When it’s open season I’ve had several friends come and ask me which insurance plan they should choose. Obviously everyone’s health situation is different, but I’m going to briefly explain the process I use when I choose my insurance carriers. I am not going to include the pros and cons of high deductible health care plans (HDHPs) in this analysis for simplicity. So I am going to assume that this is for more risk averse individuals, or individuals who know HDHPs are not for them.
These are the points I will cover:
- Access to Healthcare
- Premiums
- Copays & Coinsurance
- Deductibles
- Reward Programs
- Medication Costs
- Out of Pocket Maximum
- Hospital Stays & Surgeries
- In-Network & Out-of-Network Benefits
1. Access to Healthcare
First and foremost when considering any health insurance plan consider how much access is necessary to healthcare. I live in the DC metro area. Some plans I choose from are national, while others are regional, only allowing access to doctors in DC, Maryland and Virginia. Be sure to consider if you will experience:
- Extended periods of time out of state. If your child or spouse has extended periods of time out of state
- Second opinions outside of your region (Mayo Clinic, Cleveland Clinic, John Hopkins etc.)
- Regularly seeing a doctor out of your region
2. Premium
The premium is pretty straight forward. It’s how much you pay for insurance every pay period. For a single person in my area, some range from as low as $50 to as high as $150. Multiply this by the number of pay periods in a year to get the annual cost. I have noticed a lot of people ONLY consider the premiums when determining their health insurance carrier. This is the biggest mistake!
3. Copays
Copays is a fixed amount of money you pay for an office visit or procedure. Coinsurance is the percentage you pay for an office visit or procedure. A good rule of thumb is to:
- Estimate number of visits to primary doctor and times it by the copay/coinsurance
- 3 visits x $20 = $60
- Estimate number of specialty care visits and multiply by the copay/coinsurance
- 3 visits x $30 = $90
- Consider testing you need. X-rays, MRIs, blood work, etc.
4. Deductible
A deductible is generally the amount of money you must pay before the insurance company will start paying your medical bills. One thing I have learned is sometimes not everything applies towards the deductible! This is a good thing! I have a $500 deductible, but it only applies if I end up in the hospital. So other than the copay, my insurance will fully cover doctor visits, testing etc. on the very first day of coverage. This year I hit my out-of-pocket maximum without reaching my deductible.
5. Rewards Program
Some insurance programs reward you for being healthy. I get a $500 reward card if I am not overweight, diabetic or hypertensive. I can use this to pay my copays or deductible.
6. Medication Costs
Don’t forget to compare this as well!
7. Out of Pocket Maximum
This is the most you will pay out of pocket. This is important to consider, because if one plan is slightly cheaper in every way but has an out of pocket maximum that is significantly higher then it might not be the plan for you.
8. Hospital Stays & Surgeries
If you know you have a hospital stay or a surgery coming up, or that you are likely to end up needing either or. Compare these benefits. Some insurance plans bill hospitals stays each day. Others are per stay. Then there are the coinsurance plans.
9. Network Benefits
If you want to see an out of network doctor be sure to check the out of network benefits your plan has to offer. Remember if the doctor bills beyond what the insurance company is willing to pay you will owe them the copay/coinsurance plus the unpaid amount.
Simplified Example
Below is a simplified example of two health care plans. It is similar to a decision I had to make when I was choosing health care plans this open season:
| Plan A | Plan B | Conclusions | |
| Premium | 50 | 85 | Plan A costs $1300/year
Plan B costs $2210/year |
| Copays/Coinsurance | 20% copay for appts
20% coinsurance for all other services |
$10 copay for Primary
$30 copay for specialist $50 Urgent Care … various fixed copays for all other services |
Plan A – 3 appts = $210
Plan B – 3 appts = $160 |
| Deductible | 0 | $500 | |
| Rewards Program | None | $500 Reward | |
| Medications | $10 copay | $5 copay | Plan A – 5 meds/month = $600
Plan B – 5 meds/month = $300 |
| Out of Pocket Maximum | 3000 | 3000 |
Conclusions
The estimated costs for each plan is as follows
- Plan A = 1300 + 210 + 600 = 2110
- Plan B = 2210 +160 + 300 – 460 = 2210
The most I would pay with Plan A is 1300 * (0.70) + 3000 = 3900
The most I would pay with Plan B is 2210 * (0.70) + 3000 – 500 (reward) = 4047
Where 0.70 is a multiplication factor to convert pre-tax dollars (my health care isn’t taxed by my employer) to after tax dollars.
In every way Plan A is estimated to be cheaper, but personally I went with Plan B because I’d be able to smooth my spending. The fact that plan A has coinsurance rather than fixed copays suggests that I may be paying a large sum of money very early on in the year and hit my out of pocket maximum quickly. $147 is not enough for me to pick Plan A over Plan B unless I had a very solid emergency fund to fork over $3,000 all at once and then some in the case of a catastrophic health situation.
