing the costs and working to reduce them...

furwut
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by furwut » Sat Nov 03, 2018 3:36 pm

quantAndHold wrote:
Sat Nov 03, 2018 8:22 am

Basically, if you’re very sick or very healthy, you’re clearly better off with the HDHP. If you’re somewhere in between, it’s not so obvious.
I agree with this. Let your previous years medical costs be your guide. In general, I think there are 2 types of people who should strongly consider the PPO options:

1) Those who do not have the savings to cover the HDHP deductible and
2) Those who have predictable ongoing chronic costs that squarely put them in the middle.

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Watty
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Watty » Sat Nov 03, 2018 3:48 pm

28fe6 wrote:
Sat Nov 03, 2018 12:01 pm
I didn't know that premiums didn't count towards OOP max...
They usually don't at least with the plans I have been in.

A few things to also check on;

1) Is the network of doctors the same? If not then one plan could be better than the other which could explain part of the cost difference.

2) Do the plans have a seperate out of pocket maximum for prescription drugs.

3) Consider how the out of pocket maximum and deductible might be calculated at the end of the year. For example if you are hurt in a car accident in December then you could have a lot of costs in both December of the following year. You should be prepared to pay the out of pocket maximum twice in this type of situation.

DarkHelmetII
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by DarkHelmetII » Sat Nov 03, 2018 4:26 pm

I have calculated several different scenarios and find that HDHP often wins, particularly when considering HSA tax benefit. Usually where it's possible to lose is a relatively narrow "window" of moderate medical care consumption over a year. If perfectly healthy, no brainer that HDHP wins. If catastrophic event, often times the Max OOP and / or Deductible isn't that much higher ... and you save a ton on the premiums. Obviously varies case by-case and I have not provided specific examples of my "research", but this is what I have generally found.

Another point on terminology .... PPO really refers to the type of network. So a High Deductible plan often will still have the exact same PPO network as the non-High Deductible option (at least for several employers I have had over the years) ... what is different is the financial arrangement, and it's just that Human Resources decides to call the non-high deductible plan as "PPO" and the high deductible plan as "High Deductible."

SlowMovingInvestor
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by SlowMovingInvestor » Mon Nov 05, 2018 9:09 am

CRC301 wrote:
Sat Nov 03, 2018 2:15 pm
SlowMovingInvestor wrote:
Sat Nov 03, 2018 8:28 am
...
The way to avoid that is to bundle up minor health issues, and save them for your annual physical if you can -- that way, they should be free.
^^^^ Most of the providers I know aren't a big fan of this. If you do want to do this let them know ahead of time so they can allot more time for the visit. Also some insurance plans only allow so many procedures/codes per visit so you may end up having to come back in for another appointment anyways.
In my case, the provider always blocks out a long meeting for an annual physical, and so far hasn't charged for anything other than an annual physical (which is covered). It probably helps that most other issues I bring up at physicals are non-serious chronic issues like back pain. which likely don't require a lot of extra time for exam. Any follow up, would of course, be charged.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by texasdiver » Mon Nov 05, 2018 12:32 pm

My numbers are way different than yours for our choice between a HDHP plan and our normal no-deductible plan. My wife works for Kaiser and both plan choices are from Kaiser so the numbers are a lot different. But the conclusions are essentially the same. There is no level of spending for us in which the no-deductible non-HDHP plan comes out superior.

Another factor in the math you didn't consider that further tilts the field towards the HDHP plan.

In our case the no-deductible 'high" plan contained co-pays for all office visits that outside of the one free annual preventative care visit guaranteed by the ACA. I think it is $25 for routine office visits and $35 co-pay for most specialty office visits and procedures. The HDHP plan doesn't contain co-pays because you are paying for everything up to the deductible and then nothing after you reach the deductible.

So if you are doing a fair apples to apples comparision between the two plans you have to add in all the co-pays to the PPO side of the equation which don't exist on the HDHP side. If your family has 10 office visits in a year then that would be $200-300 extra spending in co-pays in my plan.

DarkHelmetII
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by DarkHelmetII » Mon Nov 05, 2018 9:17 pm

Some other anecdotal data points favoring HSA / HDHP:

1) I once had an employer plan where co-pay (on non-HDHP) was $40 for a specialist. I have been to some specialists (e.g. dermatologist) where I paid around $100 out-of-pocket whereas $40 would have been a pretty steep percentage of that amount if I had to pay a co-pay.

2) I have found some larger institutions (e.g. big hospital) accept "quick-pay" discounts. For example had $1,000 balance to the hospital ... called them up, asked them if they had a discount, was informed they offer a 20% "quick-pay" discount for paying over the phone. So I pay the $800, but the beauty is that $1,000 goes toward the deductible because the insurance carrier never knows what I actually paid the provider!

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by MikeG62 » Tue Nov 06, 2018 9:01 am

28fe6 wrote:
Sat Nov 03, 2018 8:06 am
This happens to me multiple times. I calculate cost of my company's HSA/HDHP option and the PPO option, and I conclude the HDHP option is better. I did this even when I knew I was going to have a baby that year. Others at my company don't agree with me, and think I'm crazy for going with the high-deductible plan when I know I might have some health expenses. Am I calculating correctly?
DW and I are early retired. I choose the HSA/HDHP this year while she choose the silver level traditional plan. Cost difference for me is $1,800 lower premium. However, aside from annual physical I pay pretty much all medical expenses until I hit my annual deductible. Since I have been generally healthy this works out for me. However, this year I needed a bunch of tests and pretty quickly chewed up the $1,800 savings in OOP expenses.

I will be due for another colonoscopy in the next 18 months. I priced the cost of that under my Bronze HSA level plan and the silver plan. Would cost me $1,750 more for the test. So in a year where I am planning to have that done (probably will hold out till 2020) I will switch back to the Silver level traditional plan - simply because I will come out ahead if I need any other medical treatment that year.

This year thought I almost needed a Lithotripsy and the cost differently for that test was over $2,000.

I think someone else said it. If you are "in the middle" (meaning you need some care, but not enough to hit your OOP maximum) then the traditional plan might make more sense. If you need little care than the HSA/HDHP makes more sense. If way over the OOP maximum, probably makes little difference. At least, this is how I see it with the plan options I have in NJ with BCBS.
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gclancer
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by gclancer » Tue Nov 06, 2018 9:11 am

quantAndHold wrote:
Sat Nov 03, 2018 8:22 am
The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.
+1 Actuaries work for the insurance company and don’t take into account incentives the federal government may offer to individuals to opt for a HDHP with HSA over a PPO. If someone will contribute the maximum amount permitted to an HSA (and would save the same amount if enrolled in a PPO anyhow) then the HDHP typically becomes the clear winner.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by texasdiver » Tue Nov 06, 2018 10:06 am

gclancer wrote:
Tue Nov 06, 2018 9:11 am
quantAndHold wrote:
Sat Nov 03, 2018 8:22 am
The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.
+1 Actuaries work for the insurance company and don’t take into account incentives the federal government may offer to individuals to opt for a HDHP with HSA over a PPO. If someone will contribute the maximum amount permitted to an HSA (and would save the same amount if enrolled in a PPO anyhow) then the HDHP typically becomes the clear winner.
It also depends on the provider. Kaiser, for example, is an HMO so both insurance company and provider. They benefit when a maximum number of people sign up for insurance and a minimum number show up at the clinic. Their profits are highest when they can maximize the number of patients per doctor and clinic. To the extent that HDHP plans discourage frequent flyers and reduce usage their profits are going to go up because they can increase their patient panels without hiring more doctors or expanding/building more clinics.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by random_walker_77 » Tue Nov 06, 2018 12:58 pm

At my company, HDHP almost always wins. One corner case where a PPO might be better is if you might be changing jobs (and hence insurance) mid-year. If you've paid into the HDHP deductible and are about to get benefits, but then switch jobs, then you're back to square one.

The worst case is if you have a massive medical expense in January, pay a lot, and then stop working (which could be correlated to the major medical issue) so then you're looking at either large COBRA payments or ACA insurance. Actually, Watty's case is even worse -- a hospitalization at the end of Dec into January that maxes out your deductible in year 0, and year 1, and then maybe you're unable to work and so will need to change insurance or pay hefty COBRA payments.

Admiral
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Admiral » Tue Nov 06, 2018 1:10 pm

Get an HMO. We pay $1,000/year for four people. Well visits are free. Specialists are $40 co-pay, which I then get back pre-tax from my flex plan. No office visit is required to get a referral.

28fe6
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by 28fe6 » Thu Nov 08, 2018 8:43 am

If I get a non-HDHP plan, I will be eligible for an FSA. I have never had an FSA before.

My experience is that switching companies with an HSA can be a good thing since any company seed money is generally frontloaded, so switching companies means you may be able to double-dip seed money from both companies. And naturally, HSA funds are portable between companies and there is no risk of losing funds by switching jobs.

However with an FSA I don't know how switching companies works. To my knowledge, FSA benefits are available immediately, but your FSA contributions come out of the paychecks gradually over the year. So what if you leave your company in January, and haven't spent any FSA funds? What if you spend the full FSA amount, and then leave in January while the FSA is still "in the red"? Are FSAs portable between companies?

I would consider it low-risk to throw at least a couple hundred into an FSA to cover copay and such, but not if there is a risk of losing it.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by sjt » Thu Nov 08, 2018 8:56 am

I think you have it covered. Could probably make a spreadsheet and graph to help visualize it. There's some range where the PPO is better:

For example with expenses of $5000:

HDHP: $1600 premium + $5000 deductible: $6600 paid
PPO: $4100 premium +$2000 deductible (what's missing here is the co-insurance once you hit deductible on the remaining $3000 - is it 80/20, 70/30 etc) = $6100 + unknown amount paid.


Don't forget the benefits of the HSA with a high deductible plan. Tax free on the way in and tax free out if used for medical expenses.
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abugarcias
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by abugarcias » Thu Nov 08, 2018 10:15 am

Here is a calculator/graph to compare multiple health plans both PPO and HDHP. I used to it determine which plan was best for me. Like you, I found that the HDHP wins all around with no care, mild to moderate care, or catastrophe.

http://health-plan-compare.com/

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Super Hans » Thu Nov 08, 2018 10:20 am

I know I'm coming across as an HDHP evangelist on several threads, but my analysis is that the HDHP always wins--at least with my employer's scheme (US Government FEHB). Here are my 2019 numbers:

GEHA HDHP: $146 x 26 = 3796 p.a.; $3000 deductible - $1800 pass-through HSA contribution = $1200 ded.
BC/BS Basic: $177 x 26 = 4602 p.a., $0 deductible, $30/40 copay to see doctors, $100 copay for expensive imaging &c.
Each as a $10k out-of-pocket maximum

There are dozens of options, but I compare BC/BS Basic, because I think it's the most commonly chosen. The premium is $806/year higher. If I pay out the $3k deductible with the HDHP, factoring in the lower premium and the HSA contribution, I'm $394 behind with the HDHP. I'm not factoring in any of the copays with Blue Cross. And beyond the deductible, the HDHP coinsurance is only 5%, so it becomes better for really bad years.

Of course, the real gravy is in the tax deduction, because I max out my HSA contribution through payroll deduction. But there's another bonus: the HDHP includes preventive dental for my family. This would cost about $900/year otherwise. So even if I were to contribute nothing to the HSA, my analysis is that the HDHP always wins no matter my loss experience.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by carolynb2 » Thu Nov 08, 2018 10:59 am

As others have said you need to consider your family's personal level of expense and the specifics of the plan (for example with my plan the co-pays do count towards the out of pocket max and apparently for many posters they do not).

Also don't forget the tax law changes with respect to whether or not you will be able to consider tax benefits beyond the HDHP contributions.

Of course what you choose is a gamble since we can't always predict the future with respect to health nor even with other factors such as layoffs and thus having to pay for this via COBRA. If I were you I'd run the numbers under COBRA premium expenses as well if there is even a remote chance of a layoff.

Like you I ran different choice options and expense guesses in a spreadsheet and found that depending on my assumptions about the future different plans "won" when accounting for all costs (premiums and deductibles/out of pockets, drugs and their own deductible, doctor visits/tests, etc.). For me the high deductible plan did not always win.

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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by texasdiver » Thu Nov 08, 2018 1:10 pm

28fe6 wrote:
Thu Nov 08, 2018 8:43 am
If I get a non-HDHP plan, I will be eligible for an FSA. I have never had an FSA before.

My experience is that switching companies with an HSA can be a good thing since any company seed money is generally frontloaded, so switching companies means you may be able to double-dip seed money from both companies. And naturally, HSA funds are portable between companies and there is no risk of losing funds by switching jobs.

However with an FSA I don't know how switching companies works. To my knowledge, FSA benefits are available immediately, but your FSA contributions come out of the paychecks gradually over the year. So what if you leave your company in January, and haven't spent any FSA funds? What if you spend the full FSA amount, and then leave in January while the FSA is still "in the red"? Are FSAs portable between companies?

I would consider it low-risk to throw at least a couple hundred into an FSA to cover copay and such, but not if there is a risk of losing it.
This is actually not uncommon. People max out their FSA withdrawal in January. I think the 2018 max is $2650? and then walk away from the job before they have paid much into the account. Once you leave your job your employer could ask you to pay the funds back. How diligently they pursue you for the balance probably depends on the employer. NOTE: This only works for medical FSAs. Dependent care FSA accounts can't be spent in advance that way. Or at least my previous employer didn't allow it.

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Artsdoctor
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Artsdoctor » Thu Nov 08, 2018 1:32 pm

28fe6 wrote:
Sat Nov 03, 2018 8:06 am
This happens to me multiple times. I calculate cost of my company's HSA/HDHP option and the PPO option, and I conclude the HDHP option is better. I did this even when I knew I was going to have a baby that year. Others at my company don't agree with me, and think I'm crazy for going with the high-deductible plan when I know I might have some health expenses. Am I calculating correctly?

We are generally healthy but this year I anticipate some minor outpatient specialist expenses. So I thought it would be a good year to get the PPO plan, but once again it seems like I can't lose with the high-deductible plan.

HDHP yearly premiums: $2600 (plus $1000 contribution to HSA, so really $1600)
PPO yearly premiums: $4100

HDHP family, in-network deductible: $5000
PPO family, in-network deductible: $2000

HDHP family, in-network out-of-pocket max: $10,000
PPO family, in-network out-of-pocket max: $10,000

HDHP annual cost if I never go to the doctor: $1600 (including $1000 HSA seed money. Actually $760 if I count the 12% tax on $7000 HSA max)
PPO annual cost if I never go to the doctor: $4100

That's $2400 more for the PPO, in the best-case scenario. Now what if I have catastrophic health problems? Well the OOP max is the same for both plans. So if I'm perfectly healthy, I save $2400 with the HDHP. If I have catastrophic expenses, there is no difference. How can there be any middle case where PPO is actually better? I suppose if you spend between $2400 and 10,000, PPO could be cheaper?
Just clarify:

Your premiums are deducted from your paycheck directly? Usually, those premiums come off the top and you're not going to be paying federal, state, or payroll taxes.

Conversely, unless you really have a lot of medical expenses, you won't be able to itemize your medical expenses.

You describe $1,000 for HSA. Is that contributed by your employer? Can you supplement with your own money?

Make sure that when you're doing these calculations, you're calculating the cost to your after factoring in the tax ramifications.

Mike14
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Mike14 » Sat Nov 10, 2018 1:56 am

quantAndHold wrote:
Sat Nov 03, 2018 8:22 am
The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.
Unless you are talking about non-profits, health insurance companies are in the business of maximizing profits for shareholders. Considering how many people think high deductible plans are a bad deal, one would expect insurance companies to have higher profit margins on non-high deducible plans.

Many people are bad at budgeting, so it's easier to pay up front in the form of higher premiums in exchange for lower unexpected costs later, even if they are paying a hefty penny for it.

Maxing out HSA contributions is often where the HDHP advantage comes from.

HIinvestor
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by HIinvestor » Sat Nov 10, 2018 4:40 am

We have never used a HDHP. I don’t believe employer would have contributed too HSA. Mostly, we have not had insurance with deductibles and our OOPmax per person and family were lower.

Looks like you’ve carefully crunched your numbers and made choices that are working well for you and your family.

Our state is heavily dominated by one insurer. We have always had our PPO with that insurer and mostly been quite satisfied. I have never heard of them offering any HDHP.

furwut
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by furwut » Sun Nov 11, 2018 12:00 pm

One consideration that I don’t think has been mentioned is the incentive that HDHP gives to not consume medical services. Sometimes that may turn out to be ‘penny wise but pound foolish’.

Notsobad
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Notsobad » Sun Nov 11, 2018 12:21 pm

One consideration that I don’t think has been mentioned is the incentive that HDHP gives to not consume medical services. Sometimes that may turn out to be ‘penny wise but pound foolish

~~~~~~~~~~~~~~~

Sorry couldn’t figure out how to quote.

There is some suggestion that higher out of pocket lead some to avoid some necessary visits and services, potentially increasing the risk of complications, and this would be a bigger problem is the out of pocket portion was not able to be budgeted for.

That being said, keep in mind that the PPO is not always much cheaper than paying the full bill, since PPO plans still require a copay. When we first started on an HSA plan, we noticed the full insurance negotiated rate for doctor visits was not a whole lot more than the copay, and same for prescriptions. (Sometime cash price was cheaper than the copay). So we clearly came out ahead in out of pocket costs, when accounting for the reduced premiums. Plus we have been able to fill up the HSA for years now as a tax advantaged retirement savings vehicle.

Tdubs
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by Tdubs » Sun Nov 11, 2018 12:31 pm

For my GEHA HDHP government plan (which is in a PPO), the only way that a standard plan wins is if I fall off a ladder. Accident ER coverage is clearly better in the standard plan where its coverage doesn't apply to the deductible. Everything else is better under the HDHP HSA option, doctor visits, drugs, hospital stays, etc. And my family of four makes regular use of our health plan.

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grabiner
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by grabiner » Sun Nov 11, 2018 12:57 pm

gclancer wrote:
Tue Nov 06, 2018 9:11 am
quantAndHold wrote:
Sat Nov 03, 2018 8:22 am
The actuaries who do the math aren’t stupid. The prices are based on the insurance company’s actual risk.
+1 Actuaries work for the insurance company and don’t take into account incentives the federal government may offer to individuals to opt for a HDHP with HSA over a PPO. If someone will contribute the maximum amount permitted to an HSA (and would save the same amount if enrolled in a PPO anyhow) then the HDHP typically becomes the clear winner.
In particular, the way the US government sets up its subsidies, the HDHP comes out ahead in all situations. The government pays 75% of the cost for most plans. If your plan contributes $1800 to your HSA, that's $1800 of premium, but the government pays $1350 so it only costs you $450. Then you can contribute another $5200 to the HSA for a tax deduction of about $1600, depending on your tax bracket. So you get $3400 before you use the plan at all; if the plan deductible is $3000, you come out ahead even if you use the whole deductible and would have paid nothing under the conventional plan.
Wiki David Grabiner

sco
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Re: high deductible vs. PPO calculation--high deductible always wins?

Post by sco » Mon Nov 12, 2018 12:55 am

If you happen to be at a company that yearly deposits money into your HSA, make sure to account for this. It effectively reduces your total possible out of pocket/deductible....

Or better yet, is available for later years.

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