‘Tis the season… For open enrollment. This year, my employer is really pushing the high deductible health plan, so I spent the weekend poring over the plan documents. Today I thought I’d share what I learned.
The primary draw of the high deductible health plan are the low premiums. In 2010, the regular PPO plan that we’re accustomed to will cost in the neighborhood of $440/month for our family. In contrast, the high deductible plan will run roughly $70/month.
In other words, if we opt for the high deductible plan, we’ll save $370/month in premiums. That’s a total savings of $4440 per year. Not too shabby. But at what cost?
It should come as no surprise that a high deductible health plan has a relatively high deductible. In our case, the family deductible would be $3000 ($1500 for individuals). The PPO, on the other hand, has a $900 family deductible ($300 for individuals).
Aside from the difference in deductible, the coverage of the two plans is quite comparable. Both plans use the same network, so we’d have access to the same collection of physicians either way.
For “everyday” doctor visits, the PPO has a $20 copay for regular office visits. With the high deductible plan, our insurance would cover 90% of the network rate, subject to our deductible. Beyond that, the coverage is virtually identical, though the high deductible plan has a higher “stop loss” limit ($6000 vs. $2000 for family coverage).
As I noted above, both plans utilize the same network of doctors, and both entitle us to the same reduced rates that have been negotiated by the insurer. Thus, the primary difference really does appear to be
In terms of pharmaceuticals, the coverage would be similar. Instead of calling for a $10 (generic) or $25 (name brand) copay, the high deductible plan would cover 90% of the cost of our prescriptions, again subject to our deductible.
Health savings account (HSA)
If we opt for the high deductible plan, we’ll be eligible for a health savings account (HSA). Like the FSA, the HSA provides provides a tax break on qualified medical expenses.
Not to be confused with a flexible spending account (FSA), however, the HSA has higher limits ($6150 for a family in 2010) and is not subject to the “use it or lost it” provision.
Another key difference is that we’ll be able to invest the funds in the HSA in much the same way we can invest the money in our IRAs. My employer has selected an HSA custodian, but we’re actually free to use anyone we want.
If we choose to go with a different provider our contributions won’t be made with pre-tax dollars, but we’ll still be able to deduct them at the end of the year, and we’ll still be able to make tax-free withdrawals to cover qualified expenses.
One final bit of information is that my employer is offering a one time “seed” contribution to jumpstart our HSA. This amount will count against our annual contribution limit, but it’s free money.
Making a choice
After reading through all of the paperwork, it seems like we’d be fools not to take the high deductible plan. After all, we’d realize an immediate savings of $370/month or $4440/year. Even after paying the deductible, we’ll be $1440 ahead (not counting the HSA seed money).
It’s also worth noting that the physician and pharmaceutical copays are actually a good bit higher than 10% in most cases (e.g., the $20/visit copay is more like 20-25% of the negotiated rate). Thus, once we’ve met our deductible, we’ll actually be catching a bit of a break on these costs.
As of right now, it looks like we’ll be going with the high deductible plan. Assuming we move ahead with this, my intention is to max out the HSA and start building up a stockpile of cash for medical expenses.
Since the HSA isn’t tied to my employer, and we can also carry the money forward and invest it as we see fit, there’s really no downside to overshooting our current needs.
What am I missing?
Okay, here’s where you come in… This high deductible plan almost sounds too good to be true. What am I missing? Do you have a high deductible plan? Why or why not? And if you do have a high deductible plan, have you run into any nasty surprises?