The value of a PPO copay plan, and of an HSA plan

[Mark Howard]

Most people are so used to copay plans that they don’t consider what the value of the copay is.
Here is what I see most commonly, a copay on a Dr visit for individual health insurance only covers the cost of the ‘office visit charge’, nothing else.
That is not the same as group insurance.
Most good PPO networks mean your Dr office visit charge is the $50 range. So a Dr. visit office charge copay of $25-$45 doesn’t save you a lot of dollars.
Most importantly, what the copay does is disqualify you from health savings account (HSA) eligibility. That means you no longer qualify for the tax deduction of your out of pocket expenses.
Most people confuse an HSA with and FSA. With an HSA you never lose your money and you are the administrator of the account. There are no downsides.
On a routine Dr office charge of $50, tax deductible gives you a net cost of about $35 (which is about what the copays are). But the copay means that when you really need thousands of dollars in healthcare, you will not get the tax deduction that an HSA allows.
So here is most commonly what a copay plan does for you, saves you $20 on a Dr visit, costs you more in monthly premiums, increases your total out of pocket risk (through coinsurance percentages) penalizes you in the tax code, and provides much less valuable preventive care (because Anthem has the only HSA plan in Indiana with 100% free preventive care). A copay plan by definition will not provide free preventive care. With an HSA plan you get the PPO discounts and tax deductions on all healthcare you pay for. That’s about a 50% reduction in costs. Not so with copay plans.
As an MBA and full time independent health insurance specialist, I study all the issues and provide my clients with the best council they can get. Most agents have very limited plans they can sell, and do not specialize in the highly complex and competitive nature of health insurance.

[Mark Howard]

Not too many $250 deductibles left out there! That is very low these days. That has to be expensive. Group is not always as clear cut as individual coverage. HSA premiums can be closer to traditional premiums on group vs individual. This is partially due to expensive govt regulations (guarantee issue, maternity, COBRA, etc), so the premium savings are not always there to compensate for the higher deductible. If your premium cost varies by employee the comparison gets even more convoluted. Hopefully you have a good agent who has brought very specific quotes for your group. If you have a good agent who has brought a specific quote for your group and has a good grasp of HSAs, then it's probably legit that it won't work for you. Some agents sandbag the benefits of HSAs because it cuts premium drastically, agents get paid on premium, follow the money.....But it sounds like you may have gotten a fair shake on it. I have some questions, but doubt if you want to throw out the answers for all the world to see here. If you want to email or talk about it I would be glad to have a conversation, no sales pitch.

[Duke Brown]

Mark, we have Anthem 80/20 co-pay and have looked at HSA several times but fail to see the benifits to my employees. I pay 100% of the employee's coverage and they are responsible for any spouse or family coverage that they want. We have a $250 deductible. When we look at the overall average out of pocket costs when we look back at historys not counting major events savings doesn't appear to be there? I am very open to your views on this matter.

[Mark Howard]

no

[Stephen James]

Thanks, for the information. Regarding the taxing, I was probably just thinking of pure taxes, not SS or Medicare, nor the other half of those that the self-employed have to pay.

So if you are not self-employed, you would need to receive the pay-raise of the lowered premium and place that in the HSA in order for the consumer to come out ahead?

[Mark Howard]

tax bracket clarification for single filers, you pay federal income tax of 10% on income up to $7,825. you pay 15% on the amount over $7825, you pay 25% on the amount over $31,800. and up from there. so you save those tax rates plus the state income tax of 3.4%. Then there are the married filing jointly which basically doubles the income amounts to get to the same tax rate. Most consumers cut their out of pocket cost by 28% or so by enabilng themselves to write if off through an HSA. It gets even better if the
HSA contribution can come out pre-tax at work. Then you also save the payroll tax (social security, medicare). Then your total approaches 40%, even for modest income people. So look into an HSA plan and a copay plan, just make sure to compare all the issues. About 10% of the people I talk to are really better off with a copay plan.

[Mark Howard]

Question 1, I don't know your tax bracket so I couldn’t answer that one. I can say with confidence that saving 10% on out of pocket expenses is better than not saving 10% on out of pocket expenses. 2. no, that is an 'FSA' where you lose your money, this is an HSA where you keep it til you spend it or cash it in, and no it is not gambling at all, copay plans often have greater out of pocket risk than HSA plans. Big groups have no negotiating power that I have ever seen, big group rates are the highest premiums in the land (my big group rate with a big hospital for my family is $1,500 a month total, an obscene amount, I pay about 1/3rd of that cost). That is $18,000 a year for the precious health plan that covers everything with a copay. If the employer would pay the same percentage on an HSA plan I would jump at the chance. I could choose an individual HSA plan with a $6,000 annual premium and a maximum out of pocket of $6,000, therefore creating a scenario where my out of pocket for the year would be between $6,000 and $12,000 depending on claims. That beats the hell out of spending $18,000 no matter what. But I do not have the choice of an HSA plan because the company does not offer it. So quite the contrary, insurance companies sell all kinds of insurance and people often voluntarily sign up for the most cost inefficient insurance there is. If consumers have the choice (which they do on individual insurance) and an education, 90% choose an HSA plan. If in a group which is subsidized by the employer (which skews the economic choice) many opt for the traditional highly expensive inefficient plans because they have no choice, or no education on the benefits of each. The bias of the industry is to sell the copay plans as they generate big revenue for the insurance company, and the biggest commission for the sales brokers. I am the rebel who promotes what is right, which is the much more cost effective (and commission to me) plan. Most agents love to sign people up for what they ask for, copay plans with the bigger premium and bigger commission. Some agents even do worse by selling copay plans that cheapen the coverage to make the copay seem like a decent premium. When they are pulling the rug out from under them on some covered expenses they may well need in the future.

[Stephen James]

I've always thought that an HSA was just a way for free-market Austrian school economists to agree with insurance companies on policy. I think my income taxes at year end are under 10% or whereabouts. Aren't I just saving 10% of the money I place in an HSA in order to pay for the majority of the cost of the medical bill? Do not I lose HSA money if not used in a certain amount of time. Isn't that gambling and hoping I get sick?

I understand that you might come out ahead if you are not in a group (or have a small group) and there do not have any negotiating power against insurance companies, so they charge a higher premium per person. I also understand how if you don't think you will get sick and your employer does not pay the premium, you could come out ahead, but why not just use a high premium of $2000 or something, if you are going to risk that.