HDHP vs. PPO/OAP plan Question…is growing an HSA worth the cost of paying max OOP w/ chronic illness?

[servant1021]

I also posted this in r/personalfinance, but didn’t get many responses. It’s open enrollment at work, and I was just diagnosed w/ a chronic illness about 2 months ago. Approaching 40, good salary (approx 110K), not in the best position w/ retirement savings (@ 50K in 401Ks and 25K in a Roth) and wanting to take better care of future me. So, here's the numbers I'm working with (for an individual plan).

HDHP: OOP max - $5000 + premiums @ $1,800 annually = $6,800 ...With new medication costs, plus a couple other scripts, I will definitely hit OOP max. Deductible is $3200, but I don't think that really matters since I know I'll hit it.

PPO plan - OOP max 4,500 + premiums @ 3,300 annually = possibly up to $7,800 annually. Prescription co-pays don't count towards deductible anyway. Based off the drug formulary for monthly scripts, I'm looking around 500-1000 on the year for rx/doc appt. co-pays. So, best case scenario I spend around $4,500 pre-tax dollars on the year (would use an FSA to cover copays, etc.) Deductible is $1,500.

With the HDHP, I can contribute up to $4,150 into an HSA, automatically taken from my pay-check (no employer contribution). I know without question that I will obviously pay way more this year for medical costs for the HDHP (basically 5,000 post tax and $5950 pretax). BUT...is the long term gain on the HSA funds appreciating over time worth the additional costs this year? I don't know how to do that kind of math. I assume older me will almost certainly have unexpected/expensive medical costs. How many years do I need that money to invest before I 'break even' on the additional cost I'm spending now? Does that question even make sense?!

I'm fortunate to be in a position where I am able to save around 1K/month after monthly expenses and 401K deductions. I try to just plunk the max into a ROTH from my savings before the April deadline. I'm almost certain (pending out-of-network emergency medical disaster!) I can pay the approx. 10K in medical costs this year and still pay off the rest of my 11K in student loans. It would mean eating into my emergency funds a bit and probably only having 7-8K in emergency funds to work with...but also mean being 100% debt free w/ a little starter HSA as well as my Roth and 401K. Sooooo....any mathletes in here have advise/words of wisdom? Things I haven't considered that I should be thinking about? Math formulas I can use to help me understand my options? Is paying more in medical expenses now, while I can afford it, worth the potential HSA growth later????

If you're still reading...thank you

 

[ngocvncom]

@servant1021 Too busy to read your details and do your math right now. But in general HDHPS are generally great for this who are really healthy or are really sick and will definitely hit their OOP max. Those in the middle with significant regular spending under the OOP max from a chronic condition are often not better off in an HDHP and any tax/premium savings gets eaten up by extra cost sharing vs a non-HDHP

So if your math is showing you that; you’re not wrong; it’s typical.

 

[christeveanity]

@servant1021 Well, the $4,150 you plan on contributing to the HSA would be a tax benefit for you as it would reduce your gross income, even if you end up spending out of the HSA as you go along, you will still get that tax benefit.

Am assuming that your doctor(s)/specialist, local urgent care, local hospital, and prescription meds you use are all covered in-network under the HDHP?

However, your retirement savings are fairly low. How much are you contributing to your 401k and what is the employer match?

From a personal standpoint, we could never make the HSA work for our family. One, because we started it too late, and, two, we needed to spend what was in it on medical bills for our family (which included 4 kids at the time we had it).

 

[servant1021]

@christeveanity Thanks for the thoughtful response. My retirement savings are indeed low for my age. Spent several years in my early 30’s having too much fun spending my money and am making up for it now. I’m contributing 13% right now. Have needed the extra cash to pay down debts (just got the student loan to work off, almost there!) and build an emergency fund.

Yes, I verified that all my docs and specialist are in-network.

I also feel that, approaching 40, I’m perhaps too late to the game to start putting money in an HSA. I know I could afford to just not touch it this year and pay the OOP max w/after tax dollars -but I think that might be a stupid financial move. I don’t know if those dollars will grow enough to counter the loss of paying post-tax money on my healthcare this year.

 

[servant1021]

Forgot to add…I contribute 13%, employer match up to 4%

 

[christeveanity]

@servant1021 We didn't start putting money in until we were much older than you, so you have much more time. If referring to one year, probably not, although it depends on what investments are offered within the HSA, how the markets are doing, what you ultimately decide to invest in, and if keeping the money in the HSA versus spending it, etc. If you are planning on putting the same amount or more in year after year for the next 25 years or so and investing inside the HSA, then, yes, it probably would be worth doing. You would probably have a nice nest egg for medical expenses when you retire. This question is hard to answer because there are too many variables and we do not know the extent of your health issues or how your finances will change over the next few decades.

Here is an HSA calculator which may help you with your decision.

https://www.hsabank.com/hsabank/Learning-Center/HSA-Savings-Calculator

 

[servant1021]

@christeveanity Thank you! That helps

 

[masquerading]

@servant1021 I would roll the dice one year with the HDHP and switch if necessary to the lower deductible. Even if you did it 10 years and left it untouched, you're looking at a 3rd retirement account in the 250k range.