Insurance Options: HSA, HMO or PPO

piggy bank

I sat down this weekend to review our insurance options for next year. As owners of a small company my husband and I spend a ridiculous amount of money on insurance premiums each month. I don’t miss much about my working days, but I do miss the benefit of employer provided insurance. In 2011, (the last year I was gainfully employed), I paid less than $2000 in premiums for an entire year’s worth of insurance! My employer paid $8,725. These days we are on the hook for the entire $10,000 to $18,000 bill!

Our options for next year include three different plans; a PPO, an HMO and a high deductible HSA plan. The breakdown is as follows:

Type of PlanMonthly Premium
PPO$1,541.71
HMO$1,082.90
HSA$843.07

These numbers are quite specific to our little family of three. The premium is based on each of our ages, so I know that the PPO plan costs $611.94 for me, $615.89 for my husband and $313.88 for my son.

The difference in premiums is quite substantial. The PPO plan costs $698.64 more than the HSA plan per month and $8,383.68 per year.

Type of PlanYearly Premium
PPO$18,500.52
HMO$12,994.80
HSA$10,116.84

Of course the premium calculation is not the only factor to consider. The breakdown of deductible costs are as follows:

Type of PlanDeductible
PPO$500
HMO$0
HSA$3000

Comparing medical plans is like comparing apples to oranges. To better even the score I added deductibles to the yearly premium totals. In the worst case scenario, (like this year), we will pay the entire deductible before our insurance kicks in.

Type of PlanYearly Premium + Deductible
PPO$19,000.52
HMO$12,994.80
HSA$13,116.84

As you can see the HMO plan is the cheapest overall option, but I am not a fan of HMO plans. I’ve experienced my fair share of medical issues and I know how difficult it can be to navigate the health care system when troubles abound. I have no desire to wait around for doctor referrals when I am in pain or in need of care. Especially not to save $122.04 a year.

After ruling out the HMO I tried to break down the costs of the PPO and High Deductible plan even further. There are definitely more upfront costs with the high deductible plan. For example, I would owe a $30 copay for medical treatments like allergy shots, physical therapy, and acupuncture. The same goes for x-rays, lab work and other diagnostic procedures. If we experienced a truly horrible year we could easily pay hundreds to thousands of dollars for these services. The maximum out of pocket costs for the HSA plan are $8,000, which means I could pay a total of $5,000 more after meeting the yearly $3,000 deductible.

It seems even in the very worst case scenario the HSA plan is a better deal. After accounting for deductibles the difference between the HSA and PPO plan is $5,883.68, which means even in the very worst case scenario I will save $883.68 by choosing the HSA plan.

The high deductible plan also allows me to save $6,650 per year in a tax advantaged account, which means some of my dollars will be spent before tax further boosting my overall savings.

What do you think? Am I missing something important? Is there something else I should consider when choosing between these plans?

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