PPO vs. HDHP Costs & Savings (Year 2 After the Switch to an HDHP)
This post may be a tad bit before end of year, but now that open enrollment is finally here after being delayed, I wanted to give anyone who is considering multiple health insurance plans something to chew before it is too late to make changes.
The cost savings of the HDHP that I calculated at the end of year one determined the move to be a resounding success.
After factoring in premiums, prescriptions, service costs, and +$2,000 in HSA employer contributions – I ended up saving $1,038 out of pocket. That number is boosted to $2,132 if you factor in the leftover HSA contributions of $1,094 (which roll over to subsequent years and can be put towards future medical expenses).
Since I can take that money with me, and $1,094 in HSA savings (income) > $936 in premiums paid (expenses), I actually made money on health insurance last year!
Meanwhile, I want to bank as much tax-free savings as I can for future likely health expenses, so I topped off my employer’s contribution to reach the maximum 2013 HSA contribution per family of $6,450 (the 2014 maximum HSA contribution is $6,550).
What did year #2 bring in terms of HDHP vs. PPO costs? Could I be so lucky as to actually make money on health insurance two years in a row (and at what point is it no longer luck and just smart strategy)? Lets take a look at the numbers…
My HDHP premium costs stayed the same at $936 for the year for my wife and I. Meanwhile, the premiums from the PPO I was formerly enrolled in also stayed the same as well:
- PPO: $1,518
- HDHP: $936
These are the pre-tax deductions from payroll (actual out of pocket is technically less if you factor in tax savings – but going for simplicity here).
You can only make an HSA contribution if you are enrolled in a HDHP plan. This was one of the big reasons why I decided to switch.
You own your HSA (your employer does not own that account). So when you leave an employer, you can take that HSA with you and use it to pay for medical expenses, regardless of whatever new plan you switch to. For this reason, HSA’s are amazing for anyone who desires to be self-employed or retire early.
Once again, due to my employer’s generous $1,600 contribution, plus a HDHP bonus incentive of $200 for each of us for going in for an annual preventative visit, in addition to my own contributions of $4,450, we notched a total HSA contribution of $6,450 for the year.
I’ll leave my personal contribution out of the highlighted costs/savings, since it was optional and not from my employer.
- PPO: $0
- HDHP: +$2,000
Remember, if you are employed, you cannot use your HSA to pay your health plan premiums, but you can use it on just about any other medical expense.
With my previous PPO, co-pays were just $10, regardless of generic or brand. In both 2011 and 2012, my wife and I each had one prescription. Most PPO’s cover a higher percentage of prescription costs than HDHP’s.
There was a big change with the Affordable Care Act that saved us some money. Certain free women’s preventative coverages kicked in under the ACA, including free birth control. This saved us $254 over the course of the year.
I previously had signed up for a prescription delivery service for the one prescription that I had. However, 4 months in to the year, I no longer needed it and I saved additional funds here.
- PPO: $30 (out of pocket)
- HDHP: $54.07 – $54.07 (HSA contribution outlay) = $0 (out of pocket)
Costs for Services/Procedures/Products:
We did not have many services or procedures, outside of an annual physical (covered 100% under both plans) and flu shots (covered 100%).
I had one urgent care visit and one tiny procedure for a total of $347.36 (both paid for by my HSA).
I bought eyeglasses online for a cost of $37.80 (paid for by my HSA). My wife visited an optician for a contact lens exam and order, for a cost of $216. Normally, this expense would have been out of pocket, but once again the HSA swoops in to the rescue.
- PPO: $274.20 (out of pocket)
- HDHP: $601.56 – $601.56 (HSA contribution outlay) = $0 (out of pocket)
Total Out of Pocket & Final Results
After factoring in the cost of the plan and HSA contributions, modeled (PPO) and actual (HDHP) total out of pocket costs for the year were:
- PPO: $1,822.20 out of pocket
- HDHP: $936 + $655.63 – ($655.63 HSA contribution outlays) = $936 out of pocket
I saved $886.20 out of pocket with the HDHP vs. the PPO. A bit less than last year because prescription co-pays on the PPO would have dropped, but still $886.20 in out of pocket savings.
Also, if you consider that I netted +$1,344.37 in HSA payments compared to $936 in outlays, the result is a +$408.37 (vs. +$158 last year). In other words, I made money on health insurance once again, and this time even more!
Everyone’s personal circumstances (health, plans, prescriptions, family size) will vary, of course. This is merely one illustrative example and I had relatively good health, but bad luck can happen to anyone. You’d be best served to crunch the numbers for your personal or family’s situation and take in to account your own health needs.
HDHP Cost Savings Discussion:
- Have you made the switch from a PPO to an HDHP? Did you realize cost savings or a loss? How much?
- Have you stayed with a PPO vs. an HDHP? Why?