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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 Plan Monthly 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 Plan Yearly 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 Plan Deductible
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 Plan Yearly 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?