How I navigated the complicated process of choosing health insurance for my family.
With all of the buzz on healthcare reform, selecting the right insurance plan is a hot topic right now. So many people are overwhelmed, anxious about the changes, and just confused in general about the different options. I have, out of necessity, become quite savvy on just what the different plans available mean, and tend to be the go-to-girl when people are struggling at what to choose.
High deductible plans have been around now for several years, yet only a small percentage of the population select them, typically out of fear. It is scary to see high numbers and know that you could be responsible for them, especially when we have been programmed that a $10, $20, or even $50 copay is how it is should be. However, as prices for premiums, deductibles, and out of pocket maximums go up, more people are looking at all the options before making a decision.
When my daughter got sick, I was on a pretty good PPO plan by United Healthcare. I was relieved to know that we had such great insurance. I paid those copays without even thinking about it, and I felt so relieved every time I heard someone talking about not having good insurance. Four months later, our new plan options were presented, and I took a hard look at all the choices. I decided that the high deductible plan made the most sense, but I was terrified to select it. I spoke to my accountant, and he said I should pick the premium plan since I had a sick child. He didn't even look at my spreadsheet of data. "Pick the best," he said.
I discussed it with my husband, brothers, parents, and friends. Everyone said to take the "premium" plan. However, I kept looking at my spreadsheet. I don't remember the exact numbers, but I will make up an example here to illustrate the aha moment I had.
- Premium PPO Plan: $740
- Lower PPO Plan: $548
- High deductible plan: $500
- Premium: $1500 individual/$4500 family but most expenses other than hospital stays have a copay of $25 to $250.
- Lower PPO: $2000 individual/$6000 Family but office visits have $30 to $60 copays and radiology visits and outpatient surgery have a deductible and then 100%.
- High deductible: $1500 individual $3000 Family, but all expenses are paid out of pocket until the deductible is met and then it is 90% paid until the max out of pocket is hit.
Max Out of Pocket:
- Premium PPO: $1500 individual/$4000 Family
- Lower PPO: $4000 individual/$8000 Family
- High deductible: $3000 Individual $6000 Family
Worth noting, the PPO plans don't allow a health savings account (HSA) and the high deductible plans do. A health savings account is different than other health accounts because the money can roll over to the next year.
Secondly, each of these plans had a deductible and a max out of pocket.
If you rarely use medical care, the deductible matters because it is that point where you will start to save on larger expenses. Your HSA contributions can be used for any out of pocket expense, and those you don't use in this calendar year can be used for next year.
If you have a lot of medical expenses, the max out of pocket matters because at that point you stop paying for expenses completely. Your HSA contribution level should be set to the maximum so that you can take advantage of the tax benefits and be prepared for the large out of pocket expenses.
When figuring out which plan to use, evaluate the difference between the two plan premiums. For example, the difference between the high deductible plan and the premium plan in this case is $240 a month or $2880 a year. By selecting the high deductible plan, you have applied $2880 to your actual expenses at the start.
As you look at the plans, evaluate your family situation. Do you have one member who is the largest of your healthcare spend? With $2880, you have either hit the family deductible or the max out of pocket for an individual. The max you can spend above the premium difference is $3120 which is $260 a month. If you put any amount into an HSA or the whole $260, you can use it for extra expenses or transfer it for use in a future year. With the PPO plans, you have the higher premium and then you pay for each expense as you go before you hit the deductible and max out of pocket.
If you are healthy and rarely use the system, it is a great idea to buy the lowest plan and put the difference into an HSA. This way, you will be prepared in the future if you have higher expenses such as pregnancy and childbirth, or an unexpected surgery such as a knee replacement or appendectomy.
It appears that more and more plans are increasing the premiums, the deductibles, and the max out of pocket amounts, so be careful and evaluate all of the new options. I always find it the most useful to start by figuring out how much I have to spend on actual healthcare though if I don't pay for the higher premium. If it is a lot, it is probably worth it to at least consider a high deductible plan.
As for my family, the high deductible plan has saved us thousands of dollars each year. We have hit the out of pocket max each year and stopped paying at that point. It also helps us budget for the year as we plan on hitting the out of picket max instead of wondering what will happen.