The other day, a friend contacted me for advice. She was reviewing her options for health insurance during her employer’s Open Enrollment, the annual period where health insurance customers can make changes to their coverage. She had a choice of three plans, with varying levels of coverage.
“How much do you use your insurance,” I asked.
“Hardly ever. I didn’t even go to see a doctor this year, except for my check up,” she said.
“Ok,” I continued. “Do you regularly use any prescription drugs?”
“No, I used to take one but I don’t anymore,” she answered me.
Obviously from this exchange, my friend doesn’t use her health insurance much, so she definitely didn’t need the richest plan available. But what of the remaining two plans?
Well, Plan 1 had an $800 deductible before there was any coverage, with 20% coinsurance after the deductible was met, with a $4,000 total maximum out of pocket amount. Plan 2 had a $2,500 deductible, with 20% coinsurance after that, and a $5,000 total maximum. Plan 1 was twice as expensive as Plan 2; the difference of about $50 per month higher for my friend’s portion of the premium.
“You should get Plan 2,” I told her.
“Why? Are you sure?” she asked.
Yes, I am, and here’s why.
If my friend had Plan 1, and she got sick twice and had to go to the doctor, she’d be paying for the whole office visit before she met the deductible. Office visits range in price from $100-$200, so a couple of them would not be enough to hit that $800 deductible. If she’s not going anywhere near the $800, she’s not going to even scratch the surface on the $2,500, so why pay for the lower deductible when it won’t get her any increased benefit based on how she typically uses her insurance?
What if she has something major happen, like she gets cancer or has a baby? Well, in that case, she’s going to hit the maximum out of pocket regardless of if it’s $4,000 or $5,000. She’s saving $600 for the year in premium on the less expensive plan, so to my thinking, it’s a risk worth taking. Once you pay the insurance premiums, that money is spent regardless of the amount of coverage you use.
By crunching the numbers in this way, I was able to help my friend find the best way to balance her insurance needs with the money she spends on her insurance.
When you evaluate what kind of health insurance plan you require, it’s important to take your current and projected health for the next year into consideration. Do you have a medical condition that requires frequent office visits and monthly prescriptions? Are you planning a major surgery, or planning to have a baby this year? Do you have small children who require the occasional office visit to treat an infection, and otherwise your family is in good health? By taking your current and projected situation into account, you can compare and contrast different insurance plans to see which ones bring you the best value for your premium dollars.
The final consideration, after thinking about how you use your insurance now and how you anticipate you will be using it, is what will happen if you have something unexpected happen, usually something major. This is when you want to look at that maximum out of pocket amount. They are often not that different from plan to plan, so the absolute worst-case scenario of expenses might not be that much different, as in the example of my friend above. I recommend that if you can save some money on your premium, you put all or at least some of the savings into a separate bank account for yourself in case you need to pay medical expenses.*
At The Dearborn Agency, we recommend discussing your insurance needs with your local independent agent to help you decide which plan is the best for you.
*Certain plans are Health Savings Account certified, which is way to set aside pre-tax dollars to pay healthcare costs. Ask your local agent if you are interested in learning more about HSA plans.
