Health Insurance and You!

If you are buying health insurance for the first time, be sure to consider the entirety of your potential medical expenses.  It is easy to be wooed by entry-level premiums, but you may end up spending more in the end. 

For example, a healthy family of four may be offered plans with premiums as low as $3,200 and as high as $19,000 per year, but it is not clear that the bargain-basement policy is best.  In addition to considerations such as their overall risk tolerance and budget, this family needs to calculate its total out-of-pocket expenses.  Total out-of-pocket-expenses include deductibles, coinsurance, copays and any medical treatments and pharmaceuticals not covered by the insurance plan.  

When evaluating health care plans here are the variables to compare:

Premiums – your monthly payment to your insurer

Deductible – the amount for which you are responsible before the insurer begins coverage

Coinsurance – The percentage of your medical bills for which you are responsible after you’ve met the deductible

Copay – a flat fee you pay for doctor visits, emergency room visits and prescriptions

Out-of-pocket maximum – The maximum amount for which you are responsible in a given year.  After hitting this limit, the insurer pays 100% of approved expenses.

Services covered – for example, if you require mental health coverage and prescriptions or plan to get pregnant, make sure your policy covers these needs.

Providers in-network – make sure you like the doctors and hospitals in the plan’s network.  Out-of-network care can be very pricey.

Taxes – The effect on income taxes

Personal control – The degree to which you can control your own expenditures

The chart below compares two representative plans that might be available to a healthy family of four.  Both are actual plans available at GetInsured.com.  Plan A offers a low premium of $3,540 and has no coinsurance or copays once the deductible is met.  The deductible however is very high — $20,000.  In addition to these outlays, the family has to pay for its own prescriptions, mental health and other non-covered expenses.  Based on average medical expenses identified in the 2009 Milliman Medical Index , their expected out-of-pocket expenses could range from $7,000 to $27,000 depending on the medical expenses they actually incur.  Plan B has a premium of $12,216 and a deductible of $7,000.  It includes pharmacy coverage, but has 30% coinsurance and $40 copays for doctor visits.  The minimum expected outlay is about $16,000, and the maximum out-of-pocket should be $23,000.  Plan A could be either less expensive or more expensive than Plan B depending on the family’s health care needs for that year*.

Additionally, the buyers have to consider their tax burden. Many insurers now offer high-deductible plans with Health Savings Accounts (HSA’s).  Beneficiaries can place a designated amount of their salaries into a tax-free account from which they pay their medical expenses.  As with coinsurance rates, HSA’s motivate beneficiaries to save.  So, while you may end up paying more of your own medical bills, not only your premiums but also your income taxes may be lower.

Whether you are a first time buyer of individual insurance, are re-enrolling in a group plan or have had the same health insurance for years, it is worthwhile to take some time to consider the total amount you spend annually on health care.  Even if you are happy with your current situation, new products and new laws warrant that you conduct such a review.  Additionally, as you begin filing 2009 tax returns you want to make sure that you’ve asked for the appropriate deduction for medical expenses. 

GetInsured.com can help you choose from an enormous number of health plans, taking into account your total health care budget, so that you get the plan that is most cost-effective for your family.

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Assumptions are based on Milliman Medical Index, May 2009.  This index shows the average medical expenses for a family of four.   

*       Plan A assumes an average pharmacy expense of $2,484, plus $1,000 of mental health expenses.

*       Plan B assumes 30% coinsurance for average inpatient and outpatient expenses of  $7, 860 = $2,358, plus 16 doctor visits at $40 each, plus mental health expenses of $1,000.

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