Health Insurance: HMO to CDHP

My first year with my current employer, I chose an HMO plan. It had the highest monthly premiums, but there were fixed co-pays for everything and no percentage coinsurance. Since I had no idea how much things would cost in cash, this seemed like a reasonable option.

I also have access to a PPO plan, which I very quickly ruled to not be worth it since the monthly premiums were negligible in cost difference, but all of the coinsurance amounts were crazy.

My third option is a CDHP (Consumer Directed Health Plan), where my employer pays for the first half of my $1,000 deductible and the monthly premiums are about half of those of the HMO or PPO plans. After the deductible, I pay 10% in coinsurance until I reach the out-of-pocket maximum, which is $1,000. My maximum out-of-pocket cost for the year is $1,500 after the premiums.

After my first plan year, I re-did the math and the HMO plan actually cost me about $412 more over the course of the year than the CDHP would have! ($1,220 for the HMO versus $808 for the CDHP, assuming the same usage.)

I threw a lot of ridiculous situations (me ending up in emergency, getting pregnant and having a complicated pregnancy, plus taking regular brand-name medications) at the math and the CDHP came out ahead no matter what. This is mostly because the monthly premiums on the CDHP are significantly lower (about 35% of the HMO monthly premiums) and there is actually a maximum out-of-pocket cost, which the HMO doesn’t have.

I clearly ended up switching to the CDHP and it has saved me almost $500 so far this year and I’m projecting that it will save me over $600 versus equivalent expenses with the HMO plan.

Throughout the course of that second plan year, I kept a spreadsheet (of course – who do you think I am at this point?) to validate my decision to go with the CDHP over the HMO with the following columns:

  1. Date of service
  2. Reason for service
  3. HMO co-pay
  4. Actual cost of service
  5. (calculated) Portion of the cost covered by my employer’s half of the deductible
  6. (calculated) Portion of the cost I pay towards my half of the deductible
  7. (calculated) Portion of the cost I pay 10% of in coinsurance

I’ve definitely validated my decision to go with the CDHP at this point, but I’m keeping the spreadsheet around. It’s great to be able to forecast my health expenses for the year. So far, my health expenses have been higher than projected each year, but it’s still useful to know how much I expect to spend at a base level.

I’m curious to see if we’ll have a HDHP next year as an option. But then I would have to re-do my spreadsheet to compare that with the CDHP I’m currently on!

Readers, what kind of health insurance plan do you have? How did you choose it?

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9 thoughts on “Health Insurance: HMO to CDHP

  1. I have one of the CDHP. It works pretty well if you are young and mostly healthy.
    I put some money in FSA to help cover any extra cost and that worked out too. I’ve had CDHP for 4-5 years(?) and I’m pretty happy with it.

    • My company’s CDHP is especially great if you are young and mostly healthy because the portion they cover of the deductible rolls forward indefinitely if you don’t use it.

      I definitely use the FSA to cover the out-of-pocket costs that I expect for the year and I have a savings account to cover the rest. I love how you can take money out of the FSA at any point, no matter when the contributions come out of your paycheck – I used up my FSA funds about halfway through the plan year this year.

    • Interesting. My employer’s PPO has come up more expensive for me each year, so I’m glad I went with the HMO and CDHP instead.

  2. We have a high deductible insurance but then the employer puts money into an HSA each year to help cover the deductible. There is a lot of paperwork but it ends up working well.

    If only the health care system were a little easier to navigate. I read things like this post and think to myself, ‘it shouldn’t be this hard!’

    • That’s really great that the employer puts money into the HSA for you each year! My employer covers half of the deductible each year, but that money rolls forward indefinitely if you don’t use it and stay at the company. So if you don’t use it after two years, you would have $1,000 in virtual money, $2,500 after 5 years, etc. The catch is that to “see” the money, you have to have heath costs that add up to at least that amount while you’re still with the company.

      I know! I so wish the health care system didn’t require spreadsheets, but I don’t mind all that much since I <3 spreadsheets, haha. I have some more health insurance topics coming up soon, including talking about my open enrollment choices, I'm sure! :)

  3. We only have one option (an HMO) for our health insurance, but it is wonderful coverage. I think my previous job was a little bit better in the coverage, but this new HMO is good enough for me!

    • I’m glad that you have wonderful coverage! I couldn’t imagine having terrible health insurance and how stressful that would be.

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