The Total Cost of Ownership Framework
Total cost of ownership (TCO) analysis compares the full cost of an HDHP to a traditional plan, including premiums, out-of-pocket costs, and HSA contributions. For most employees, the HDHP has a lower TCO — but this is not obvious from the plan design alone.
| Cost Component | Traditional PPO | HDHP + HSA |
|---|---|---|
| Employee premium (annual) | $2,400 | $1,200 |
| Employer HSA contribution | N/A | -$1,000 (reduces net cost) |
| Expected out-of-pocket (average utilizer) | $1,500 | $2,000 |
| Total cost of ownership | $3,900 | $2,200 |
| Savings with HDHP | $1,700 |
The Break-Even Analysis
The break-even point is the level of healthcare utilization at which the HDHP and traditional plan cost the same. Below the break-even point, the HDHP is cheaper; above it, the traditional plan is cheaper. For most employees, the break-even point is at a level of utilization that only a minority of employees experience.
Decision Support Tools
Pro Tip
Decision support tools that show employees their expected total cost under each plan option are the most effective way to drive HDHP adoption. When employees can see that the HDHP will save them $1,700 based on their expected utilization, they choose it. Without this analysis, most employees default to the plan with the lowest deductible — which is often the most expensive choice for them.