During 0pen enrollment I wanted to crunch some numbers to see how the switch played out over the first year, if it saved me money, and if I should continue or switch back to the comfortable plan.
To be fair, everyone’s personal circumstances (health, plans, prescriptions, family size) will vary, but I thought there might be value in me laying out how the move played out for me because I know a lot of young and relatively healthy folks are interested in this topic, and many have fear of moving from a PPO or HMO to a HDHP.
In a good year (one with few medical expenses), as I’ll highlight, it can pay off to make the move. Yes, shit happens, and if you do encounter a major medical procedure or service, that would obviously dramatically alter the numbers. Still, there are deductible and out of pocket maximums that are meant to help protect you when health issues arise (and eventually, they always do).
Here is the HDHP vs. PPO costs breakdown…
Premium costs are deducted automatically from your paycheck, and you cannot use an HSA to pay for them. HDHP’s are generally cheaper than PPO or HMO plans, so most employer’s will charge you less for opting for them. That is what happened in my case:
- PPO: $1,518 (out of pocket)
- HDHP: $936 (out of pocket)
You cannot make HSA contributions, unless you are on an HDHP plan. This was one of the big reasons why I decided to switch. 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, I consider an HSA to be a huge bonus for anyone who entertains ideas of self-employment or retirement.
Due to my employer’s generous $1,600 contribution, plus an HDHP bonus incentive of $200 for each of us for going in for an annual physical, we received a total HSA contribution of $2,000 to pay for costs that I’ll highlight.
As mentioned previously, 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.
- PPO: +$0
- HDHP: +$2,000
With my previous PPO, co-pays were just $10, regardless of generic or branded. 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.
However, if your employer contributes to an HSA with your HDHP, then you can actually save money out of pocket. This played out for us this past year.
I also signed up for a prescription delivery service through my health insurer’s pharmacy that cut the costs, while also saving me monthly trips to a local pharmacy.
- PPO: $240 (out of pocket)
- HDHP: -$423.72 + $423.72 (HSA Contribution) = $0 (out of pocket)
Note: with women’s preventative coverage now including birth control generics via the Affordable Care Act, I expect prescription costs to decline to $169 next year, saving us $254 of HSA funds.
Costs for Services/Procedures/Products:
Over both years, we did not have many services or procedures, outside of an annual physical (covered 100% under both plans), flu shots (covered 100%), and blood work resulting from the physical. I did end up with a little issue where my health insurer would not pay the bill. By complaining, I saved $476 in overcharges and learned my CPT code lesson in the process. Still, I was left with $119 to pay, and my wife’s bill was $16.
I also had one urgent care visit and an associated prescription – total of $132.
The only other expense was my wife’s optician visit for a contact lens exam and order, for a cost of $216. In the past, this expense would have been out of pocket, but once again the HSA swoops in to the rescue.
- PPO: $216 (out of pocket)
- HDHP: -$483 + $483 (HSA Contribution) = $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: $1,974
- HDHP: $936
So, I ended up saving $1,038 out of pocket. That number is boosted to $2,132 when you factor in leftover HSA contributions of $1,094 (which I can roll over to next year and apply to future medical expenses). And I hope to do the same next year. That’s a good start on the path to health insurance nirvana! So I’m sticking with the HDHP for the foreseeable future.
HDHP vs. PPO Discussion:
- Have you made the switch from a PPO to an HDHP? How have you found the move?
- Have you stuck with a PPO vs. an HDHP? Why?
- Have you run similar calculations and what were the results?
- Choosing the Best HSA Account
- Should you Front-Load HSA Contributions?
- How to Contribute to an HSA Outside of an Employer’s Payroll Deduction
- Maximum HSA Contribution Limits