I am considering an HSA / HDHP versus an HMO / PPO plan. Would this be expensive if I have small children?

Question

If I will use my HSA / HDHP benefits to cover my wife and small child, would this be more expensive than a PPO or HMO, when factoring in total costs (premiums, deductibles, etc.?) I don't understand why it would make a difference. I am trying to decide between two potential employers, one with an HSA and one with the usual HMO / PPO option.

Answer 1

It depends on what you consider expensive. The way an HSA works, your insurance coverage has a very high deductible, usually at least $1000 per person or $2000 or higher (family cap is usuall 2X the single person rate). This means you have to self-insure up to the deductible, plus there is usually a copay like any other insurance plan, up to an annual maximum.

When you have an HSA, in addition to the premium for the insurance, you also put money PRETAX (this means it comes out of your check before taxes like a 401K) into a savings account that is part of the HSA that you use to cover the uninsured medical costs.

Some of the major advantages to an HSA are that the money in the savings account that you use for uninsured costs will cover a much broader range of expenses, and can be used for things like dental, vision and mental health expenses even if those are not covered as part of the insurance policy. Because this money is coming out of pretax savings, it costs you less.

When you have a normal health insurance plan, everything that they don't pay you are paying with after tax dollars. This difference can be significant. If you live in a high income tax state and are in a higher tax bracket, this might mean a savings of 40%.

Any money you don't use out of the savings account stays in the account for future years OR can be used exactly like an IRA or 401K, meaning it grows tax-deferred until retirement. So in essence, it's an extra tax-deferred savings account. Clearly that's a pretty cool thing.

The drawbacks, well, you do have to fund that deductible at least partially, so your monthly payment may be higher, depending on what, if any, your employer pays in. Just keep in mind that all that money is before taxes, so you aren't losing spendable cash dollar for dollar but on a discounted basis depending on your tax rate. You usually have some flexibility in deciding how much money you want to go into the savings account each month.

I like it. I like that my money is pretax, I like that it grows tax deferred, and I like that the health insurance in the plan offers me a broader use of the money (like alternative medicine).

In the truest sense it is cheaper than a regular plan, but if you're looking at which will dent your current check more, it IS possible the HSA will. Of course some of that depends on how often you use it. Copays on regular insurance add up and all would be post tax.

If current income matters, here's what I'd do:
1. Find out how much, if any, each employer pays towards the premium and what your cost will be each month.
2. Figure out how much you went out of pocket last year on ALL your uninsured costs.

the combination of your out of pocket last year and your share of premium will give you a pretty good idea of whether the traditional plan costs you more or not.

Little kids and wives who get pregnant can be mighty expensive.

Answer 2

Changing plans when you are pregnant is not a good move. Stay with what you have if you can. No plan wants to pick up an existing maternity situation, as you can well appreciate. The potential for large payouts on problem births is something they will try to avoid at all costs. After the birth is a different situation. The HSA plans are the coming thing and they allow much more flexibility is handling your medical expenses. Any good health insurance agent will be able to provide full information so that you can make an informed choice.

Answer 3

Hdhp Vs Ppo