#004 – Don’t Fear The High Deductible!
A High Deductible Health Plan (HDHP) plus a Health Savings Account (HSA) is far less expensive than a traditional lower deductible PPO plan like you probably have now.
With a High Deductible Health Plan and and HSA:
The premium you pay is likely far lower
The amount of your out of pocket expenses is likely far lower
Tax Advantage of HSA
Federal Income Tax Brackets – know which one you are in!
For 2021: 12%, 22%, 24%, 32%, 35%, 37%
How much do you need to earn from your paycheck, pay tax and then have enough to pay a $1,000 deductible?
If you have a Health Savings Account you don’t have to pay any tax…….with a traditional PPO, you have to pay Uncle Sam the tax and then pay your deductible!
|Traditional PPO||HDHP with Health Savings Account|
|Tax Paid to IRS (24% tax bracket)||$315.79||$0.00|
|Net Amount To You||$1,000.00||$1,315.79|
|Available to Pay Deductible||$1,000.00||$1,315.79|
It does not matter whether you have zero claims or if you have maximum claims, the amount of money that you will spend will likely be more, way too much more, in a traditional PPO plan like the one you probably have now.
High Deductible sounds scary!
Low deductible and 80% coinsurance sounds nice and is something that you are familiar with.
At the end of the day, if you have no claims, an HDHP costs less by the premium alone.
And, if you have maximum claims, your Out of Pocket Maximum is likely far less with an HDHP, as well.
I give you a great illustration using a real quote that I recently produced for a prospective group.
|Traditional PPO||HDHP w/HSA|
|Premium Per Month||$694.81||$450.35|
|Additional You Pay For Claims||$3,500.00||$0.00|
|Total You Spend For The Year||$13,337.72||$8,404.20|
As you can see, the traditional PPO plan has a monthly premium that is over $240 higher per month ($694.81 – $450.35 = $244.46). So even with no claims, the HDHP is far less expensive for the year ($244.46 x 12 = $2,933.52). The HDHP is nearly $3,000 less just in the premium paid.
At the Out of Pocket Maximum – in other words, that means the most you will spend in anyone year – the traditional PPO is $2,000 more expensive than the HDHP ($5,000 – $3,000 = $2,000).
Together, combing the Premium with the Out of Pocket Maximum – the amount that you will fully and completely spend every year – the HDHP with HSA is nearly $5,000 cheaper than the traditional PPO ($13,337.72 – $8404.20 =. $4,933.52).
That does not even account for the tax savings!!!
To cover the $5,000 Out of Pocket Maximum, you will need to earn $6,578.94 to pay the IRS and then the $5,000, if you are in the 24% tax bracket. Add that difference to the $4,933.52 and the traditional PPO plan winds up costing you $6,512.46 MORE than the HDHP with the HSA!
If you need help……contact me right away!
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