Explaining an HDHP with lower out of pocket max than PPO

mrbean9

New Member
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I'm looking for help in how to explain to an employer why their HDHP has a lower out of pocket max than their PPO. Running into questions about this, since generally HDHP's have higher out of pocket maxes.

One employer with such an arrangement is receiving many questions from employees about how to evaluate the plan options because of this. Do you have any guidance for me on what to say to the employer?

In this case the PPO has a $1k deductible and $5k out of pocket max. The HDHP has a $3k deductible and a $3750 out of pocket max. Monthly premiums for the PPO and HDHP are $172 and $94, respectively.

So, if a policyholder expects a major operation, they are better off selecting the HDHP, due to lower out of pocket max and premiums. If they do not, but expect regular specialist visits and Rx purchases for a chronic condition, they may be better off selecting the PPO, due to the lower deductible. If they have minimal healthcare needs, the HDHP is preferred.
 
Caveat, I am not an agent or tax advisor so verify the following comments for your own situation. The following is my personal experience.

I am a Medicare Beneficiary. I have had a High Deductible Medigap plan for several years.
I have that because of the lower premium and it gives me the opportunity to manage the premium difference between "regular" Medigap and "high deductible" Medigap myself instead of giving the money to an insurance carrier.

My wife has had an HDHP HSA eligible ACA plan for several years. We have been able to find the money to make maximum HSA contributions each year which has helped us with our taxes and created a small buffer fund for future medical expenses.

So, if a policyholder expects a major operation, they are better off selecting the HDHP, due to lower out of pocket max and premiums.

If they have the HDHP AND an HSA, they can get a tax break for HSA deposits and take the money from the HSA account.

If they do not, but expect regular specialist visits and Rx purchases for a chronic condition, they may be better off selecting the PPO, due to the lower deductible.

If they have the HDHP AND an HSA, they can get a tax break for HSA deposits, take the money from the HSA account and have some HSA savings for future medical expenses. (Verify this before saying it to someone else, but I believe Medicare Part B premiums are an eligible HSA expense so I see that as one benefit of having HSA funds to carry over into Medicare days.)

If they have minimal healthcare needs, the HDHP is preferred.

If they have the cash flow, they can also make maximum HSA deposits, receive the tax breaks and accumulate funds for future medical expenses.

I believe that things like Dental, Vision and some Medical Supplies are also eligible for HSA based purchases. (I don't know if this is precisely correct but my personal guideline is if I think it is an FSA eligible item it is also likely an HSA eligible medical expense.)

As far as creating the HSA account, the following is not an approach some agents on the forum would recommend, but we found a local credit union that offers HSA accounts, signed up for one and it has worked very smoothly.
 
If the PPO and HDHP would happen to have different provider networks, that might also be a factor in making the "best plan" decision for some employees.
 
If the PPO and HDHP would happen to have different provider networks, that might also be a factor in making the "best plan" decision for some employees.

Do PPOs tend to have broader networks?

The HSA includes a $600 contribution by the employer so this should also factor into the equation. I can't think of a case in which an FSA would be preferred.
 
Caveat, not an agent.

Do PPOs tend to have broader networks?

That's a question for an agent. BCBSKS ACA plans, HDHP or NON-HDHP had the same network. That's the extent of my experience.


The HSA includes a $600 contribution by the employer so this should also factor into the equation.

To me, that would be another plus for the HDHP-HSA combination. You get employer money for medical expenses, you save almost $80 a month on premiums, and you get an income tax benefit. And the full hsa contribution comes pretty close to the maximum out of pocket.

You should look at rules to see how employer contributions affect employee contributions-we never had that situation so I am not familiar with how employer money affects what the employees can put in the HSA.

I can't think of a case in which an FSA would be preferred.

I was not suggesting an FSA would be preferred. I was just using that as a perspective example of how I personally think through whether a medical expense I want to incur would be eligible for funds from my wife's HSA. I have older employment experience with an FSA but very, very limited experience with an HSA. Asking HR or looking up IRS rules would get to the same result.
 
To me, that would be another plus for the HDHP-HSA combination. You get employer money for medical expenses, you save almost $80 a month on premiums, and you get an income tax benefit. And the full hsa contribution comes pretty close to the maximum out of pocket.

You should look at rules to see how employer contributions affect employee contributions-we never had that situation so I am not familiar with how employer money affects what the employees can put in the HSA.

Good point. Employer HSA contributions are not treated as taxable income but do count toward employees' annual contribution limit which in 2023 is $3850 so in the case of this HDHP plan the employee can contribute up to $3250. The HSA max tax savings are higher than FSAs, given the larger max contribution allowed by the IRS.
 
I was not suggesting an FSA would be preferred. I was just using that as a perspective example of how I personally think through whether a medical expense I want to incur would be eligible for funds from my wife's HSA. I have older employment experience with an FSA but very, very limited experience with an HSA. Asking HR or looking up IRS rules would get to the same result.

Good point. Employer HSA contributions are not treated as taxable income but do count toward employees' annual contribution limit which in 2023 is $3850 so in the case of this HDHP plan the employee can contribute up to $3250. The HSA max tax savings are higher than FSAs, given the larger max contribution allowed by the IRS.

I am now very sorry I mentioned FSA's at all.

I REPEAT, my FSA comment had ABSOLUTELY NOTHING to do with employer taxes or what might be tax advantage to employees between the FSA and HSA.

THE ONLY reason, I REPEAT, THE ONLY REASON, I mentioned FSA's is to say that I used the classification of medical expenses for FSA purposes to guide my personal judgement as to what would be a legitimate medical expense for HSA purposes because I believe the same IRS pub describes the same qualified medical expenses for both plans.

STOP trying to make me be saying stuff about whether an employer should have an FSA or an HSA or which is better from the employer or employee point of view.
 
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