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Evaluating HDHP vs traditional plan with new child (need advice)

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  • Evaluating HDHP vs traditional plan with new child (need advice)

    My wife is due with our first child in under a month and it also happens to be open enrollment for our health insurance plans and I am evaluating which makes the most sense in our situation. Prior to this life-changing event (and my wife's pregnancy), in the past few years we always did HDHP so we could contribute to the HSA (maxed out last 3 years). Part of this was because my wife and I are extremely healthy and both in medicine (resident, physician assistant) so we can also diagnose basic things without having extra office visits. However...new year, new plan and more importantly, new child so trying to evaluate what makes the most sense from those with children who have gone through similar debates.

    Background
    -My wife and I are on separate health plans with different employers due to a "surcharge" if I am added to her plan.
    -For 2017, I will be maxing out my individual HSA at $3400.
    -Our child will be added to my wife's plan, and thus she would qualify for the "family HSA" plan if we want to go that route.
    -However, since we are "married, filing jointly" we must add the cumulative HSA's together, so she would only be able to contribute $3350 (6750-3400) to her plan. However, her employer will contribute $800, so her personal contribution will only be about $2550.
    -If we chose the HDHP, we would max it out.
    -Our collective income for 2017 is expected to be $100-110k.

    Comparing the HDHP vs the traditional plan
    HDHP:
    -Annual cost via payroll deductions: $1360
    -Deductible: $3500
    -Coninsurance: 15% (up to out-of pocket max)
    -Out of pocket max: $11,100
    -Prescription coverage is immediately applied to the deductible (not copays or coninsurance) regardless of what tier it is on
    -Preventative care: $0; no deductible

    Traditional Plan:
    -Annual cost via payroll deductions: $3185
    -Deductible: $1000
    -Coninsurance: 10% (up to out of pocket max)
    -Out of pocket max: $6000
    -Prescription coverage: pretty decent coverage; $4-45 seems to be the range for the "lower tiers"

    Number crunching (my math)
    -If we don't utilize any medical services for the entire year (unrealistic), the HDHP is ~$3255 better via the following math
    Payroll difference: $1825 (3185-1360)
    Employer HSA contribution: $800
    Tax savings on ~$2550 employee HSA contributions at 25% tax bracket: ~$630

    Questions
    -From my math, it seems like starting ~$3k better for the HDHP is the better option, especially if we don't use many medical expenses throughout the year. However, I know children can be expensive so I'm anticipating they will get sick. There is of course, the off-chance that something significant occurs and we will approach the out of pocket maximum which is much higher (although we could afford it if need be). I'm sure other people have experienced this similar decision and I'd be interested in feedback.
    -Also, has anyone used "WageWorks" for the HSA servicer? That's the new plan with my wife and I'm in the process of trying to get a list of their (hopefully low-cost) investment options.

    Thanks!

  • #2
    So I have run similar numbers for my family. This one issue is why the Affordable Care Act is falling apart: the ability to switch off HDHP's when you know your healthcare costs are going to be higher next year (child birth, elective hip/knee surgeries). The year of a baby's birth you don't want a HDHP (or at least for your wife since she has the ability to have a separate plan). As for your question: the year AFTER your baby's birth you are usually better off with a HDHP. The reason? All the doctor visits your child needs for immunizations are covered under any plan due to being classified as preventative care and my wife got all of her answers during these visits. As long as you don't take your child to an ER for every cold you should be okay. I'd argue you could have even 1 hospitalization for your child and still be okay. I think people need to think about insurance as risk adjustments like you have done. A HDHP is minimal risk to your financial health (no chance of bankruptcy or high interest debt). As for my extended family who has no savings and minimal medical knowledge? Traditional plans subsidized by employers are still much better for them to rule out the chance that the inevitable minor car accident (or similar event) could cause them to go into credit card debt.

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    • #3
      We've had an HDHP for 10+ years, but I check every couple of years whether the ACA plans make more sense. The numbers aren't even close for us ($450 monthly vs. $1,400 monthly for family coverage). One thing to consider is whether the employer plan includes equivalent coverage for dental, vision and other "non-medical" types of services that you might need. About half of our OOP medical expenses for the past few years have been dental, vision and body work. Those typically aren't well covered in the health insurance plans I've seen (not included at all, minimal benefits, separate deductible, etc).

      Those are all deductible HSA expenses though. Not free, but at least it saves on taxes.

      https://www.irs.gov/publications/p502/

      I switched to Select Account for the HSA provider because it offers rollover to a self-managed Schwab account after you reach $10K in funds. That allows investing in any of the Schwab investments instead of a small handful of funds. Depending on the timing of the HSA deposits, you can reach $10K almost immediately with a family HSA plan (e.g. Dec. 2016 and Jan. 2017 contributions of $5,000 each).

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