At what point are the benefits of an HSA outweighed by medical costs?

Submitted by bgr2258 t3_yigtqh in personalfinance

The general advice I've seen is "if you have very little medical costs, take the HSA and max it out." I also imagine that if your medical costs are high enough that you meet the deductible without trouble, then it might still be worth it. (Though I only have my own HSA offerings to judge by, which covers pretty much everything after that point)

But what if you're expecting to spend very near the deductible, and pay out of pocket? Is that maybe the worst case scenario?

I imagine it comes down to specifics, so here are some of mine:

With HSA:
Contribution limit: $3850/year
HSA premium: $-125.38/mo or ~$-1500/yr (company contributes back into HSA)
I contribute: $2350/year
HSA deductible: $6350
HSA OOP max: $6350
HSA expected medication costs: $4000 ish
HSA expected specialist visit costs: $2300 ish (hooray therapy!)

Versus a PPO:
PPO Premium: $0 (covered by company)
PPO deductible: $2000
PPO OOP max: $5000 (i can't help reading that as POOP MAX)
PPO expected medication costs: $600ish
PPO expected office visit costs: $700ish (hooray cheaper therapy!)

​

I guess I'm just confused at how to balance the triple tax advantage / investment potential of an HSA vs. paying $5000 extra out of pocket for a year vs. the 401k?

Edited to add more detailed numbers

2

Comments

You must log in or register to comment.

DeluxeXL t1_iuikz5s wrote

Can you list the actual premiums, deductibles, OOP max, specific PPO coverage for the types of services needed, etc. for both plans?

Remember that with HSA, every medical expense is "tax deductible" because you can always save up in HSA and distribute it back tax-free, whereas with non-HDHP, expenses are only deductible when itemized.

8

bgr2258 OP t1_iuinm2y wrote

I'm not sure if I know the "actual premiums" involved. The information I have only tells me what my own cost will be. The PPO is the company basic plan, which costs me $0. The HSA is cheaper, which means the company contributes $125.38/month back into the HSA.

Here's some more details, which I'll add back to the post:

HSA premium: $-125.38/mo (company contributes back into HSA)
HSA deductible: $6350
HSA OOP max: $6350
HSA expected medication costs: $4000 ish
HSA expected specialist visit costs: $2300 ish (hooray therapy!)
PPO Premium: $0 (covered by company)
PPO deductible: $2000
PPO OOP max: $5000 (i can't help reading that as POOP MAX)
PPO expected medication costs: $600ish
PPO expected office visit costs: $700ish (hooray cheaper therapy!)

2

DeluxeXL t1_iuipz8z wrote

Looks like non-HDHP PPO is better for you because the out of pocket costs are lower, even if they are not tax deductible.

p.s. Your HDHP is a "new style", where deductible = OOP max. Many years ago, HDHP deductible used to be at only the legal minimum. At some point, insurance companies increased it to the OOP max, making a HDHP basically a catastrophic insurance.

4

wilsonhammer t1_iuiqzec wrote

> p.s. Your HDHP is a "new style", where deductible = OOP max. Many years ago, HDHP deductible used to be at only the legal minimum. At some point, insurance companies increased it to the OOP max, making a HDHP basically a catastrophic insurance.

oh shit! I didn't catch that reviewing OPs post. one more reason for me to hate health insurance.

3

TheVermonster t1_iujabyd wrote

My HDHP has $4k individual deductible, $6k family deductible, and the OOP Max is only individual at $12k.

2

yeah87 t1_iujs0k9 wrote

The legal OOP max for 2022 is $8,700.

2

yeah87 t1_iujrrjy wrote

There's quite a bit of room between the legal minimum and the OOP max. My deductible has been right in the middle for the past 10 years of HDHP.

2

AllTheyEatIsLettuce t1_iuj9if7 wrote

> I'm not sure if I know the "actual premiums" involved.

The average amount an employer pays toward the "cost" of any employer-dependent health coverage product premium is 73% of the sticker price.

If $125.38 is being subtracted from your pay to pay the insurance seller for the product "H" premium, now you kinda know what the "cost" is: 125.38/.27=464.37.

3

kylejack t1_iuimo9i wrote

It's a donut, basically. If you have very little health stuff, best to go HDHP and not pay the high premiums, since visits will be rare.

If you have major health expenses where you know you are likely to be admitted to a hospital (pregnancy, a dangerous chronic condition, major surgery), you may as well go HDHP, since you know you're going to max out, and benefit from lower premiums.

It's that middle area where PPO usually makes sense. You need regular doctor visits to manage your care, but it's just followup or checkup care, and you want to pay a small co-pay for these visits, knowing you're not likely to eat a big hospital bill.

8

bgr2258 OP t1_iuiotfo wrote

That's what I was suspecting. I'm pretty firmly in the middle area, feeling all of the "high deductible" part without the "oh finally the insurance company is actually helping"

2

kylejack t1_iuiqp5e wrote

On our pregnancy year, we racked up something like $80K and the insurance company had to eat all but $8K of it. Another time, one of us had an urgent major surgery on January 6th and shattered the OOP Max. That was a fun year, because it was free healthcare for the rest of the year. We were getting everything checked out! That's the year I got on allergy immunotherapy, which was a big gamechanger.

7

alexm2816 t1_iuim7fg wrote

You don't include actual deductible information or out of pocket max on the PPO or HSA.

You're obviously dealing with employer subsidy which makes the 'rules of thumb' scale totally out of whack and you can't compare without knowing the premiums, deductibles, OOPM, network difference, and co-pays to estimate yoru personal costs.

2

wilsonhammer t1_iuiq9ye wrote

the biggest marginal benefit of the HSA over extra dollars into your 401k is avoiding FICA taxes on it (7.5%). if you fully max out your HSA for the year, that's $288.75.

Dump the HSA and put the difference into your 401k and be glad you have a kickass PPO option with excellent meds/therapy coverage. (I'm in a similar boat myself where my company funds $0 into my HSA and the difference in premiums is only $200/year)

2

alexm2816 t1_iuisa19 wrote

The psychology around getting a $500 bill every time a kid needs an x-ray vs a modest co-pay (even when at the end of the year it boils down to a similar 'out of pocket') is real. I definitely was more gung ho on seeing the PT, getting a dermatologist consult, getting in to urgent care, and otherwise being pro-active on health things because while the cost of the 2 plans OOPM might be similar with a PPO plan I had no incentive to not go while my HDHP took money out of my investments / pocket while I held money in an HSA for 'later'.

Maybe others don't struggle with that hurdle but I would much prefer a quality PPO even if I don't 'need' it.

3

AgentMonkey t1_iujo8y6 wrote

One great way to get over that hurdle is to actually compare your costs on each plan. I've done it every year for the past 7 years, and there has not been a single time where the cheapest, highest deductible plans wasn't the best financial option: https://imgur.com/a/GL0z8h1

I should note that, while I do invest some of my HSA money, I'm not as enamored with the long-term investing as many are. I use the HSA for all current medical expenses, and only what I don't need gets invested for the long term.

4

wilsonhammer t1_iujwffk wrote

OP has done that. They've already found that the PPO is ~$5k cheaper per year and now they're just trying to square that result with the fact that (for everyone else) the hdhp+HSA is the cheaper option by far AND lets you invest.

But their situation is the exception to the rule because they actually have good coverage at a cheap cost.

1

AgentMonkey t1_iuk2c8c wrote

Yeah, I was just replying specifically to the comment I replied to and their struggle with the mental hurdle of paying more directly to the provider. I was just sharing what has helped me psychologically get over that hurdle and see the larger picture and how it is actually saving money.

For the OP, yes, the PPO absolutely makes more sense, mainly because the employer is fully covering the premiums. That's also why I don't really like the "standard" advice for HDHP/HSAs, since the specifics of the plans and expenses are really what determines if its worthwhile or not. I don't really think there's a good one-size-fits-all (or one-size-fits-most) rule for HSAs.

3

wilsonhammer t1_iuix2e3 wrote

It creates a perverse incentive to actively not seek care. It's one of the major reasons I'm switching back to a PPO instead of my HSA.

3

BezniaAtWork t1_iuincpf wrote

Main numbers to look at are your out-of-pocket maximums. Your employer contributes $1,500 so in the most worst case of scenarios for a given year, you are out $4,850. With the PPO, generally the OOP max is lower, but this can vary and sometimes the PPO is never the better option if the employer subsidizes the HDHP enough and it has a low enough OOP max.

For the sake of pretending we'll pretend the OOP max of your PPO is $1,500. If you have an illness, condition, or disability which will require you to be spending a lot of money on PT, medication, and surgeries, the PPO is of course the better option. If you have some $120/mo prescriptions which would be covered 100% under the PPO but you'd have to pay for under the HDHP, the HDHP comes out ahead. You get the employer contribution plus the tax benefits of the HSA.

If you're someone like me with no regular medical expenses (I have not had a hospital visit since I was 14 and I'm about 30 now) and my normal "expenses" are a $10 bottle of Ibuprofen or Acetaminophen every other year, my HSA is massively better for me.

1