One Comparison: PPO vs. High-Deductible Healthcare Plans
When I first decided to do a blog post about high-deductible health insurance plans, encouraging consumers to dive deep into the numbers to see if an HDHP might be right for them, I hadn’t dug in as deeply as I could have myself. I knew, for my family, given our usual expenses, the HDHP made sense. I assumed that this plan benefitted us because we didn’t really go to the doctor much anyway other than preventive care and the occasional cold. Some of my husband’s colleagues said they wouldn’t even consider leaving their managed care insurance because they needed the insurance to pay the myriad of expenses that characterized their typical year. For that reason, it would make sense that they would continue on the plan that worked best for them …
Except it doesn’t.
Even though their plan seems to cover more healthcare expenses throughout the year, when I did the math, it turns out they pay more, in total, with the PPO than they would with at least one of the high-deductible plans in every circumstance. It doesn’t matter how many doctors they see. Given the choices offered to them, the $4000-deductible plan beat the no-deductible plan every time.
Of course, each employer may offer a different set of choices, but I’m going to show you one real-life scenario as an example of what I mean. In fact, in this scenario, I will even weight the advantage to the PPO plan by not including the employer’s typical Health Savings Account contribution of $1200/year for a covered family. We’ll see the straight stats without this contribution.
Before I give you the numbers, let me clarify some typical health insurance definitions:
Deductible--The amount of expenditures a patient must pay "out of pocket" before the insurance company will pay any of the cost of the medical expenses.
Out-of-Pocket Max--The amount of out-of-pocket expenses the patient must accrue before the insurance company will pay 100% of the cost.
Coinsurance--The insurance company pays a set percentage of the medical costs, leaving what's left for the consumer
Example of how the above works:
If you have a $2000 deductible, and the plan pays 80% coinsurance after the deductible, and it has a $4000 out-of-pocket max, then the following is true if you accrue $15,000 worth of medical expenses …
$2000 Patient pays all these expense up to deductible
$2600 After the deductible, the patient pays 20% of the remaining $13,000 up to the OOP Max.
$4600 Total??? Actually not. The total patient responsibility will be $4000.
That total amount would be the patient's responsibility if not for the max. Because the out-of-pocket maximum is only $4000 in this example, that is the total the consumer will pay that year. The insurance company will pay the rest under just about every circumstance as long as she uses in-network providers. That's a pretty low OOP Max, however. But it gives you an idea of how the max works.
Here's some more definitions...
Premium--The money the consumer pays the insurance company in order to have coverage.
Health Savings Account (HSA)--Tax-free contributions, often taken directly from the consumer’s paycheck before taxes, put into a bank account to save for medical expenses. This money can be invested and at the age of 65, the consumer can turn it into an IRA in order to be used for retirement expenses. This is NOT the same as a Flexible Spending Account (FSA) that disappears at the end of the year. The HSA money stays in the account year after year and grows as much as the consumer allows it to.
Okay, now let's look at this choice of offerings ...
“But that means I won’t have as much insurance coverage,” you say.
Well, let’s see.
Let’s take the annual premium savings from each HDHP plan and put as much of it as we are allowed to into the HSA account. This would effectively make all plans the same price if the government didn’t cap this amount to $7200. For this reason, with the Extra High Deductible plan (which saves the consumer $8,940 annually), we will have to divide the savings into two parts: what can be put into the HSA tax free ($7200) and what will go into your regular savings account after taxes (estimated somewhere around $1322 in the average tax bracket).
Now let’s see how much each covers. In order to do this, I decided to imagine various scenarios of annual medical expenses: $1,000, $5,000, $11,000, $15,000 and $100,000. That way you can see how the plan works before the deductible, at the deductible, and at or above the OOP Max. I only created these using In-Network providers so this blog post wouldn’t get too long. If you tend to use a lot of out-of-network providers, I’ll let you do that math.
Here’s what the in-network expenses look like. Make sure you take a hard look at the Consumer Balance line. That is the money left over. Notice some numbers are in red or with minus signs in front of them. That means not only is there no money left over, but the consumer would have to pay that amount in addition to the premium. The numbers not in red or with a minus sign signify money the consumer saved and can use for coming years.
WOW!!! I bet you didn’t see that coming!
Check out that “Consumer Balance” line at the end of each scenario again. In every case, the consumer, after paying the same amount into the plans (premium + HSA contributions), pays MORE money for medical expenses while using the PPO than they would using the middle HDHP.
Even more interesting, is the Very High Deductible plan. In the first two scenarios ($1000 and $5000 in expenses) the consumer is left with significantly more SAVINGS ($7522 and 3522) than even the lower HDHP. Where the consumer is taking the largest risk is as the expenses near the $11,000 mark. But consider two things: 1) How often does this actually happen? and 2) If it does happen one year, how often would you be accruing savings in other years that could cover this larger expense when it does happen? Also, note that $2478 is the max you would be paying in addition to the PPOs premium amount in this case, whereas the additional expenses in the other two scenarios keeps growing.
"How does that happen?" you ask, "when that plan has an out-of-pocket max far higher than the first plan?"
It's because you have put away the money you would have saved not paying the PPO premium. And now you can use it on those expenses. Look at the numbers again and see if I'm wrong.
It’s also important to know that in the above offerings, the real life choices included an employer contribution of $1,200 to the HSA. This would not be given to the PPO consumers who cannot contribute to an HSA with a PPO plan. I did not include the employer contribution since, as of this writing, I am not sure how common employer contributions to HSA plans are. Still, if you added that amount to the HDHP plans above, that would give them an even greater advantage over the PPO.
Please remember, that the plans you are offered through your employer, or even from an exchange, will likely differ from those outlined above. So don’t make your decisions based solely on this example. Please consider all of the factors involved (deductible, coinsurance rates, OOP Max, preventive care and HSA employer contributions) and create your own chart. The time it takes to do so will save you (actually, earn you) a significant amount of money.
For us, taking that time saved us over $4,500! In the years to come, that time taken may even save us $10,000 in one year because we may switch to the Very High Deductible plan once we build more in our HSA.
I’d say that was time well spent!!!
Praying you choose well.
