Is a Heathcare Savings Account (HSA) the way to go?

[RDamien]

I'm trying to get a grasp on exactly what this entails now that my megacorp is doing open enrollment. My basic question is: do people here take advantage of this? We're in good health but I'm concerned about bring "safe" and fearing change when it comes to health insurance, you know?

The specifics:

Married with 1 child (1 year old)

Company contributes $1000.00 for the family.

Fully portable, tax free, earns interest, rolls over if not used.

Deductible would be 2500 in network, 9.900 out of network

Annual out of pocket maximum 5000 in network, 20,000 out of network

The other breakdowns are in line with the typical PPO choices, i.e. 15% coinsurance for Office Visits, Hospitalization, prescription drugs etc.

So it seems as though I dont have anything taken out of my paycheck unless I want to contribute to this HSA. I pay the full bills on any medical expenses up to my deductible (2,500.00 in network, 9,900 out of network), then after that I only pay the coinsurance (i.e. 15% of drugs, hospital etc). And the most I'll pay is 5,000 in network 20,000 out.

Is this right? What do I need to be determining to see if it's a good choice?

And really now that I think it out, my deductible is effectively 1,500/8,900 because my company gives me 1k per year.

Finally the costs:

"Core PPO" 2,200 per year - standard PPO
"Gold PPO" 5,500 per year - low deductible, low max out of pocket, low copay
"HDSP/HSA" 560 per year - as detailed above.

 

[ziggy29]

How much do you typically spend on prescriptions in a year? Do you have any non-network providers you want to continue to see? What's the deductible for the "core PPO"? Just a quick glance at the numbers suggests to me that the HSA/HDHP would be the best choice.

I was faced with this a year and a half ago and the HSA/HDHP turned out to be a more-or-less no brainer option for 2008, and for 2009 it's even more so.

In our case, the regular PPO option had an $800 family deductible compared to the $2500 family deductible of the HDHP. Plus, Megacorp contributed $1000 a year to our HSA (same as you) -- AND the HDHP/HSA option was about $1300 cheaper out of pocket. So the $1300 + $1000 = $2300 is a savings with the HSA option right off the bat, and the difference in deductible is only $1700 with the HSA compared to the PPO. So even in the worst case (burning the whole deductible) the HSA is cheaper if the lower premiums and company HSA match are included. I think my Megacorp is gold-plating the value of the HSA compared to the other services to encourage its use, because in our situation it really was a no-brainer to take it. Over the last 15 months, we've managed to amass about $6600 in our HSA as of now -- that's more than a year and a half of our out-of-pocket maximums ($4000 per year). And most of our expenses are my wife's prescriptions, about $70 per month.

But if you use out of network services, that might be tougher (though the question would be, is the network the same with the HDHP and the PPO?

 

[kaneohe]

Will you be able to utilize the HSA feature to the max? You won't be able to find too many plans that allow you to basically deduct the contribution (even if you don't itemize), have tax-free growth, and have no tax when you withdraw for qualified medical expenses. I was only eligible for 9 months but wish I could have yrs more of eligibility.
Too lazy to look up the max contribution but I think it's something like 5K+ annually for a family.

 

[RDamien]

Thanks ziggy. Yeah the deductible on the core is 750. So I'm looking at something very similar to yours. 1000 contribution is a given. I pay ~1640 less for the plan (2200-560).

Yes that's the question, how much out of network. Difference there is huge: 1000.00 deductible for the PPO, 9,900.00 for the HSA. Well 8900 I guess because they give me 1000.00. Same for the out of pocket max: 6,000.00 for PPO and 20,000.00 for HSA.

So we'd really have to make sure any big expenses were in network.

 

[ziggy29]

Too lazy to look up the max contribution but I think it's something like 5K+ annually for a family.

For 2009 it's $3,000 for an individual plan and $5,950 for a family plan.

I have it on autopilot such that I put in $200 with each pay period (twice a month). That's $4800 plus the $1000 for the company contribution plus the extra $150 they contributed for filling out the health questionnaire on the Aetna website. Total: $5,950.

 

[FIRE'd@51]

So it seems as though I dont have anything taken out of my paycheck unless I want to contribute to this HSA.

I would put as much as allowed into the HSA to supplement the $1000 your employer puts in. It comes right off your AGI (like a 401k). Furthermore, you can use it to pay for other allowed healthcare expenses that your plan may not cover, like dental and eyeglasses. If you end up not needing to withdraw all the money, it can build into a very nice "medical nest egg" over time.

 

[ziggy29]

I would put as much as allowed into the HSA to supplement the $1000 your employer puts in. It comes right off your AGI (like a 401k).

Yep. Every $400 a month I put in through payroll deductions saves me $100 in federal income taxes.

By the way -- UNLIKE 401K contributions, if you contribute to the HSA directly from your paycheck as part of a "Section 125 cafeteria plan," the amount you contribute is NOT subject to FICA or Medicare taxes. So for me in the 25% federal tax bracket, every $1000 I put in saves $326.50 in taxes -- $250 in federal income tax, $62 in FICA and $14.50 in Medicare taxes..

So if you contributed directly by check, you'd get the income tax deduction for the contributions on your 1040, but you wouldn't get the break in payroll taxes that you can get through payroll deduction.

 

[RDamien]

Ahh I see the advantage now. Excellent thank you all very much. Assuming our providers are in network, or we can find new ones that are, this looks to be a great option.

And just to be clear though, my maximum exposure worst case scenario is my out of network "Annual Out-of-Pocket Maximum" number? In my case 20,000.00. ouch, but in network is a very manageable 5000.00.

 

[ziggy29]

And just to be clear though, my maximum exposure worst case scenario is my out of network "Annual Out-of-Pocket Maximum" number? In my case 20,000.00. ouch, but in network is a very manageable 5000.00.

Yes. If you always stayed in-network, your worst-case expenditures for covered procedures, visits and prescriptions would be $5,000 in one calendar year.

This points out the importance of making sure a provider is in-network before scheduling an appointment. It's also changed how we buy prescription drugs. When we were on a PPO, my wife had a "preferred name brand" prescription that cost a $25 co-pay per month. But since prescriptions are also subject to the deductible in an HSA-eligible HDHP, that would have become $90 a month we'd pay until the deductible was reached (even with negotiated insurance rates). So we talked to her doctor about switching to a very similar drug that had generics available. She agreed to try that and we switched the prescription to one that now costs us $8 a month generic -- meaning a savings of about $1000 per year. We've noticed no real change in effectiveness and my wife claims the generic makes her less drowsy...

These are the sort of things you start doing as second nature once you've been in an HSA-eligible plan for a while. In some ways it's hard to be an informed health care consumer, but with the drugs it's pretty easy to do.

 

[FIRE'd@51]

And just to be clear though, my maximum exposure worst case scenario is my out of network "Annual Out-of-Pocket Maximum" number? In my case 20,000.00. ouch, but in network is a very manageable 5000.00.

Have your HR department clarify this. Some insurance companies (at least on certain individual policies) do not count the deductible as part of the "out-of-pocket" maximum, although most do.

 

[Darryl]

It's one of the best benefits out there. If you can tolerate hitting the max out of pocket in year one it's hard to understand why anyone would pass up this plan.
When I switched to HDHP/HSA a few years ago the difference in weekly premiums for my old HMO to the HDHP/HSA plan was about $100 a week so I took that $100 a week and sent it to the HSA. In my world I was just paying the same old insurance payment each week that I had been paying. Today I have about $5,000 of my money in my account. If I had stayed with the HMO they would have collected that as a premium payment.

 

[RDamien]

Have your HR department clarify this. Some insurance companies (at least on certain individual policies) do not count the deductible as part of the "out-of-pocket" maximum, although most do.

Thank you sir, I checked and it does include the deductible:

What’s more, your deductible counts toward your out-of-pocket maximum. Once you meet your out-of-pocket maximum (which includes your deductible), your plan pays covered expenses at 100%.

Darryl: Nice that's how I'm envisioning it working as well. The wife is checking to make sure our doctors are in CIGNA and if they are we'll be doing this.

 

[jIMOh]

If you have an chronic issue (or wife or kid) it could get expensive.

In addition make sure you have 5k in savings until you build the HSA up to 5k. We got hit with a $3300 doctor bill Jan 15 and the HSA would not have that level in it until June (based on my payroll HSA contributions). We stopped IRA contributions for 2 months and cut back a little to pay off the cc with the $3300, which we'll recoup from the HSA in a few months.

Other than this one issue, I think HDHPs are good because you see your costs and things are simpler.

 

[Kronk]

I think I still like my HSA plan, even though I nearly hit the deductible of $5700 last year, and have already hit it this year.

We pay $700/quarter ($2800 per year). For 2008, we contributed $5700 to the HSA, which at our 25% tax level saves means that we "really" spent $4275. $7,000/year out-of-pocket is not exactly cheap for two people ($600/month), but it that's pretty much the worst case scenario. Hopefully we won't be anywhere near the deductible in 2010, though...