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Why do employers promote HSA over PPO?
May 30, 2014 3:16 PM   Subscribe

Why do companies promote HSA as superior to PPO, is there some benefit to them? Barring any extreme medical circumstances, when does HSA make sense over PPO?

Seems as if every company I've interviewed with / worked at have been promoting HSA as a choice health plan for new employees -- for a single late 20 to 30-something male with minor health issues -- how much sense does this make?

(For example: Average of $500 of prescription expenses a year, plus 4 or 5 doc normal visits. Maybe needs some dental work but not urgent, and maybe something fancy like Lasik )

I dont like the idea of having to pay the 2000-3000 deductible out of pocket before getting any of the insurance benefits. I guess theyre assuming that people already know that theyll have AT LEAST that much in medical expenses a year -- but thats not usually the case.
posted by nodebunny to Health & Fitness (26 answers total) 6 users marked this as a favorite
They push it because the premium is cheaper, and you take on the risk in the deductible. Great deal- for them! And maybe for you, if you have the kind of savings that could bear a $2-3k deductible in case of emergency. How much do they pay after the deductible? Is there an out-of-pocket maximum?
posted by ThePinkSuperhero at 3:19 PM on May 30 [3 favorites]

As an example:
$1500-$3000 deductible
$3000-$5000 out-of-pocket maximum
100% after deductible
and Prescript copays after deductible
posted by nodebunny at 3:28 PM on May 30

HDHP (the plan that allows HSAs) premiums are cheaper for employers.

We have an HDHP plan, because it's also cheaper for us and because we are in a high enough income tax bracket that using HSA as additional retirement or emergency medical savings vehicle makes sense.

However, our deductible is only $1.25k/person/year (the federal minimum for an HDHP), so not nearly that high.

Also, your medical and dental care are typically separate. The medical deductible does not *have* to apply to dental care and/or preventative care. Our medical plan allows flu shots and an annual check up, 100% covered. There is a discount on prescriptions, but I don't think they pay it. (You can also buy a prescription only insurance, I believe.) Our dental and vision care cover regular cleaning/checkup/glasses as well. And additional dental/vision work is covered by the dental insurance, so not subject to the deductible either.

For us, who don't take any regular prescriptions and don't have any ongoing health issues, it's really if we have to go to the ER. Then we pay most/all of it out of pocket. We end up paying usually $500/year for random things like glasses (they don't cover that 100%) and maybe the occasional extra doctor's visit/pain med/antibiotic.

I would talk to your HR more about this or read the benefits booklet very very carefully. IANAL. Whether it makes sense for you or not depends on how much you expect to spend each year and what that looks like between different plans. (My employer offers an online calculator for this.)
posted by ethidda at 3:28 PM on May 30 [2 favorites]

In my particular case, my employer charges so much for the PPO and so little for the HSA that even if I were to incur the full deductible of the HSA, I would save a significant amount of money each year. The specifics of the PPO were beneficial to those who either:
  1. Incurred significant medical bills (>$50K/year).
  2. Went to a physician quite often per year (>20 visits).
  3. Had children that resulted in either 1 or 2 occurring with higher likelihood.
Since none of those conditions apply to me, I use the HSA. Several of my coworkers use the PPO because it is beneficial for them. This is a per-individual determination to be made. Even though the HSA will require paying more out of pocket, you should figure out what you expect your medical costs to be to figure out what the best plan is for you, because the total costs (premium + out of pocket expenses) is what matters (not just the out of pocket expenses).
posted by saeculorum at 3:36 PM on May 30 [1 favorite]

We have an HDHP plan, because it's also cheaper for us and because we are in a high enough income tax bracket that using HSA as additional retirement or emergency medical savings vehicle makes sense.

Woah, sorry to piggyback on the OP's question but I'm a freelancer and this seems on the surface to make a lot of sense for me. Do you have any other info on this besides the Forbes article?

OP I always see HSA's promoted to freelancers/self-employed people like me because it keeps your monthly costs much lower and gives you a tax deduction against your adjusted income, which is a big deal if you're itemizing your deductions. I would imagine your employer is promoting it for the same reasons: it costs less to have a large deductible, and I'd imagine if they are making matching contributions or something they're also taking a deduction for it (?).
posted by bradbane at 3:39 PM on May 30

A HDHP (high deductible health plan) + HSA makes sense when you expect to have no or very low medical expenses. $500 in prescriptions and 4 or 5 doctors visits seems high to me for this type of plan — I had such a plan when I had no prescriptions and didn't see a doctor beyond a physical.

A HDHP has the advantage of having lower premiums than a lower-deductible plan. The HSA can be used to pay for major medical expenses (I think even after you don't have the HDHP), and can be used for retirement savings (though you can't contribute to it if you don't have a HDHP).

I don't believe you can get a HDHP after age 30 under ObamaCare without paying a penalty (they're considered “catastrophic” insurance).

A low deductible PPO makes more sense when you have prescriptions and more than one or two doctors visits. My current plan has a fixed copay for doctors visits and for prescriptions. The premiums are higher, but I make up for it because I'm spending less on doctor visits and prescriptions.

If your employer pays the entirety of the premiums, then you probably want to go with the PPO. There are some caveats, of course, like the out-of-pocket maximum might be higher on the PPO (though it seems unlikely).
posted by Renegade Duck at 3:45 PM on May 30

To give a bit more info about HSA's, one fairly esoteric use of HSAs is as a retirement savings vehicle where you withdraw from the HSA when you retire to pay for retirement medical expenses. This is really only useful if you are in a very high income bracket, already max out all other possible tax-advantaged retirement savings vehicles, and plan on having significant retirement medical expenses (otherwise there's no way to use the funds without penalty). However, should that be relevant to the OP, it is one reason to use an HSA over a PPO.
posted by saeculorum at 3:48 PM on May 30 [1 favorite]

The HSA deduction is not part of your itemized deductions, it's separate. Also, if you're a freelancer, you can typically deduct your health insurance premiums separately. See form 1040 (PDF) lines 25 and 29.
posted by Renegade Duck at 3:49 PM on May 30

You can withdraw from the HSA after age 65 for non-medical expenses without the 20% penalty. However, you have to pay tax on the withdrawn money at that time.

That said, I'm not sure HSAs make much sense as a retirement account. First, they're going out of style (catastrophic coverage now isn't for people over 30), and second most HSAs are a terrible deal (monthly fees). I suspect it's more trouble than it's worth.
posted by Renegade Duck at 3:54 PM on May 30

As a neutral party, I would absolutely recommend an HSA plan for a young man with minor medical expenses. It's quite possible that your employers are genuinely offering you what they consider to be their best advice.

HSA contributions are tax deductible, and immediately withdrawable for medical expenses.

That means that putting $3000 into an HSA - even if you withdraw it five minutes later to pay for medical expenses - knocks about $1000 off of your taxes at the end of the year.

And if you don't immediately withdraw it, after a few years, even a $5000 deductible can be covered by it.
posted by Hatashran at 4:21 PM on May 30

I think HDHP + HSA for retirement makes sense for a small subset of people. The tax deduction is "above the line" so you can benefit from it even if you don't itemize. And if you do payroll deduction, you actually don't need to pay the 7.62% payroll taxes on it. And you can withdraw after age 65 even without medical bills. You just pay the income tax, same with a traditional IRA or a traditional 401k. I am not an accountant, but in my mind, there are two ways this makes sense: 1. You anticipate to have a large medical bill sometime down the line, maybe for a serious but dormant disease. 2. You are already maxing out all other retirement vehicles (phased out of t-IRA, maxing out 401k).

I'm not sure why they're going out of style...? The ones with $6k and $10k deductibles might. And certainly each person has to look at his/her plan options and health needs. But again, ours is only $1250/person/year. If we don't need health insurance, it's cheaper for us. If something terrible does happen, and we max it out, it's actually also cheaper, with the max out-of-pocket costs. It is only if we spend $800-$1250/year that we would've saved money with the PPO, not accounting for the benefit of being able to put additional money away for retirement.

As for the high fees, I use HealthEquity, and they do charge fees (I believe as a percentage of amount invested, if you're buying a cheap stock/mutual fund--e.g., Vanguard Index Fund--or from kickback of the fund). But it's not heinous, especially if you're maxing it out every year. They also keep track of all the claims, from the insurance and also you can upload your own receipts. Then you can withdraw any amount and tie it to any "opened" claim at any time. So it's really very convenient.

Again, everybody should do their own evaluation of what works for them. However, I would say that there is definitely a segment of the population that would benefit from using HSA for retirement.
posted by ethidda at 4:25 PM on May 30 [2 favorites]

HSAs work only if you have the spare income to put aside into the savings account. Considering how terrible many employers pay, pushing an HSA is almost an insult.

FWIW, $2-3k isn't exactly a high deductible these days. It's not unusual to see deductibles in the $5-8k range anymore. I'd kill for a $2k deductible.
posted by Thorzdad at 5:19 PM on May 30

That $1500 deductible is $125 a month.

Does the PPO cost you more than $125 extra a month? I'll bet it has a deductible, too. You can sometimes set up a FSA to cover out-of-pocket expenses, but you have to use that up this year (HSA money lasts forever, or until you use it up). It also costs your company way more than the HDHP (which usually will hardly cost them anything).

Lay out a couple of feasible medical expense scenarios, budgeting in the premiums, and see what works best for you. The out-of-pocket costs look much higher, but those premiums that get deducted from your paycheck are coming out of your pocket, too.
posted by Huffy Puffy at 5:22 PM on May 30

HSAs make sense when you are affluent. Like @ethidda and @saeculorum already said upthread, some smart folks in higher US tax brackets are using the HSA as a sort of "Stealth IRA" particularly where they have already maxed out all other tax-advantaged retirement vehicles.
posted by hush at 5:35 PM on May 30

HDHP's don't work for diabetics like me, when (at least as was true in ours) the prescriptions count against the deductible. So basically I would hit the deductible every year. If you have any ongoing situation where that would happen, it's a raw deal. For young healthy single people, it's a pretty good break. Ours at least capped out hospital out of pocket fees at some point, so if you had something catastrophic happen it was still a better deal than the PPO. But in the chronic middle, it bones people.
posted by stevis23 at 6:03 PM on May 30

I currently work in customer service for a large health care company adjusting claims.

First, HSAs are not tax deductible. They are pre-tax which means you don't have to itemize. So even if you take the standard deduction on your taxes you get the benefit.

Second, many employers are paying a portion of those deductibles for members.

Finally, if you don't like the choices your company gives you check out, you might be surprised how much of your premium will be covered by Uncle Sam.

posted by Bonzai at 6:42 PM on May 30 [1 favorite]

So basically I would hit the deductible every year.
This seems counterintuitive. I would think if you hit the deductible that's a good thing - after that you're not paying for 100% of everything anymore. In fact I don't see how a high deductible plan can be a good deal if you're not planning on hitting the deductible.
posted by bleep at 7:06 PM on May 30

In fact I don't see how a high deductible plan can be a good deal if you're not planning on hitting the deductible.

The low deductible plan covers both really serious expenses and smaller expenses. The high deductible plan only covers really serious expenses and is therefore cheaper.

If you don't have small expenses, then the lower price for the high deductible plan leads directly to more cash in your pocket.

If you do have small expenses, then the lower price for the high deductible plan will be offset somewhat by your paying out of pocket for the small expenses.

To evaluate an insurance plan, you have to look at your total costs -- both premiums and out-of-pocket expenses -- as well as your downside risk (you might be willing to incur a higher cost to protect yourself against a really expensive scenario). Minimizing out-of-pocket expenses is not necessarily the right goal since you'll pay more in premiums to accomplish that. OP, your question doesn't refer to the premium differences between your options, so it's hard to say how much sense it makes.
posted by leopard at 8:27 PM on May 30

Wow, the information here doesn't match our situation.

I switched my family from a PPO to a HDHP 3 years ago. The coverage for the HDHP was actually better than that offered by the PPO– except there was a $3000 deductible for our family of four instead of a $300 with the PPO.

Our premiums are nearly $500 per month cheaper with the HDHP.

So for us the math was very simple– ~$6000 premium saving per year minus $2700 extra spending before hitting the deductible= $3200 extra cash each year.Wow.

We put that money straight into an HSA, which has accumulated quickly and now allows me to laugh at the fact my daughter needs orthodontia. It's not covered by insurance, but I have sufficient cash in our HSA to pay it outright. If we'd stuck with the PPO we'd be borrowing from family.
posted by carterk at 9:46 PM on May 30 [3 favorites]

Be very very careful with deductibles. At a company I moved to they did not count any individual medical expense under $150 towards the deductible... Any.

That meant the labs ($125), the specialist ($75), chiropractic care ($50), physical therapy ($50) - none of it qualified towards my deductible.
posted by Nanukthedog at 10:27 PM on May 30

I was really skeptical of the HSA concept when it was first introduced as an option at my last job. I'm now a fan.

It's not like and HSA is entirely out-of-pocket before you hit the deductible; my plan covered or reduced costs for preventative stuff, etc. Really, most of the things that a reasonably young, reasonably healthy person could expect to deal with. It didn't seem that far off from a traditional plan, in that regard (although, obviously, there were some differences in percentages). And, even with a chronic/reoccurring back problem, I think I only went past the deductible limit once in roughly seven years. At which point, any further (reasonable) expenses were automatically covered until the next period started.

Meanwhile, my employer was assisting with the HSA fees, and was automatically depositing a monthly amount (of my choosing) in my HSA account. This meant that I typically had roughly the amount of that deductible on hand, at any time. It also meant that when I left my job, I still had enough in that account to cover several small medical emergencies. I had "insurance" even though I didn't have insurance.

Unless (as others are mentioning) you have major ongoing medical expenses, or children, an HSA could well prove to be a better deal. Think of it this way... If you go with "normal" insurance, you are paying (usually hundreds) of dollars every month, into a system that may or may not pay them out when something goes wrong. It's basically a gamble, and all of the money you pay in is effectively gone; it's a weird situation where if everything goes well, you lose money. In contrast, the bulk of the money paid into an HSA setup remains yours, to use as you see fit, when you see fit.
posted by credible hulk at 10:44 PM on May 30

The other reason they push the HD plans is the theory that if you have more skin in the game you'll be a savvier consumer as a matter of habit, since you don't want to spend too much of your own money, but might be more laissez-faire if you didn't have such an investment. Then you keep everybody's costs down. I don't know if this is borne out long-term though, since I don't know whether people are any good at assessing where to spend their money for maximum health. I can't think why we would be, really.
posted by chesty_a_arthur at 5:09 AM on May 31

> That meant the labs ($125), the specialist ($75), chiropractic care ($50), physical therapy ($50) - none of it qualified towards my deductible.

that's because those are copays.

Here is how you pay out of pocket for insurance.
If you are in your health network.
Copays - A flat fee per visit. Usually these are for office visits (your lab copay is ridiculous) and ER vists but sometimes there will be one for outpatient surgeries and inpatient stays. High Ded plans generally don't have copays until you hit the ded.
Ded - What you think it is.
Co-Insurance - the most confusing. Usually applies to stuff done in hospitals, you pay this after you meet the ded. It's a percentage. 80/20 90/10 etc.

Here is the biggest one EVERYONE should know about. If you go out of your plans network there is something called balance billing.

Let's say the billed rate of your $procedure is $5,0000. The insurance company says this is worth about $2,000 to us. Now let's further says that you are in one of 3 golden professions (teachers, government workers and unions) and your out of network ded is $100 and your out of network coins is 90%. (these are about as good as they get)

You do the math $100 + (4,900 * .10), and decide that $590 is worth it for you to use your favorite doctor because he's the man. The insurance company calculates on the ALLOWED amount. So they do the math this way ((2000 - 100) * .90) = and pay 1,750.

Your doctor wants his $5,000 and bills you for $3,250.

When it's major surgery multiply by 10-25.

tl;dr stay in your network
posted by Bonzai at 2:59 PM on May 31

Hi, it's me OP.

I cant figure out how to add comments to this thing =(

--There were some other caveats that I forgot to mention -- something about the HSA accounts not rolling over the next year, or if you quit then you would lose whatever is in the HSA (in cases where the company contributes I think).

If you have a bunch of money stored in there why in the world would you want to risk losing it if you change jobs or get laid off??

I read some answers here about using the HSA accounts as a rainy day health fund or stealth IRA -- but I dont see how thats going to work here.

This stuff is way too complicated, wish it was clear and easy.

If you have regular expenses (prescriptions for example) and you end up having to pay the full cost, then the HSA doesnt really make that much sense.

Consider your prescription may cost like $40 when covered, but $300 without insurance. If you have to pay $300 x 10 that's $3000 (HSA). Not so Nice...

But if you only pay $40 x 10 thats only $400 (PPO)...

So here PPO seems the obvious answer. Someone correct me if I'm wrong.
posted by nodebunny at 4:26 PM on June 5

With PPO, it might be $400 + whatever your premium being taken out of your paycheck is.
With high deductible, if there's also an out of pocket maximum, that's $300 each until you hit your deductible and then a certain percentage until you hit your out of pocket max, then they cover 100%. That's how my plan works. They're making a bet that you're not going to spend that much. You're making a bet that you are.

Also note the difference between flexible spending account and health savings account. Similar but not the same thing. It sounds like you're describing an FSA, not an HSA.
posted by bleep at 5:22 PM on June 5

Just saw your reply...

I don't know what your HSA is like, but my HSA is definitely *my* account. It rolls over every year. Both my contributions and the employer contributions in it are my money. I do not lose them if I stop working for my employer, for any reason.

There are other accounts, such as FSA accounts, which do not roll over year over year. They usually have different restrictions than an HSA. I don't know much about them since I only contribute to one if I plan to use them that year.

For your prescriptions, you need to figure out if your HDHP covers it. (Mine does, even before the deductible.) If it does not, then in your scenario, yes, you are paying an additional $2600/year on your prescription. That's $100/biweekly paycheck or $220/month in additional cost. Is the difference between HDHP and PPO more or less than that? (Again, that's not factoring the benefit of HSA tax-flexibility.)

There is no one-size-fits-all answer, and unless you give someone your actual spending and the actual benefits package, nobody can give you a definitive answer on the right choice. I would encourage you to speak to HR or whoever manages the benefits at your work.
posted by ethidda at 3:19 PM on June 17

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