HDHP now available, too many choices, overwhelmed

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verbose
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HDHP now available, too many choices, overwhelmed

Post by verbose » Mon Oct 30, 2017 7:58 am

For the first time, I work for an employer that has HDHP with HSA. Open enrollment is this week, and it seems to be the best choice, despite high medical usage by one family member.

I have employee + children coverage. Megacorp does not allow my spouse to be covered because his employer also offers group coverage. He has a PPO (no choices, small employer).

Since my coverage is considered "family", Megacorp is contributing $2000, spread out over the year, to the HSA. The premiums for employee + children with non-smoking discount, over the year, are $2075. That means I effectively pay $75 for the health plan. If we had no medical needs beyond preventive, I would end the year having paid $2075 pre-tax and with $2000 tax-sheltered in the HSA. That will not be the case, but it could work that way.

One of us has high medical usage, which I will not go into here as this is a financial discussion not a medical discussion. I expect to spend close to or over the $3000 deductible, especially since prescription drugs are subject to the deductible rather than a co-pay.

I'm using to having an FSA. I have ignored the mechanics and benefits of HSAs because none of it applied to me.

What happens if the HSA, which will start the year empty, is still largely empty when a bunch of medical expenses come in? It won't be built up until later in the year. Even if I add contributions to it, those will still take time. How does that work? The FSA allows spending the annual contribution all at once. I haven't found a definitive answer online, but since none of the links say that an HSA works like that I have to assume that it doesn't.

That actually means I will be spending more next year. The medical expenses will likely come in faster than the HSA is built up, meanwhile I will be paying the premiums. I probably won't get any benefit out of the HSA until next year, meanwhile paying $2075 for premiums and estimated $2000 toward the deducible due to timing of medical expenses.

Is this still the right choice? The other choice is a PPO that has a $600 individual deductible (the only one that matters since only one of us is likely to meet it), 10% co-insurance after that, co-pays (25/40 for doctor visits and a variety of co-pays for prescriptions) and costs about $3000 annually.

I have no idea what I'm doing and how to make this decision. I thought I had made the decision, then I typed this post and decided that maybe I should pick the PPO. Usually, the guidelines say to pick the PPO if someone has high medical usage, but the amount contributed by the employer to the HSA seems to negate that advice, except that none of that is available in January, so I'm going to get hit hard in the first six months of the year without really having the HSA available.

Can anyone clarify some of this?

fourwheelcycle
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Re: HDHP now available, too many choices, overwhelmed

Post by fourwheelcycle » Mon Oct 30, 2017 8:54 am

I believe you and you employer together can contribute $6,900 to your HDHP family plan HSA during 2018, if you choose that plan. That means you could contribute $4,900 on your own, pre-tax. Ask your employer's benefits office if you can front-load that contribution by asking them to deduct large contributions from your early paychecks and zero contributions once you have hit $4,900. If the answer is no I am out of helpful ideas.

In any event, HSA money is carried forward forever, even if your employer stops offering an HDHP plan or you stop selecting it. An HSA balance is very handy to have as a pre-tax piggy bank for current and future health expenses, including dental care and optometry. If you choose the HDHP plan I would certainly suggest contributing the max every year, even if you do have to pay some out of pocket expenses early in the first year.

The bottom line, however, is that you need to line up the plans you are offered, their costs, deductibles and co-pays, then consider your most likely pattern of health care use and expenses, and choose the best plan. An HDHP if often the best choice. I realize your case, with one high health expense family member, is different, but the procedure for comparing the plans available to you remains the same.

tmhudg
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Re: HDHP now available, too many choices, overwhelmed

Post by tmhudg » Mon Oct 30, 2017 11:30 am

Just wanted to point out that you can "pay yourself back" from your HSA as funds accumulate.

Early in the year, when you don't have much in the HSA but have medical expenses, you just pay them from your regular accounts (checking, CC, etc.). As money accumulates in your HSA, you can simply transfer those funds back into your checking account to reimburse yourself for what you paid. Just make sure you keep good records of the expenses that you've incurred and paid/reimbursed from your HSA.

Bottom line is that it's not like you get one chance to pay an expense from the HSA and if you don't have enough money in it yet, you lose. Obviously, you have to have the money to pay the expense from *somewhere* until you can pull it out of HSA.

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verbose
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Re: HDHP now available, too many choices, overwhelmed

Post by verbose » Mon Oct 30, 2017 12:03 pm

Thank you, that hadn’t occurred to me.
tmhudg wrote:
Mon Oct 30, 2017 11:30 am
Just wanted to point out that you can "pay yourself back" from your HSA as funds accumulate.

Early in the year, when you don't have much in the HSA but have medical expenses, you just pay them from your regular accounts (checking, CC, etc.). As money accumulates in your HSA, you can simply transfer those funds back into your checking account to reimburse yourself for what you paid. Just make sure you keep good records of the expenses that you've incurred and paid/reimbursed from your HSA.

Bottom line is that it's not like you get one chance to pay an expense from the HSA and if you don't have enough money in it yet, you lose. Obviously, you have to have the money to pay the expense from *somewhere* until you can pull it out of HSA.

bloom2708
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Re: HDHP now available, too many choices, overwhelmed

Post by bloom2708 » Mon Oct 30, 2017 12:12 pm

Your premium payments will come out of your check as a deduction.

The $2,000 will go into your HSA. Our company puts 50% in January and 50% in July.

After any bill is submitted to insurance (negotiated), you are on the hook to pay the balance. (Except for preventative care perhaps, yearly physical, flu shot, check that). You can pay from the HSA or pay out of your regular cash. You could let your HSA build up for 1 or 2 years to get ahead of the bills. But that means you have to have the cash to pay those bills readily available.

What is the full deductible for Family coverage and is there a co-insurance after? We have a $6,250 deductible, company puts in $2,500 to HSA. No co-insurance (10% or 20% over deductible). That means our max out of pocket is $3,750.

If you have co-insurance, then you may have to keep paying 10% or 20% (common numbers) after you hit your deductible.

You should be able to put the plans side by side. In most cases with someone having frequent medical bills, you will be better off staying with the "sure thing" PPO plan. There are some other recent threads comparing.

You should lay out all the premiums, deductibles, co-pays and HSA contributions and the company should help you tell the difference.

Our company offered HDHP with HSA for two overlapping years with PPO and then went 100% to HDHP with HSA. It is a different world when you "pay" for all visits/procedures/urgent care stops etc.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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verbose
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Re: HDHP now available, too many choices, overwhelmed

Post by verbose » Mon Oct 30, 2017 12:36 pm

bloom2708 wrote:
Mon Oct 30, 2017 12:12 pm

What is the full deductible for Family coverage and is there a co-insurance after?

If you have co-insurance, then you may have to keep paying 10% or 20% (common numbers) after you hit your deductible.

You should lay out all the premiums, deductibles, co-pays and HSA contributions and the company should help you tell the difference.
The family deductible for HDHP is $3000 with 10% copay after that.

The PPO also has 10% co insurance after a 600/1200 deductible.

I put the plans side by side. However, I don’t know how to estimate most of the numbers. I can estimate the PPO numbers based on experience, but not HDHP.

For HDHP, what should I estimate for doctor visits, specialist visits, chiropractor, prescription drugs?? These are all co-pay items today. I have no reference point. So I just did the analysis assuming we would hit the 3000 deductible. Even if we do, the company contribution tilts it heavily in favor of HSA. The PPO also has 10% co-insurance, but it doesn’t apply to “co-pay” items. I don’t know how to model that.

I’m leaning toward HSA but I don’t know how much to contribute. It’s easy to say “contribute the max” but that assumes I have that money. Like everyone, I have competing priorities in my budget.

Besides regular expenses, I have the following “savings” programs:

Pay off low-interest auto debt
Pay off zero-interest home improvement debt
Save for college for two kids (529 acct)
Save for retirement in 401k (currently 10% pre tax)
Save for other stuff that I want to buy, such as a backyard renovation.
Pay off low-interest mortgage
(No Roth, not eligible for regular Roth, too much trad IRA balance for backdoor Roth)

Where does HSA fit?

bloom2708
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Re: HDHP now available, too many choices, overwhelmed

Post by bloom2708 » Mon Oct 30, 2017 12:46 pm

Are the monthly/yearly premiums the same for the HDHP and PPO?

I would expect the premium that you pay to be higher on the PPO than HSA.

$2,075/24 paychecks = $86.45 per check for HDHP

What is PPO?

It could be that they will come out to be quite close with the $2,000 HSA contribution. Or they might heavily tilt to the HSA and then drop/eliminate the $2,000 after a couple years. Our company gave bonus HSA contributions during the two "transition" years and then dropped it down to the current amount. It was incentive to switch early.

Estimating past the deductible is difficult unless you know you will have $X amount of service and then can take 10% of $X.

Pre-tax 401k contributions would be my first priority. Defer the tax and build up your investments so you have that long runway. HSA contributions also are pre-tax, but then they act as a Roth (no tax on earnings). But it seems like you have some other areas to clean up first. So HSA would be lower on my list.
Last edited by bloom2708 on Mon Oct 30, 2017 12:49 pm, edited 1 time in total.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

clutchied
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Re: HDHP now available, too many choices, overwhelmed

Post by clutchied » Mon Oct 30, 2017 12:49 pm

HSA is currently the best tax-sheltered retirement vehicle that exists in the US.

It comes out Pre-FICA, which none of the other retirement accounts do.

I 100% fund mine every year. You can use it for medical or save up all your receipts and let it build over the years and then reimburse yourself later. Also when you hit 65 it basically becomes an IRA equivalent. Prior to that there is a penalty for non-qualified withdrawals.

I love my HSA and wish I could add more to it.

AnonJohn
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Re: HDHP now available, too many choices, overwhelmed

Post by AnonJohn » Mon Oct 30, 2017 1:00 pm

Let me try to help, but there's a lot going on here. It seems like you're trying to worry about everything at once and getting caught in complexity. Let's make some simplifying assumptions and look at just the first $3000 in expenses.

1. You have a large enough emergency fund that you can cover ~$10000 in medical expenses in a year.
2. You would contribute the maximum to the HSA.
3. You will meet the deductible under the HDHP (as you said).
4. Your marginal tax rate is 30% (state + federal)

First, look at the math on the first $3000 in health expenses

HDHP: Premium ($2075) - pass through ($2000) + Deductible ($3000) - HSA Tax Savings (.3 * 6900 - 2000 = ~$1500) = $1575

PPO: Premium (?) + Deductible ($600) - FSA Tax Savings (.3 *?) + Coinsurance and Copayments on first $3000 of health insurance (?) = ?

I'll bet the PPO premium is high and that this works out reasonably favorably for the HDHP. Is it more than $1575?

I think coinsurance is the same for both options?

To answer your last question, I value HSA more than 529 and 401k, but the latter is close.

The other thing I think you need to look at is the catastrophic out of pocket maximum for each plan.

Good luck!

John

bloom2708
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Re: HDHP now available, too many choices, overwhelmed

Post by bloom2708 » Mon Oct 30, 2017 1:01 pm

OP, do you have co-workers with kids that you can ask what they are doing?

When we had this switch, the company offered many Q&A sessions. You could meet with a benefits person. I also talked with many co-workers who I trusted. Every scenario is different, but putting together the costs, and a few different scenarios and running them will help.

Do an estimate of expenses based on the last 2-3 years expenses. Then plan a worst case with $100k of unexpected expenses. That would add 10% past the deductible.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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verbose
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Re: HDHP now available, too many choices, overwhelmed

Post by verbose » Mon Oct 30, 2017 1:18 pm

PPO premium is about $3000/year.

I’m new to the company. I started in June and chose PPO without looking too much because I had a lot of other stuff to deal with. This is all old-hat to other employees. Mega Corp is saving on time and this year (my first year) only giving us a recorded “webinar” to explain the plans.

If my spouse were on the family plan, the plans would be closer to equal because I would still get $2000 contribution but premiums about 40% more. If I were employee-only I would only get $1000 contribution but still with $3000 deductible.

There seems to be a “sweet spot” for employee + children on the HDHP plan.

So I’ve decided to go with HDHP, but I’m not sure if I will contribute to it myself. I understand it’s “use it or lose it” like a 401k or Roth contribution limit, but I need to have the money first.

tmhudg
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Re: HDHP now available, too many choices, overwhelmed

Post by tmhudg » Mon Oct 30, 2017 1:37 pm

verbose wrote:
Mon Oct 30, 2017 1:18 pm
I understand it’s “use it or lose it” like a 401k or Roth contribution limit, but I need to have the money first.
Not quite sure what you mean by that but regardless, one thing you might consider is contributing the difference between the premiums. Contribute the money you are saving by not paying the PPO premium (3000-2075 = 925). Then you will have the company contribution plus yours, which basically matches your deductible. Any extra you can contribute will be gravy and start to build.

Olemiss540
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Re: HDHP now available, too many choices, overwhelmed

Post by Olemiss540 » Mon Oct 30, 2017 1:40 pm

I would recommend you contribute the maximum amount if possible. You are going to need the money (you have been hitting your deductible in years past correct), so it really just gives you tax shelter the same way as your previous FSA. Investment order is roughly:

401(k) to match amount
high interest loans (>6%)
HSA - Max
Roth IRA or 401(k) to max depending on current marginal tax rate and investment options within your 401(k)
401(k) or Roth max

For you, just re-direct the amount you were putting in your FSA into the HSA and then max the rest out through lowering your 401(k) contributions accordingly if you HAVE to (and you still are capturing the employer match).

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verbose
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Re: HDHP now available, too many choices, overwhelmed

Post by verbose » Wed Nov 01, 2017 12:35 pm

OP: I signed up for HDHP and am contributing 2600. With company contribution of 2000, this is a total of 4600. It’s short of the max but it’s something.

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