Open Enrollment, Take Three

This year’s open enrollment period is really exciting to me because my birth control will finally be covered. It is a huge portion of my health insurance expenses for the year, so this is a really awesome development. Other than that, the plans my employer is offering look pretty similar to last year’s choices and I’m again deciding between the consumer-driven health plan (CDHP) or high-deductible health plan (HDHP).

Here are the commonalities between the CDHP and HDHP choices:

  • Premiums are $X per month on both (same monthly premium).
  • Employer will pay the first $500 of my deductible.
  • I have zero expected health expenses for the year since I don’t have to pay for my annual physical or my birth control pills.
  • Past the deductible, I pay 10% in-network and 30% out-of-network.
  • There is a deductible and an out-of-pocket maximum on both plans.

And the differences between the two plans:

  • Both the deductible and the out-of-pocket maximum are $1,000 on the CDHP, but $1,500 on the HDHP. (So the total stop-loss for me is $1,500 on the CDHP and $2,500 on the HDHP – $500 is covered by my employer in each case.)
  • With the CDHP, the portion my employer covers of the deductible ($500) rolls over from year-to-year so long as I stay with the company and disapparates into thin air if I leave. On the other hand, with the HDHP, the portion my employer covers of the deductible ($500) is really that money being put into my HSA, which I can keep if I change employers. Since I have zero expected health expenses, the HSA is more attractive in this sense.
  • With the CDHP, I would put some money into a FSA to cover my base level of forecasted expenses for the year, except that is zero. All of those funds and all of the funds my employer will pay to cover their portion of my deductible are available immediately. With the HDHP and the HSA, however, the funds aren’t available until they have actually been contributed. Advantage: HDHP since I can max out the HSA and keep the money when I leave the company and it’s not use it or lose it. This will net me a non-state tax savings of 28% (marginal federal tax rate) + 1.45% (medicare tax) = 29.45% or saving me $809.875 on my taxes by maxing out the HSA.

Total financial bottom line is as follows for the year, including deductible, and coinsurance (ignoring premiums since they’re the same):

  • The CDHP will cost me between $0 and $1,500.
  • The HDHP will cost me between $-500 and $2,500.

The HDHP could cost me more money, but the additional tax savings between it (maxing out the HSA) and the CDHP is $809.875, which is $190.125 short of the difference in out of pocket maximums between the two. The likelihood of hitting the out of pocket maximum on either is reasonably low since that would be either $11,000 or $16,500 in total health expenses for the year.

I’m definitely leaning towards taking the HDHP for this year, maxing out the HSA at $3,250, and then re-evaluating again next year. I would use the HSA funds to pay for medical expenses throughout the year, which would be great as a budgeting tool for that. Who knows, maybe it would make sense to switch back to the CDHP next year if I have a bunch of planned health expenses. And then I can transfer my HSA to a credit union or other institution, earn some interest on it, and use it to pay for expenses. In retrospect, this exact same math on the tax savings existed last year since there is no difference in the two plans from last year, but the fact that I had planned expenses that would get me over the CDHP deductible made me want to go for it instead.

Readers, do you have an HDHP/HSA plan at work? What do you think about it?

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21 thoughts on “Open Enrollment, Take Three

  1. We have a hdhp/hsa, but it is slightly different in that the employer contributes to the hsa. For a small office this was the cheapest healthcare option.

    It works well for us but I really do hate the paperwork. There is a ton, although if I had had this when I was your age I would have thought it was the best thing ever. I never went to the dr and the money in the hsa would have kept growing and growing.

    In your situation, you could try to hsa for a year and see how you like it.

    • My employer does contribute a bit to the HSA ($500/year). What kind of paperwork is there exactly? I’ve had a FSA the last few years and I’ve had paperwork to get money out of there. Is it similar?

      I think I’ll try this for a year and see how it goes. I can afford the stop loss of $2,500 + premiums and I’ll max out the HSA, so I’m sure it’ll be fine even if it doesn’t turn out to be the optimal plan.

    • I see the HSA sort of like how much I’m saving for retirement now. I can stockpile some money in the HSA now, save on income taxes and medicare tax, and then when I have more health expenses, say if I have kids, I don’t have to worry about where the money is coming from since it’ll already be there! I’m not sure how much money I would want to stockpile in here though. I’d like to always have more than the stop-loss in it.

      I’ve gotten kind of used to that with the FSA I can use the money at any time, even before I’ve contributed it all. So this will be a bit of a change since the money only goes in just after my paycheck!

  2. We have HDHP (which I chose again this year for the first time in ~3 years) with HSA. We have an HMO option and a PPO (“traditional”) option.

    I quit my HDHP for an HMO a few years ago largely because of birth control costs made it about a wash compared to other options. This year, I actually somehow totally missed the memo that BC was covered, and was THRILLED when I got my 3 month supply and a bill for $0. The HDHP came out ahead even with the expected cost of ~$50+/mo for BC, so now it is WAY ahead. My employer also contributes some to the HSA, as do I. I do have a monthly perscription for my alergies that runs $30/month, but I don’t pay any premiums and I get an HSA contribution from my employer, so it is a good deal.

    • Don’t be embarrassed about missing the memo on the free birth control – it was not at all obvious on our open enrollment packages! So annoying. Do you like the mail order for your birth control? I’ve been picking it up from the pharmacy because I had huge problems with mail order a couple of years ago and it turned out to be cheaper at a pharmacy!

  3. Yes, i do mail order. It was cheaper to do mail order on my last plan, but only by $5 every 3 months, so pretty negligible. I do it for the convenience. I hate going to the pharmacy.

  4. Leigh, The HDHP has worked out very nicely for me. I workout or exercise 5/6 days a week and eat mostly healthy along with that so I rarely go to the doctor.. maybe once a year outside of my annual physical.

    I love the tax break it provides now and the ability to invest the money with tax free growth…

    Currently I do not even spend money from my HSA for medical expenses when I can use them I am keeping the money invested and letting the market work its magic. I am 70% invested and 30% cash in case I do need it.. but since you can currently take distributions for any prior medical expenses since you have had you HDHP, I will just leave it in there as an easy way to get the tax free growth from it. I can tap into that in the future if I need it or want to get at it that way.

    My HSA is up over 25% and currently is over $11k so I’m well covered when I encourr a medical expense.

    Great move on the HDHP!!! well worth it.

      • My HSA is with Fidelity. I have never been with a company that I could make my own choice so you have to look at the options you would have.

        With Fidelity I get $7 stock trades and minimum mutual fund buy in’s are around $2 to $3k, but once you get in those additional contributions are free. Exp Ratios can vary based on your investments.

        I have been using their Spartan Stock Market index funds both Total Market and International which have ER’s around 0.1% .

        There are also several fee free ETFs but come with the traditional higher expense ratios around 0.6 to 0.9%.

        It really depends on what your options are through your employer but I think in most cases there are good options and investments you just have to sift through all the details to find the best option….

        • That sounds like not a bad setup. I can’t find any documents on what the options are in my HSA, so I guess I’ll find out once I have an online login! Most places require you to keep a minimum of $3k or so in cash to avoid account fees, so I probably won’t do anything interesting with my HSA until that point. I’ll just let it go on autopilot for the rest of the year.

        • yes that is about what I had to do as well the first year to build up some cash reserves first before starting to invest money in my HSA. I hope all goes well with that for you as it has for me.

    • If you contribute through your employer to a HSA, it will be subtracted from your salary on your W-2(unlike 401k contributions). But if you were to contribute on your own to a HSA then you would still have to pay medicare/fica tax, that’s just how it is. That’s why you should always contribute through employer to save on those taxes and then do a rollover at the end of the year.

      • Agreed. In my case though I would only save on Medicare (1.45%) since I’ll surpass the Social Security tax maximum regardless of maxing out my HSA. That’s still a free $40 though, which is kind of like a free month of work lunches! And saving on the federal income tax upfront is pretty nice too.

  5. Leigh, you know I’m a big fan of the HSA so I would say go for that option. And to be honest, this is one of the best HSA plans I have ever seen(mine has a 3,500 deductible/out of pocket maximum). I would contribute the max to your HSA every year(2750-you + 500-employer) and treat it just like a retirement account. This would allow you to save an extra 2750 every year(tax-deferred) which is big for someone making a high salary like you. If you don’t have viable investment options, you can rollover the money at the end of every year(there are ways to do it for free if your bank charges, most don’t) to someone like HSA bank where you can invest in no fee etf’s(only caveat is you must have 5k in savings to avoid all fees).

    With this strategy, even if you never spent all the money in your HSA you can pull it out at 65 just like a traditional IRA. Again, I really love HSA’s haha

    • Wow okay so a $3,000 deductible/out of pocket maximum with a $500 employer HSA contribution isn’t all that bad then :)

      I’ve enrolled! Hopefully it goes okay. My direct deposit is only going down ~$60/month most likely, which isn’t that bad. I was quite sad to learn that I couldn’t put in $3,250, that the employer contribution was eating up $500 of my room, but that’s not so bad I guess because I do get the free $500 with no income taxes.

      If HSA Bank’s savings account interest rates aren’t any better than my employer’s plan, I may just leave all the money in my employer’s plan until I have two years’ worth of contributions since you need $5k to waive the monthly fees and I can’t start investing with $0!

      Except an HSA has no RMDs, right? So it’s better than a Traditional IRA! I think it’ll be great for covering healthcare expenses in early retirement.

    • I don’t want to discuss specific numbers on premiums, but I will say that the HSA and HRA plans have the same premium and the HMO and PPO plans have much higher premiums. I’m pretty sure that my premiums are incredibly cheap.

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