How to win the health insurance game
In this series, we examine common questions we get from our clients and challenge the conventional wisdom when shopping for a health plan. At Take Command Health, our goal is to equip you with the knowledge and expertise so that you can make a great decision.
"I need a health plan with a low deductible"
Well...maybe you do and maybe you're about to waste a ton of money. Before we go too much further, let's all get on the same page about what a deductible is.
A "deductible" is the amount you must pay before your health insurance starts to chip in on your bills. Insurance companies include deductibles in their plans because in theory, it's supposed to encourage you to be wise with your health dollars and force you to have some "skin in the game" with your own healthcare. While it makes sense from an economic-theory perspective, it can sure feel frustrating when you're paying tons of money in premiums and then feel like the insurance company isn't paying anything when you see the doctor.
If you have enough medical expenses in a given year though, you will reach your deductible. After the deductible, the insurance starts to pay a percentage of your bills. This is called coinsurance. You continue to pay your part until you reach your max out-of-pocket (MOOP) limit, or "max limit". Remember these graphs from high school? Here's how a typical health plan is structured:
Summary: You pay everything up until the deductible, split costs with the insurance company until you hit the max limit, and then you pay nothing more and the insurance company pays everything.
Now, someone might ask--"what about copays"? Good question, but this is a common misconception: copays don't count towards the deductible! We'll cover this more in depth in another article soon, but for now, leave copays out. Frankly paying $30 to see a doctor or $15 for a prescription isn't going to impact much when you're talking about thousand dollar bills and hundreds of dollars a month in premiums.
Why deductibles don't really matter anymore (most of the time)
Before the Affordable Care Act (ACA, aka "Obamacare), it used to be you got nothing before the deductible. From that standpoint, it's understandable why so many people say they want a low deductible--they want to feel like they are closer to getting something.
However, ACA has changed this. Now health plans have to pay for preventive things like well-visits, annual physicals, health screenings, immunizations, etc for $0 before the deductible. You could see the doctor twice a year for check-ups, get a colonoscopy, a flu shot, and a vaccine booster and guess how much you'll pay towards your deductible? That's right, $0. So the only things that will go towards your deductibles are expenses you face when you're sick or injured or need non-preventive care.
Our goal at Take Command Health is to help you choose a health plan that will minimize your total health care spending over the course of the year.
Total Health Costs = Cost of Care + (Monthly premiums x 12)
The deductible does play a role in your cost of care, but not as much as you might think. Let's look at an example: We get a lot of clients that think they need a low deductible plan this year because they are having a baby. For reference, babies typically cost $40,000 for a regular delivery or up to $60-80,000 for a c-section.
Let's look at a typical high-deductible Bronze plan where the deductible is equal to the max-limit of $7,150. For comparison, a "low deductible" Gold plan might have a $1,000 deductible, 20% coinsurance rate, and $3,000 max-limit. Back to the high-school graphs:
It's easy to stop here and think, "Wow, the Gold plan is so much better! You'll only pay $3,000 vs $7,150 for a baby!" But you're about to make a crucial mistake...let's look at our total cost equation again. When you have a large medical expense, you'll always hit your max-limit, so we can replace "cost of care" with max-out-of-pocket limit:
Total Health Costs = Max Limit + (Monthly premiums x 12)
In fairness, we didn't tell you about the premiums above. For a 30 year old women, the average Bronze plan will cost ~$200/mo. The Gold plan will cost ~$600/mo. If we do a little math:
Bronze Plan: Total Health Cost = $7,150 + ($200 x 12) = $9,550
Gold Plan: Total Health Cost = $3,000 + ($600 x 12) = $10,200
It's SO important to not forget premiums when you're thinking through these things. You may have noticed that the numbers are actually surprisingly close to each other. The reality is the way the actuary tables work (the big number tables insurance companies use to set insurance rates), almost every health insurance plan will be within a few hundred dollars of each other.
Conclusion: If you're expecting lots of care or get seriously ill or injured, deductible doesn't matter. Instead, focus on the max-out-of-pocket limit and the premiums!
When deductibles do matter (occasionally)
Deductible do impact your cost of care in years where you reach the deductible but not the max-limit. If you look at the graphs above though, it's actually kind of hard to do. You would need medical bills in the range of $3,000-$7,000 a year (depending on the plans in your area). Below that, and you're likely below the deductible or paying too much for a plan with a lower deductible, above that and you'll hit the max-limit or be stuck in the upper-end of the coinsurance zone. Medical costs that fall in this range include sudden events like a broken leg or arm or chronic conditions like diabetes or severe asthma. Although it's possible you'll break your leg this year (we hope you don't), it's a statistically rare event in anyone's life and not a good reason to choose a plan based on. If you have a chronic condition that would fall in that range, then you probably already know it, so we can use that information to help you find the plan with the right deductible that will minimize your costs.
That's were our condition simulation can really help. We use actual medical claims to see what your costs would look like on all the plans in your area. We'll do all the above math for you, for every plan, automatically.
Next step: Let us do the math for you!
As I mentioned above, our goal at Take Command Health is to equip you to make smart health insurance decisions. Hopefully this helped explain some messy insurance concepts. If you're looking for a health insurance plan, we'd love to help and we invite you to use our free service! We'll help you search for your doctors and prescriptions, simulate any conditions or medical needs, and then recommend the plan that we think will minimize your total health costs for the year. Click the button below to give it a try!