Choosing between Tradtional PPO and HDHP with high prescription cost

Question

I have been on some variety of HDHP most years since about 2005. The math has almost always been a no-brainer, particularly at my last place of employment. However, I started with a new employer in 2018. I stayed with the HDHP even though the premium difference is much smaller than at my prior company because it still seemed to make the most sense.

However, we just had our presentation for 2020 and the math seems to have shifted in favor of the traditional PPO, at least for me.

Below is a screenshot of the plan compare sheet. The plans are the same, the difference is in premiums, deductible, OOP max, and the HSA eligibility for the HDHP.

I am using family coverage (self, spouse, 2 kids). Here are the costs per year for each option:

Traditional PPO - 3,718 HDHP - 2,600

The HDHP also includes an HSA. My employer will contribute $100 to the HSA, and will match another 400 of my contributions. I currently max out my HSA contributions.

Here are the calcs that led me to consider switching away from the HSA plan. Please let me know if I have miscalculated or left something out.

If I count the employee match into the HSA as a discount to the cost, then the HSA plan cost is 2100 per year. 3718-2100 = 1618. With no usage (or only preventative care covered at 100%), I am 1618 better going with the HSA plan. However, one of my children is on a very expensive specialty medication. It is around 2k per month. Under the HSA plan, I would basically pay 2k in Jan, 2k in Feb, and then have met the deductible. After that, I would pay the monthly copay of 250. This totals to 6500 for the year. Under the traditional PPO plan, I would pay the 250 each month, so 3000 for the year. with this the toal costs are:

PPO 3,718 + 3,000 = 6,718 HSA 2,100 + 6,500 = 8,600

With this information, the PPO plan is better by 1,882. This is the biggest single medical expense we have, and it is hard to imagine that Dr visits would make up for this. To try to account for Dr visits, let's say that my family goes to the doctor 20 times in a year. An average cost of 150 yields an anual cost of 1800. Under the HSA plan, I would be responsible for 20% of that, since I have met my deductible, so 360 dollars. The PPO plan has a few copay levels, so let's say $50 per visit, for a cost of 1000 for the year.

Now the costs are: PPO 3,718 + 3,000 + 1,000 = 7,078 HSA 2,100 + 6,500 + 360 = 8,960

If I give my self 25% credit on the 6500 to account for the tax advantage of the HSA, the cost for that is actually: HSA 2,100 + 4,875 + 360 = 7,335

It looks like if I play with scenarios enough, I can make one where the HSA is better, but it is really looking like that for most scenarios the trad PPO is better. Especially since the OOP Max is lower on the PPO.

Am I missing anything? Did I miscalculate anything?

Answer 1

You are on the right track for this analysis. Everyone’s medical situation is different, so you need to look at your own family’s medical situation and try to see which plan is best for the most likely scenarios.

There are a couple of things that I’ve seen people commonly miss with this type of comparison, but it looks like you’ve considered both of them.

One common misunderstanding is how the deductibles work. People often assume that if only one family member has the medical issue, that the smaller individual deductible applies; however, in my (limited) experience, if you have the family plan, often the family deductible is the only deductible amount that is used. I see that you are using the family deductible amount in your comparison, which is good.

The other thing I’ve seen missed is failing to consider the tax savings associated with the HSA contributions, but here it looks like you have already considered that as well.

At the end of your question, after everything is considered, it looks like the difference between the two plans in your most likely scenario is only about $250 for the year. Not much different. There, of course, are always unknowns, as we can’t predict for certain how your next year will turn out.

One scenario that you mentioned, but have not calculated explicitly is the worst case out-of-pocket maximum scenario. If we assume that you will max out your HSA contribution for 2020 and you are in the 24% tax bracket, your OOP Max scenario looks like this:

• PPO: $3718 (premium) + $7000 (OOP Max) = $10718
• HDHP: $2100 (premium) + $8000 (OOP Max) - $7100 * 24% (tax savings on HSA) = $8396

You’ll have to decide how likely this is for your family.

I wish you and your family good health next year. I perhaps understand what you are going through; in my own family’s health situation, we generally hit the out-of-pocket maximum every year, so that is the most important part of my family’s health plan decision.