The cost of the premium certainly affects how beneficial a plan is.
HDHPs have two big advantages over traditional PPO plans:
- Lower premiums, because the deductible is higher:
- Access to the HSA, a tax-free saving account.
If you take away one of those benefits, the HDHP looks a lot less attractive.
There are two reasons why the higher deductible generally causes premiums to be lower with HDHPs than with PPOs:
- The insurance plan doesn't have to start paying out benefits as quickly, which means that the consumer pays more out-of-pocket early on.
- The fact that the consumer has to pay for more of their own care out of pocket (and keeps what they don't spend) provides an incentive for the consumer to use less medical care unless necessary, keeping costs down.
But if the HDHP plan has abnormally high premiums (or your PPO option has abnormally low premiums), then all you have left is the disadvantages of the HDHP without one of the advantages.
Remember that the amount your employer is telling you is probably not the entire premium amount; generally, they are also paying a portion of the premium. It is possible that, for whatever reason, your employer has decided to pay less of the premium for the employees that choose the HDHP, which means that, although the total premium of the HDHP might be less that the total premium of the PPO, the cost that you see coming out of your paycheck between the two options is similar.
When you do your analysis comparing the two, there are two things you need to keep in mind. First, remember to include the fact that the employer is giving you $1000 (for your HSA) of tax-free money when you choose the HDHP. Second, because your plan is to fully fund your HSA, you can factor in the tax savings that you will enjoy with the HSA.
Running your specific numbers, let's look at the high-end, where you have catastrophically large amount of medical expenses, hitting your out of pocket maximum. (This represents more than $33,000 of medical expenses.) Assuming the 22% tax bracket and also assuming that you will contribute the maximum to your HSA:
- PPO: $7800 (premium) + $4000 (out-of-pocket maximum) = $11,800
- HDHP: $7800 (premium) + $5000 (out-of-pocket maximum) - $1000 (employer HSA contribution) - $6200 * 22% (tax savings from employee HSA contribution) = $10,436
On the low end, let's look at what happens if you have no medical expenses for the year:
- PPO: $7800 (premium) = $7800
- HDHP: $7800 (premium) - $1000 (employer HSA contribution) - $6200 * 22% (tax savings from employee HSA contribution) = $5436
Because of the employer's HSA contribution as well as the tax savings resulting from your own HSA contribution, the ultimate cost to you is $2364 less with the HDHP with no medical expenses. However, because the PPO starts paying early, as you go up in medical expenses, this savings starts to vanish. Even at the worst case for the HDHP, where you have just hit your $3000 deductible, the HDHP still comes out ahead:
- PPO: $7800 (premium) + $750 (deductible) + $2250 * 10% (coinsurance) = $8775
- HDHP: $7800 (premium) + $3000 (deductible) - $1000 (employer HSA contribution) - $6200 * 22% (tax savings from employee HSA contribution) = $8436
Once you have hit your out of pocket maximum for the HDHP (at $23,000 of medical expenses), the savings you enjoy with the HDHP vs. the PPO start to increase once again, as you are done paying with the HDHP, but still have a ways to go with the PPO before you have hit your maximum:
- PPO: $7800 (premium) + $750 (deductible) + $22,250 * 10% (coinsurance) = $10,775
- HDHP: $7800 (premium) + $3000 (deductible) + $20,000 * 10% (coinsurance) - $1000 (employer HSA contribution) - $6200 * 22% (tax savings from employee HSA contribution) = $10,436
To sum up, even though the PPO gives you a lower deductible for the same premium, the combination of the extra $1000 that your employer gives you and the tax deduction you will enjoy by contributing the maximum to your HSA means that the HDHP is a better choice no matter what your medical expenses end up being. The HDHP will save you somewhere between $339 and $2364 over the PPO.
Tax savings in your state from your HSA contribution may apply as well, and as has been mentioned mhoran_psprep's answer, if you contribute to your HSA through payroll deduction, you can also enjoy additional payroll (FICA) tax savings.