Why so many people choose the wrong health plan at work

[MillCreek]

https://www.nytimes.com/2017/11/04/business/why-choose-wrong-health-plan.html

We should be choosing the high-deductible plans.

[mtnbkr]

Because we're young(ish) and healthy, we've been on the high deductible plan for years.  The difference in deductibles wasn't that great, but the out of pocket costs for the plan was much higher.  As a result, I max out my HSA, which is pre-tax AND portable.  I save money and stick it to the Gov.

Chris

[Ben]

I suppose a lot of it also depends on what your employer covers vs what you have to cover. I did it completely wrong for most of my federal service, staying on the low deductible plan, even though I was covering 1/3 of it. I didn't switch to HDHP/HSA until the last few years. Then I started computing the money I would have saved versus what I would have paid out, including one major operation on the low deductible plan, and really started kicking myself on all the money I would have both saved on the HDHP, and the money made on the HSA invested in index funds.

On the other hand, when I was a young buck, I spent five years of employment at the county dump. Typical local government, benefits were Cadillac all the way, including 100% health care coverage. Not only that, but somehow the union* had negotiated a "money back" option. The county covered health insurance for a family of two adults and three kids. If you had more kids, you had to kick in money.

However, if you had less kids, no kids, or were single, you got money back because the union argued that anyone with fewer dependents than the max was being monetarily penalized by getting fewer benefits. The fewer dependents you had, the more money you got back. As a single guy, I got a ~$3000 "bonus" every year for being single. In that situation, I had zero incentive to look at different health plans (not that HDHPs were even around then). You just took "the best" because that's what was offered at zero cost to you.


* This is another example of why there should be no unions for gov employees, who are in a de facto union just by working for gov, whether fed, state, or local. Although in this case,  I guess you could argue that people were "making more money" simply by having more dependents. The fairer way to do it, at least for taxpayers, would have been to just cover the employee, and anyone with more dependents pays to have them covered.

[Fly320s]

https://www.nytimes.com/2017/11/04/business/why-choose-wrong-health-plan.html

We should be choosing the high-deductible plans.

Well, duh.

Since schools have stopped teaching useful classes like basic math, accounting, and home economics and instead teach how-to-get-free-stuff-from-the-government, students don’t get exposed to the ideas of self-reliance and budgeting.

[Ben]

I will say that Obamacare has made the HDHP less "profitable" (as good a word as any). I've been on a tear because my insurance increased 48% for 2018. HDHP/HSA. If I switch to a non-HSA HDHP plan, I'll pay ~$100 less per month.

I find that infuriating. The whole idea of the HSA is to supplement the higher deductible of the HDHP.  I don't understand why anyone would want a non-HSA HDHP. The two should be completely linked together.

[charby]

I pick the HMO plan. It's a lot cheaper and 98% of the doctors in Iowa are in network. My shoulder surgery cost me less than $50 out of pocket.

Out of state, emergency room, $100 copay.

[zahc]

HDHP used to be a screaming deal. Now that my premiums are 50% higher and my deductible went from $3k to $5k, it's less so, but it would have to get significantly worse before it wouldn't be worth doing for the amazing awesomeness that is the HSA.

A  quirk of HSA is that funds can be withdrawn to pay for qualified medical expenses, incurred in any year in which you had a HDHP. There is no expiration or anything. I know a guy (richer than me)  who paid all his medical expenses with post-tax funds, and has the receipts and explanation of benefits for each year on file, some 10 years worth. So he can withdraw the full amount any time without penalty. He basically has about $10k "vested" in his HSA which he not only contributed with pre-tax money, like a normal IRA, but can also withdraw any time without taxes, like a Roth.

[bedlamite]

The HDHP at work wasn't much cheaper. One visit to the doc's office would more than cover the difference in premiums.

[Firethorn]

I'm never going to be on a HDHP unless things go really wonky for me, but having talked with my parents, they figured out that the high deductible plans were far better deals because if you had to go in for something major under a traditional plan, you'd quickly end up spending the deductible anyways.

At least for dad, the choices were a traditional plan that had a $50 deductible, per service, and only paid 70% of the bill past that.  Or a plan with a $5k deduction, no per-service deductible and 100% beyond that.

Saved him loads of money when he got skin cancer.  He would have ended up paying far, far, more than the $5k just in copays.

And Ben, how the hell can they justify $100/month for a non-HSP plan if it is still a high deductible?  $1200/year just to administer what amounts to a savings account is insane.

[Ben]

And Charby, how the hell can they justify $100/month for a non-HSP plan if it is still a high deductible?  $1200/year just to administer what amounts to a savings account is insane.

I think you meant, "and Ben".

I don't know. That's a question for Anthem. Though you phrased the question more correctly than I did. It's not, "Why is the non-HSA plan lower?" but "Why is the HSA plan higher?" I can't imagine what the admin cost would be on it, especially for me, as I still use the bank fed.gov put my HSA funds into, since they let me keep the account. So Anthem does nothing with my HSA money.

One guess on the plan differences would be "Hello Obama". While I'm not on Covered California and pay all my insurance myself, all the available plans (at least in CA) are based off the Obamacare plans. In CA, Covered CA tries to put everyone on the silver plans, so that might affect how the few insurance companies left here price their other plans. I could see CA wanting to disinsentivize HSA plans, since they are "unfair" to poor people.

[sumpnz]

I'm an engineer.  Which means I'm better than average at math.  I've run the numbers.  Until at least 2 people in the family exceed $20k in total health care services for a given year we spend less overall with the high deductible plan than the low deductible plan when you total up premiums and out of pocket expenses (deductibles, co-pays, etc).

[Firethorn]

I'm an engineer.  Which means I'm better than average at math.  I've run the numbers.  Until at least 2 people in the family exceed $20k in total health care services for a given year we spend less overall with the high deductible plan than the low deductible plan when you total up premiums and out of pocket expenses (deductibles, co-pays, etc).

That's quite a bit of money.  I'm curious, was that a local optimum?  Would it have gotten cheaper again if the 2 people exceeded $50k, for example?

Dad's choices of plans had the "traditional" never be less expensive than the HDHP w/TSP. 

Mainly because of the copays and individual deductibles.  The HDHP paid out more once it kicked in, so it was cheaper even with really high costs.

[sumpnz]

There are 3 plans at work (actually 5, but one of them I can't figure out why anyone would take it given the premium and level of coverage, and the other is a restrictive HMO that used to be a good deal 5 years ago but isn't anymore).  The A plan is the highest premium ($270/check) but also the lowest deductible ($300).  The middle plan is, well a middle premium ($170) and middle deductoble ($700).  THe C plan is the lowest premium ($108) and highest deductible ($1400).  Family deductible is 3x the individual.  Out of pocket max (individual) is $3000/4000/6500 IIRC.  The family OOP max is twice the individual.  Between deductible and OOP max it's an 80/20 plan.

I could work out the exact numbers, but is basically comes out to the premiums plus out of pocket expenses show the C plan being cheapest with 2 people hitting deductibles, but not hitting out of pocket max.  The B plan is cheapest if one person in the family hits the out of pocket max (but the rest use little to nothing), and the A plan is cheapest if 2 or more in the family would have exceeded the out of pocket max even for the C plan.  If I know ahead of time that one of us will be incurring a very large expense in a single year I'll go to the B plan.  If I think 2 or more of us will have hideous health care expenses I'll go A plan.  Meanwhile I'll stick with C.

Total consumption of health care services to hit the out of pocket maximum for one person in the C plan is $26,900 ($1400 deductible plus 20% of $25500 is the $6500 max).  Even though you'd hit the max out of pocket at something at or less than $20k on the B or A plan, until you hit about that much, had you taken the C plan you'd have stayed ahead overall.

The trick though to making the C plan work is to put the $160/check you aren't paying in premiums for the A plan into a savings account that you don't let ANYONE raid except to pay for medical out of pocket bills.  Once you have the family out of pocket max ($13k, which would take 3.13 years if you didn't use it any the meantime) in that account then you can stop saving that cash.

[K Frame]

We don't have all that much choice at my work.

We have a pretty good Blue Cross/Blue Shield plan that works well for younger people and a more comprehensive plan that I've been using for years. The great thing is that it only costs me about $130 a month for just me, but it does have the much higher deductibles. All in all, though, it has served me well over the past decade or so since I switched to it.

There are different plans if you have military retired health care, and I THINK that Kaiser Permanente is still an option, although it is more expensive up front.

What I like are some of the add on options that are part of our benefits package. The one I'm using right now is pet insurance for Seren.

[lupinus]

We just got a high deductible plan with hsa option.

The funny part is that it's in the same tiers (referred to as bronze and silver) plans. With the same exact deductible, coinsurance, copays etc as the standard plans in that tier. The only difference is that the standard plans covers things like prescriptions and calls into the phone doc (MDLive, it's actually kinda nifty) copays without having to meet your deductible. Regular doc and stuff needs deductible met first before the 80/20 coinsurance kicks in. The "high deductible" doesn't kick in anything until you've met your deductible, and offers a savings account. That's it, otherwise the deductible, max out of pocket etc are all EXACTLY the same. Well and the premium, you save a whopping 14 bucks a month.

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[K Frame]

Oh, I forgot to mention the HSA. We used to have an FSA (still have one, for limited things like dependent care), but the HSA is a lot better.

[MillCreek]

Our company first started a HSA a couple of years ago.  I am planning on using mine next year to pay for a new set of hearing aids from Costco.  They run a bit over $ 3000 for the set, and I generally get a new set every five years. The audiologist wants me to buy them more frequently, due to changes in the technology, but since I pay for them out of pocket, I try to stretch out the purchase interval. Costco does not support aids over five years old, so if you need repair, etc., you have to find another vendor for that.

[Ben]

Our company first started a HSA a couple of years ago.  I am planning on using mine next year to pay for a new set of hearing aids from Costco.  They run a bit over $ 3000 for the set, and I generally get a new set every five years. The audiologist wants me to buy them more frequently, due to changes in the technology, but since I pay for them out of pocket, I try to stretch out the purchase interval. Costco does not support aids over five years old, so if you need repair, etc., you have to find another vendor for that.

I don't like sticking my nose in other people's finances, but I know you make pretty good money. Depending on your tax situation, you might be better off paying for stuff with non-HSA money and keeping your HSA invested. I pay all my (admittedly and luckily minimal) medical expenses with taxable income and use the HSA 100% as a "stealth IRA".

[zahc]

I don't like sticking my nose in other people's finances, but I know you make pretty good money. Depending on your tax situation, you might be better off paying for stuff with non-HSA money and keeping your HSA invested. I pay all my (admittedly and luckily minimal) medical expenses with taxable income and use the HSA 100% as a "stealth IRA".

The benefits of doing this are slim to none for most people. It only makes sense if you are rich enough that you are capped on IRA and/or 401k contributions. Otherwise, you are better off using the HSA funds for qualified medical expenses now, and investing that other money you ostensibly have lying around available to be spent on medical expenses in other vehicles, unless, as mentioned, you have no other tax-advantaged investment vehicle available for it, which could be the case for high wage earners who cannot contribute to a 401k or IRA.  
 
Spending HSA funds on current QME provides an immediate benefit of paying for those expenses tax-free.  Paying for a $1000 QME with HSA funds requires $1000 of gross pay. Paying for a $1000 QME with post-tax funds may require $1100 or $1250 of gross pay. This is something that should not be done unless you are truly constrained in your options.

 Choosing to spend post-tax money instead of HSA money only makes sense if you can't put that post-tax money into a Roth. Or if you don't have the option to contribute more to a tax deferred 401k or IRA, and therefore not have that taxed extra money exist in the first place.
 
Paying for QME with post-tax money requires existence of post-tax surplus money. If that surplus exists because you have maxed every tax advantaged account available, then spending it on QME instead of using HSA funds will allow you to keep more in your HSA and pays off. But ifyou could have avoided existence of that post-tax moey by contributing more to your 401k, or if you could have put the post-tax money into a Roth, but instead you spent it on medical expenses that you could have paid with HSA money, that just doesn't make sense. If you can't contribute to a roth or you have maxed all your other tax advantaged accounts and you still have money left enough to afford to pay QME out of pocket, then it makes sense to use that leftover money instead of HSA money. Very few people are in that category.

If by not using HSA funds you are just robbing from another other tax-advantaged investment vehicle then you aren't really getting ahead. But psychology matters too. Lots of people won't invest any surplus money; they (or their spouse) just spend it on other things if they don't spend it on QME. So there's the theory and there's the behavior.

[Ben]

I don't know zahc. As I said in the post above, it depends on a person's tax situation. However, I've made more in appreciation and dividends in the last year (admittedly a great stock year) on my tax advantaged HSA than I have spent in medical expenses in the last three years. Plus knocking down my AGI by $4400 every year is a big help in getting to a lower tax bracket.

I also look at the HSA as something of an old age fallback fund. I'll be maxing it out for the rest of my life, and if, God forbid, I need long term care when I'm old, hopefully there will be a good chunk of dough in the HSA to cover much of that care. And if I don't need the long term care, I'll have extra money for whiskey and Depends.  

EDIT: I should edit this to say, "medical expenses not counting insurance". The only way to be better off there, if you don't have employer insurance, is to win the friggin' lottery.  

[zahc]

I don't know zahc. As I said in the post above, it depends on a person's tax situation. However, I've made more in appreciation and dividends in the last year (admittedly a great stock year) on my tax advantaged HSA than I have spent in medical expenses in the last three years. Plus knocking down my AGI by $4400 every year is a big help in getting to a lower tax bracket.

I also look at the HSA as something of an old age fallback fund. I'll be maxing it out for the rest of my life, and if, God forbid, I need long term care when I'm old, hopefully there will be a good chunk of dough in the HSA to cover much of that care. And if I don't need the long term care, I'll have extra money for whiskey and Depends.  

Yes but there is nothing special about HSA investment accounts vs. other tax-advantaged accounts. The main thing that's special about HSA is you can withdraw the money penalty-free for QME. If you don't do that, then it's just an IRA. If you had paid for your medical expenses over the past three years with cheap HSA money instead of expensive post-tax money, you could have had correspondingly more in an IRA and made even more dividends and capital gains than you did. Failing to use HSA funds for QME is false economy unless you have maxed your 401K and Roth contributions and have nothing else you can do (buy guns, pay down debt) with the surplus money left over.

But whatever makes you feel better. I buy gold because it makes me feel better even though I know it's a bad investment.

[Ben]

Well, I don't work, so I don't have any other tax advantaged accounts. Though when I was working, I still maxed out the TSP, Roth, and HSA.

I'm actually thinking about starting some rink and dink "on paper" business so that I can get one of those individual 401Ks.