HDHP: Deductible Hit.

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. ~$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. ~$2,445 total: Birth control ($1,000), doctor’s visits ($365), talk therapy ($650), tests from annual check-up ($430)
  3. ~$1,965 total: Birth control ($1,365), doctor’s visits and tests ($200), talk therapy ($400)
  4. ~$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:

  1. The difference in premiums between the HRA plan and the HMO plan is about equal to my portion of the deductible.
  2. 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.
  3. 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.
  4. 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.)
  5. 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.

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?

This is Why I Have Emergency Reserves

My emergency reserves situation currently looks like this:

  1. Auto insurance deductible: $1,016
  2. Health insurance deductible: ~$920
  3. Renter’s insurance deductible: $508
  4. Job loss fund/general reserves: $21,600 or 6 months expenses at $3,600 per month (expected new level), with the first $7,200 or 2 months expenses at my credit union

I’m not completely convinced that this qualifies as an emergency, but I was definitely worried that my finances were going to contract with moving to a new apartment. I ended up paying more than normal in rent for the month of February (overlapping rent between the two apartments) and I also had to pay an application fee and shell out a refundable deposit.

This is exactly why I have emergency reserves. I didn’t think I would need to use more than $5,000 out of my emergency reserves, but I actually ended up using under $2,000.

On top of that, I’m having some out-of-network insurance costs which were unexpected to begin with, but also higher than “normal” since I pay a slightly higher rate on out-of-network charges. Thankfully, I have an out-of-pocket maximum which I will hit before using up all of the reserves for my health insurance deductible.

I’m going to use my reserves for my health insurance deductible to cover all of my out-of-pocket health expenses for the rest of the year. That way, I’m not worrying about my cash flow contracting due to the additional expenses and instead, I’m taking care of my health.

I’ve been using my reserves for the health insurance deductible to cover my out-of-pocket health expenses this month and I will continue to do so for the rest of the plan year (through the end of March).

The new plan year starts soon, at which point my deductible would be fully reset, with new funds available from my employer to cover it and fresh funds in my FSA. Since my FSA and my employer’s funds cover my deductible and a little bit more, I should have a few months before I need the funds out of my health insurance deductible reserves, if at all. I’ll set aside some savings starting with my April paycheck to help refill the reserves.

I am so glad that I specifically set aside money for my health insurance deductible, in addition to 6 months of expenses at my previous level of spending ($3,000 per month). That definitely helped my sanity and financial anxiety at this point with all of the other (e.g. moving) stress going on this month.

This is actually the first time I’ve had to dip into my emergency reserves since I started my job a few years ago, which is a really good feeling. Now I’m realizing exactly why you keep them in cash and somewhat easily accessible. I’ve also been using my emergency reserves for the various moving expenses.

Readers, when is the last time that you used your emergency reserves?

We finally have a HSA/HDHP!

My employer is finally offering us a high-deductible health insurance plan (HDHP) with a health savings account (HSA) this year. I am strangely excited about this! Now let’s figure out if this makes sense or not.

I’ve definitely ruled out the HMO and the PPO – they are way more expensive than the consumer-driven health plan (CDHP) or HDHP and the premiums just keep going up every year…

I’m still not completely convinced that my birth control pills will actually be free come August 1st, so I’ll do the math both ways.

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.
  • Projected total costs for the plan year (not including premiums and before any deductibles or coinsurance amounts kick in) are between $1,000 and $2,300 (higher end assumes paying for birth control pills past August 1st and lower end assumes that stops then, plus taking some other projections off).
  • 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.
  • With the CDHP, I would put some money into a FSA to cover my base level of forecasted expenses for the year. 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.

Total financial bottom line is as follows for the year, including premiums, deductible, and coinsurance:

  • The CDHP will cost me between $790 and $870.
  • The HDHP will cost me between $1,000 and $1,300.
  • The HDHP will cost me between $210 and $430 more for the year over the CDHP.

Wow! I hadn’t expected the cost difference to be quite that high, but I suppose that is because I am projecting my total costs to be close to or above the deductible, which is $500 higher with the HDHP while the monthly premiums remain the same. With the above numbers, it looks like my best bet is to stick with the CDHP for another year and re-evaluate if the math makes more sense to switch to the HDHP next year.

Since I plan on using my employer’s full $500 contribution if I go with the CDHP, the benefit of them contributing to a HSA on my behalf is null and void. And since I don’t plan on leaving my company within the next year, I think that the CDHP/FSA route is better for me than putting a bunch of money into an HSA. Though the HSA could be cool since I could stock it up this year and then whatever I don’t use rolls over and I wouldn’t have to put as much money into it the following year (versus ending up way underestimating my FSA contributions), but I don’t think that’s worth the extra $500 on the deductible and $500 increased out-of-pocket maximum level.

Readers, does the CDHP choice look like a no-brainer again for me?

Birth Control is Expensive

Money is a taboo subject, but so is sex and birth control. Why do people seem to think that it’s okay to ask you when you plan on having children, but they shy up when asked about their sex lives or how they are preventing themselves from getting pregnant? That boggles my mind.

My college health insurance plan was great – it covered birth control with zero out-of-pocket cost to the point that I didn’t even know how much it cost out in the Real World. I was pretty shocked to find out the sticker cost after the supply I got from my school finally ran out.

The particular pill that my doctor prescribed me back at school was now a $35 co-pay on my HMO plan or sort of at-negotiated-cost on my CDHP.

My health insurance plan has also partnered with a mail-order pharmacy. This allowed me to buy 3 months worth of birth control pills at a cost of only two months’ co-pays ($35*2 = $70 instead of $35*3=$105). This seemed great, but the mail-order pharmacy was a huge hassle and I had to pay $3 for shipping, so the real savings was only $32 instead of $35. Despite the major hassles, that wasn’t so bad of a deal while I was on the HMO plan. At this point (early 2011), the negotiated cost of my pills was about $240 for a 3 month supply from the mail-order pharmacy.

After only one retrieval of my pills while on the HMO plan, I continued to use the mail-order pharmacy for the pills after the switch to the CDHP. The first set with the CDHP was covered by my employer’s half of the deductible and I paid out-of-pocket for the second and third sets, while the “negotiated” prices were slowly rising.

The fourth set was where this became fun, as it required a renewal. The mail-order pharmacy did not handle the renewal well AT ALL. Finally after several phone calls with both the health insurance company, the doctor’s office, and the mail-order pharmacy (I think I counted about 14!), I had the brilliant idea to call the closest pharmacy to my office. At this point, the negotiated cost from the mail-order pharmacy was $260 for a 3-month supply. The local pharmacy could only give me one month’s supply at a time, but its cash cost was actually about $1/month cheaper than the mail-order pharmacy’s cost for a 3-month supply including $3 for shipping. I was prepared to pay an extra $5/month to not have to deal with the hassle of the mail-order pharmacy, so I was pretty happy to find out that I would save some money by switching to a local pharmacy. It’s a little bit out of my way, but it’s under a 30 minute walk from my office, which is pretty easy to do.

The next few months until my plan year is up are nice – since I’ve already reached my deductible, I only have to pay $9/month for birth control. I’m even more looking forward to August when Obama’s legislation to require health insurance companies to not charge a co-pay, co-insurance, or a deductible for birth control – then I won’t pay anything for it out-of-pocket at all.

Readers, have you had problems with how expensive birth control is or getting it from your insurance/pharmacy?

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?

Why I Love My FSA

Some of my coworkers think that I’m crazy to use a Flexible Spending Account (FSA), but I think it’s awesome. Some people complain about the “use it or lose it” feature, but I think that they’re just not planning well enough.

At the beginning of the plan year, I write down all of my anticipated medical expenses for the year with a description and the amount before the health insurance does its work:

  • each prescription that I plan to fill
  • each doctor’s visit that I plan on
  • each specialist’s visit that I plan on

I put this into my spreadsheet which tells me how much of these amounts will come out of my employer’s contribution, how much I have to pay cash for (my part of the deductible), and how much I will pay coinsurance on (10% of all amounts once I’ve reached the deductible). Then I ask my employer to put the sum of the last two amounts into my FSA for the year.

This means that each paycheck I pay the following amounts:

  • health insurance premium
  • dental insurance premium
  • FSA contribution

But, I can use the FSA funds at any point in the year, no matter if I haven’t put them all in yet or not. I’ve now used up my entire FSA contribution for the year, even though I have 6 more months of contributions to go.

I calculated that I will spend about $54.86 more out of pocket now that I’ve exhausted my FSA contributions, which I’ve added to my budget for the next 6 months.

In my opinion, the FSA is a great way to budget/plan for health insurance costs beyond your monthly premiums because you can use the funds at any point in your plan year, even if you haven’t contributed all of the funds yet. I only put about $500 in it this year, so I’m not seeing a huge tax break, but it certainly makes my health insurance costs more convenient. If you’re putting in larger amounts, the tax break would probably be much higher. I don’t even calculate what it is – it’s useful to me for other reasons.