Is this HSA too good to be true?

Question

I am grandfathered into this PPO plan which we have one more year before they get rid of it. I think the HSA plan is better now for me but wanted to check.

Is this HSA plan better for me? If I leave a HSA plan to join a PPO in the future does my saved money vanish?

Do I run the risk of my employer changing the HSA terms in the future to make it less favorable once we don’t have the choice of a PPO anymore? Why are the HSA terms so good they seem to be really pushing it; how does it benefit my company?

The plans

Grandfathered PPO plan

Cost of plan per year : $3,957

Deductible : 1000$

Max out of pocket 3800$

Hospitals doctors surgery 80% coinsurance (they pay 80% after deductible)

Drugs

30% generic we pay, or 50% nonformulary retail

Drugs count towards deductible

New HSA plan Cost of plan per year $2,406

Company contribution 500$

Deductible: 1500$

Max out of pocket 3500$

Hospitals doctors surgery 85% coinsurance (they pay 85% after deductible)

24$ a year investment fee or 2$ a month for unlimited trading

Drugs

20% generic we pay, or 40% no formulary retail

Drugs count towards deductible

Answer 1

Here are the answers to your questions, from easiest to hardest. :)

If I leave a HSA plan to join a PPO in the future does my saved money vanish?

No, your money does not vanish. Your HSA is yours to keep. Even if you become ineligible to contribute to an HSA in the future, you keep your account, and you can withdraw on it for eligible medical expenses.

Do I run the risk of my employer changing the HSA terms in the future to make it less favorable once we don’t have the choice of a PPO anymore?

This could happen at anytime with any plan; it is not unique to this HSA plan. Every year the insurance company changes the rates and plans that it offers to your employer, and your employer has to decide which plans to offer. The rates from the insurance company are out of your employers hands, but the employer will then decide how much they will pay and how much will be taken out of your paycheck.

Is this HSA plan better for me?

For this, you will have to take a close look at the plans and look at your family's medical situation. I recently wrote another answer that outlines how to do this.

It looks like your gut is telling you that on the surface, the HSA plan is better. You might be right about this, but run some numbers a few different ways to be sure. However, if you choose to keep the PPO plan, you are just putting off the inevitable, as your employer has told you that the PPO plan will only be around for one more year.

I see that there is a $24 per year fee for the HSA account that they want to sign up for you. It's unfortunate, but it's not really that bad. The company is contributing $500 a year to your HSA, so just think of it as a $476 a year contribution. If you leave the company, or switch to a non-HSA plan in the future, you can roll your HSA over into a new HSA with a different provider that has lower fees, if you want.

Why are the HSA terms so good they seem to be really pushing it; how does it benefit my company?

HSA/HDHP plans have a number of advantages over PPO plans. The premiums are less, because the deductible is higher. You are paying more out of pocket, but this is offset by the lower premiums and the tax advantages of the HSA.

By paying for things out of pocket, you are taking some responsibility for your own health care usage. People tend not to go to the doctor quite as often when it costs them money out of pocket. With the PPO plan, you've already paid for the doctor out of your higher premiums, so you have an incentive to use it. Since, with the HSA, you have an incentive not to use it, the medical costs are kept down.

The prices you see are only the premiums that will be taken out of your check. However, the company also pays some of the premium, and I'm sure that they are saving some money with the HSA plan as well.

Answer 2

My employer started offering an HSA in 2008, and they pre-funded the account with $2000 (enough to cover the deductible) to give employees incentive to choose it over the PPO plan. The employer cost of the PPO plan was significantly higher, so they were still saving a bundle on the employees that switched.

High deductible plans are good for employees that are young and healthy, though paying out of pocket for your visits can be painful if you're not prepared for the change of mindset. The money will not disappear if you switch plans or employers later--you own the account and all contributions to it including those from the employer. If you use it for qualified medical expenses down the road, you retain all of the tax advantages as well, but at 65 you can also draw from it like an IRA. You cannot continue to contribute to the HSA tax free unless you are also covered by a high deductible plan during the year that you contribute.

Answer 3

Check customer satisfaction, whether your current doctors are on the plan (and whether you're happy with those who are, if you do have to switch), what copays are like, whether you get the negotiated/discount rates on drugs and services immediately or only after the deductable has been met (our high-deductable-and-HSA plan is of the latter sort)...

Personally, the item about "investment fee" scares me unless this is a plan backed up by an HSA... and even then, (a) it wouldn't apply until you have enough money in the HSA to allow investment (usually about $10K), (b) that's a nontrivial fee, which would make me hesitant to let them invest my money, and (c) you shouldn't be doing "unlimited trading" in savings for health coverage anyway; this is NOT money to gamble with. I consider that reason to treat this package with some suspicion. You may be able to safely ignore it. You may not be able to.

Answer 4

A couple of things to consider:

Look at the plans and consider how much you will pay if your medical bills for the year fell into various ranges. Like in this case, one plan has a $1000 deductible and the other has a $1500 deductible. So if your medical bills for the year are less than $1000, neither plan will pay anything, and the better plan is the one with the smaller premiums. If your bills came to $3000, then assuming the PPO pays at 80% over deductible while the HSA plan pays 85% over deductible, then the PPO would pay 80% of 3000 minus 1000 or $1600, leaving you to pay $1400. The HSA plan would pay 85% of 3000 minus 1500 or $1275, leaving you to pay $1725, minus the $500 employer contribution to the HSA (I assume that's what you meant) leaves $1275. Then your total cost with the PPO would be $3,957 + $1400 = $5,357. With HSA, it's $2,406 + $1,275 = $3,681. Well hmm, looking at these numbers, I don't see any scenario where the PPO is better if you assume that they both pay the stated rates on all medical bills.

Which leads me to the other thing to consider: what does each plan actually pay? Insurance plans often have exclusions, ranging from "we only cover visits to doctors in our network" to "we don't cover emergency room visits", etc.

Answer 5

A few years ago when I was comparing a PPO and a High Deductible plan the biggest difference was the cost of prescriptions.

Under the PPO you paid a rate like 5/20/50 depending on if it was a generic, a regular or an expensive prescription. Under the High Deductible plan the cost of the prescriptions was set at the negotiated cost of the medicine. That meant that the $20 prescription would now cost hundreds and the $50 prescription now cost many hundreds.

This meant that many employees with chronic conditions (diabetes, high blood pressure,...) would be guaranteed to hit their deductible based just on these monthly prescriptions. Many went from expecting to never hit the deductible to always hitting the deductible. That has to be figured into the calculations.