A high deductible health plan (HDHP) generally has the following characteristics:
- Higher deductibles: This is the obvious one. By signing up for an HDHP, I agreed to pay more out of pocket for most health care before my insurance company pays its share, when compared with a traditional plan.
- Lower premiums: In exchange for having to pay more every time I need care, my insurance company charges me a lower premium every month.
- Health Savings Account (HSA): Having an HDHP makes me eligible for an HSA, which is an account I can contribute to, an later pay medical expenses from, without that money ever being taxed. Some employers, like mine, contribute to your HSA.
Since I was young and didn’t anticipate needing much medical care, and thus wouldn’t pay many deductibles anyway, I was the perfect candidate to take advantage of the lower premiums.
Getting down with the sickness
I was surprised with a chronic illness at the end of May and have been dealing with it all through June. I’m only partway through what’s turning into a long diagnosis phase, and it’s already proven to be very expensive.
But after a month where I’ve spent thousands to diagnose a new, ongoing health issue, I started to wonder: was my choice of a HDHP still the cheaper and smarter option over a traditional plan?
Let’s look at the math
The three big variables relate to the aforementioned characteristics of high deductible health plans:
- Premium: $1550 for the traditional plan annually; $950 for an HDHP
- Expected health care spending: This is the hardest to predict. With the traditional plan, I would co-pay $35 per visit until I hit the $1500 out-of-pocket max. With my HDHP, I pay around $300 per visit, until I hit the $1500 deductible, then pay $60 per visit until I hit the $3000 out-of-pocket max.
- Employer HSA contribution: No contribution if I picked the traditional plan (no eligibility either); $600 annually with the HDHP
This makes a lot more sense using three graphs.
This first graph shows net fixed cost. The HDHP has a lower premium than the traditional plan, and the employer HSA contribution makes the HDHP effectively even cheaper.
This second graph shows how much more office visits cost with the HDHP, due to the high deductible. Note that my plan, like many, includes a physical that my health insurance company pays for every year. So I could do an annual physical every year and I’d still be at zero office visits on the graph.
This final graph combines the first two and shows what I’ve always known intuitively — that the HDHP is cheaper when I only visit the doctor a few times per year.
The bad news is that I’ve done visited the doctor 11 times this year, which is beyond where the lines cross, which means I’m paying more with the HDHP this year than I would have had I chosen a traditional plan.
The good news is that the lines never diverge too much so I’m not going to be paying that much more — a few hundred is what I suspect. The even better news is that this is the third year I’ve gone with the HDHP and when I factor in years 1 and 2 where I had zero visits other than my annual physical, I’ll still be ahead by a few-thousand dollars.
That said, now that I have this information, if I’m not all patched up by the end of this year, I’m probably better off switching to the traditional plan.