Friday, May 31, 2013

Choosing Between a High Deductible Health Plan and a Traditional PPO

My sister called last night and asked me to help her evaluate her health plan choices. She was trying to decide between a traditional PPO offered by her employer and a high deductible health plan (HDHP aka CDHP) with an health savings account (HSA) offered by her husband's employer. I asked her some questions to help her hone in on some of the plan features that might differentiate her choices. This is what we talked about:
  1. What are the monthly premiums for each plan?
  2. How much money will the employer contribute to the HSA with the high deductible health plan and when will the contributions will be made (e.g., at the beginning of the year, quarterly, monthly)?
  3. What is the deductible under each plan?
  4. What is the difference in co-pay levels once the deductible is met? 
  5. What is the annual out-of-pocket maximum under each plan? (If you reach this limit, the plan pays 100% of covered expenses for the rest of the plan year, so this is your maximum exposure.)
  6. What networks of providers do the plans use? Is one stronger than the other?
  7. Do both plans have an in and out-of-network benefit?
  8. What are the copays on prescription drugs?
They've actually been covered under the high deductible health plan since the first of the year. She said the $4,000 family deductible scared her at first, but that it had actually worked out ok. All their well visits were covered in full and they had incurred about $1,000 in expenses that were applied to the deductible for a couple of maintenance medications and when my niece broke her thumb. They were able to cover these expenses with money they had contributed to the HSA. 

I shared a few things with her that she didn't realize about the HSA. The money in the HSA is theirs and can be used for any qualified medical expenses. All their contributions were made pre-tax. For 2013, the maximum contribution is $6,450 since they have family coverage. It is $3,250 for single coverage. (This will rise to $3,300 for individuals and $6,550 in 2014.) In addition to what you would expect, the money in a HSA can be used to pay for long-term care insurance premiums, COBRA premiums, medicare and other health care coverage. So, they could deliberately save up money in their HSA to cover medical expenses when they retire. They own the money in the HSA and they should be able to invest it much like they do a 401k. Again, it's their money and completely portable. 

We put together this chart to compare her choices. As you can see, the high deductible plan is the most cost effective choice given the assumptions we made. 

I was struck by how many items that would have differentiated the choices in the past have been taken off the table since the passage of the Accountable Care Act. All plans now cover preventive care and birth control at 100% (these services are not subject to a deductible.) In 2014, there will be no limits on essential health benefits. All plans cover dependents through age 25.

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