So back in open enrollment time for me early this year, I had a few health insurance plans to choose from: an HMO (an in-network only plan), a PPO (a combined network plan with a low deductible), an HRA (medium deductible and employer covers half of it), and an HDHP (high deductible plan with an HSA, which employer contributes some to).
Most of my friends have gone with the HDHP or HRA plans because “they’re healthy and only ever go to the doctor for a physical (if that)”. Seriously, the only guys I know who have ever used their health insurance had major sports injuries. What is it with twenty something guys and not using their health insurance??
Well, I seem to always end up with some reason to use my health insurance:
- ~$1,445 total: Minor issue ($335 two doctor’s visits, two prescriptions), talk therapy ($870 referral visit and then visits with therapist), and birth control ($240)
- ~$2,445 total: Birth control ($1,000), doctor’s visits ($365), talk therapy ($650), tests from annual check-up ($430)
- ~$1,965 total: Birth control ($1,365), doctor’s visits and tests ($200), talk therapy ($400)
- ~$3,525 total: Birth control (free!), talk therapy ($175), minor issue ($150 doctor’s visit and prescription), injury in September (total ~$3,200: $65 urgent care and x-rays while traveling, $160 my home doctor and tests, $290 specialist and tests, $1,200 specialist again and more tests, $80 specialist again, $1,400 estimate for physical therapy)
Note: these are the costs before my deductible / coinsurance / out of pocket maximum / co-pays kicked in. I didn’t actually pay anywhere near these amounts!
I thought this year was going to have no costs and it turned into my most expensive year yet for medical costs! And it’s not even over yet! I still have another 4 months to go. All of the times I’ve gone to the doctor were completely legitimate reasons to go. Do guys just not have reasons to go to the doctor? I don’t get that. Life happens.
In all of these years, the HDHP would have been the cheapest. Why? Because I’m only going to put as much money into a FSA as I know I’m going to spend since it’s use-it-or-lose-it. So in the past, I assumed I was paying for birth control and that was it and put enough into my FSA (Flexible Spending Account) to cover that, but I’ve almost always gone over and then paid for those costs with post-tax money. With the HDHP, however, I decided to contribute the maximum to the Health Savings Account. I’ve been using the account to pay for my out of pocket health costs, which has been amazing. None of the costs this year were expected. I’ve been withdrawing money out of the HSA like no tomorrow, but now that I’ve hit the deductible, that is definitely slowing down. I will most likely still have some money left in the HSA, which will leave a buffer for next year. My plan with the HSA was always to withdraw money to cover the expenses that I do incur and let the rest accumulate. I just hadn’t anticipated this amount of expenses! I may consider investing it once I have accumulated two full years of my out of pocket maximum ($6,000) as a buffer.
Why is the HDHP so much cheaper than the others? There are multiple reasons that make this plan so attractive:
- The difference in premiums between the HRA plan and the HMO plan is about equal to my portion of the deductible.
- After I hit the deductible with the HRA plan or the HDHP, I pay 10% of the cost of everything until I hit my out of pocket maximum. The HMO plan has no out of pocket maximum. You just keep paying.
- From all of the data that I’ve seen, 10% is almost always cheaper than the co-pay. The specialists I’ve seen so far have ranged in cost from $80 to $205. 10% of that range is $8 to $20. My co-pay with the HMO plan for seeing a specialist is more than $20. Seeing my doctor costs me about $145 or $14.50 if I’m only paying 10%, but the co-pay with the HMO plan is more than $15.
- With the HRA plan and the HDHP, prescription costs count towards both your deductible and your out of pocket maximum. This was really great when I had the expensive birth control prescription. (Prescriptions have co-pays that can add up forever with the HMO and PPO plans.)
- The premiums are the same on the HRA plan and the HDHP, but the HDHP gives me access to a HSA with great investment options.
When all is said and done, my after tax cost for health costs this plan year should come out to just under $600. (My premiums are incredibly cheap, but I’m also in a somewhat high tax bracket*.) The HMO plan would have cost me just over double that figure. So despite having over $3,500 in medical costs for the year, my HDHP wins out. I’m now wishing I’d picked the HDHP last year as well because it would have been cheaper and then I would now have more money in an HSA. Ah well, I now know!
Note: The math on your particular plans may be different, but I do encourage you to at least investigate! So many people are scared of the high deductible plans, but they can sometimes be cheaper, even with a ton of health costs. I actually am less scared of my health costs since my high deductible plan has an out of pocket maximum and the no/low deductible plans don’t.
* I am so close to the 33% tax bracket that I can (almost) taste it! It’s kind of cool to realize how close I am, but not actually be there since then I’m still “only” paying 28% as my marginal tax rate.