Not Your Typical “How to Buy Insurance” Article…


For 29 years I have helped people navigate the insurance waters, sometimes with better results than others. Most people want to be sure that their doctor is in the network, or their medication is covered, or that they won’t pay much for a doctor appointment…. but those are often not the important things to look for in a health plan.

First - and I am a numbers-cruncher - insurance is as much about the math as it is about health. You’ve heard the phrase “penny wise and pound foolish”? Many consumers are exactly that way about their health insurance.

I was barely into my second year of insurance when I had a 55 year old client who went to the doctor once a year for a physical and rarely at any other time. He absolutely wanted the lowest deductible available. I think most agents would have jumped at this – after all, lower deductible, higher premium, better commission. To me, after nearly 20 years in the corporate world, this didn’t make a lot of sense. The $500 deductible then was $290 per month while the $1,000 deductible was only $ 230 – so, a savings of  $720 if he would be responsible for an extra $500 per year - IF he even used the insurance - and the $1500 deductible was only $175 - a savings of $1380 per year if he would be responsible for that extra $1000 per year. I told him, “It’s not worth paying an extra $1380 per year to protect $1,000.” (And if you think it is, then I bet you also think if you put 75 cents into a slot machine and get 50 cents back, you win). He had to think about it, as he had never had a deductible higher than $500. He ended up with the $1500 - and I can tell you honestly that in the ensuing years till he went onto Medicare he never came close to meeting the deductible.

The point above is, don’t pay more in premium per year than the amount you are going to protect. My plan has a $5500 deductible, I paid everything under the deductible, and it cost $2800 per year less than the $3500 deductible - so why would I want to spend $2800 more in order to protect $2000? And a co-pay plan would have cost me more still.

If you only go to the doctor two or three times a year and you don’t qualify for a tax subsidy, don’t jump a co-pay plan. Get a plan where everything comes under the deductible and save the difference. Chances are - if you do go to the doctor - the premium savings will more than offset the deductible difference. And face it, if you have a bad year and are going to meet a deductible, you’re going to meet it no matter what the premium is - so why put money in the insurer’s pocket when you can keep it in yours - at least, until you have to use it? If you have to use it.

Remember: on all plans going into effect after March 2010, wellness exams have no out of pocket. And - if you have a plan where you pay everything out of your own pocket - most other services are going to be discounted 30-40% by the carrier anyway and you will only pay the difference. I go to the doctor for a bad cold every other year, my visit is $170-180 and the carrier discounts it down to the pre-negotiated rate of $110-115 and that’s what I pay. Why would I want a co-pay plan that costs me at least $50-100 per month more when I don’t frequently use co-pay benefits? And even if I went once every other month, would it still be worth the extra $600-1200 per year for a plan that requires I pay $40-50 per doctor visit, anyway? What would I really be saving?

Now, if you have children or a lot of medical issues, that can be a different story.  In that case, I would look at the premiums versus the out of pocket maximum. Someone somewhere said “If you can’t afford the high deductible, you certainly can’t afford the high premium.” Great food for thought.

If the plan with a $20 co-pay for primary care level doctors and a $4000 deductible costs more than $3000 per year than the plan with the $6000 deductible and $30 office co-pay - buy the second plan. Are you really going to go to the doctor 12 times a year? If you have several children, it may be a better bet to get the co-pay plan. I have many clients with children who do not take co-pay plans, who basically take responsibility for the little expenses, pay less for their premium, and know the carrier will (1) count those little expenses toward the out of pocket maximum (which plans never did in the past), and (2) cover for the big stuff. Some people call that self-insuring - but it’s only the first few thousand they are self-insuring, and they still get the benefits of carrier’s discounts on all their services as well as free routine wellness care.

If you know you are likely to meet your deductible, try this: multiply the premium by 12 and add in the out of pocket maximum for each plan you are considering - and buy the one with the lowest overall cost. If you aren’t sure you will hit the deductible but think you might, go for the next to the lowest out of pocket maximum.   

Here’s a quote from one of this year’s plans:

Family: parents ages 40 and 42, three children between ages 7 and 15:
              Co-pay plan -  $5000 deductible, premium $2104 = $ 25,248 per year
              $6000 deductible, premium $1730 = $ 20,760 per year
              $7000 deductible, premium $ 1310 = $ 15,720 per year    

Is this family likely to go to the doctor so many times that it’s worth an extra $9,528 per year in premium?  Wouldn’t they be better off keeping it in their own pocket and then paying for doctor visits when they have them? Granted, the deductible for hospital is lower - but the out of pocket is still between $10,000 and $14,000 per year regardless, and if anyone is likely to be hospitalized, chances are good they are going to meet a good chunk of that out of pocket maximum (if not all of it) with that hospital visit.

With the $5,000 deductible, the family is paying $9,528 more to protect the $2,000 difference in deductibles.

There are other factors: the lower the deductible, the lower the co-pays (as a rule). So someone might really want to pay only $25 when they go to the doctor rather than $40 or $50 and that may be worth an extra $50-100 per month to them. Co-pays are often lower on prescriptions, too – though any more, most plans have a separate deductible on brand name drugs.  If someone’s medications are in the hundreds every month, then the higher cost of a co-pay plan could be justified.

If we asked our car insurance to pay for flat tires and tune-ups, the premiums would be astronomical. Health insurance is not a lot different: cover the small stuff, insure for the big stuff. Think about how much you give the insurance carrier for your premium, for a plan that is basically really meant for the “What if….?” scenario, and ask where you would rather put the money – in their pocket or yours?

Several years ago a client told me she saw a doctor two to three times a month, went in for infusion therapy every eight weeks, and took medications totaling over $800 per month. She wanted a $1,500 deductible plan with 80/20 coinsurance, and a $650 premium. I suggested she take a middle-of-the-road deductible ($3000) on a non-co-pay plan, for about $400 per month, get the deductible out of the way, and then only pay 10% for anything after that till she hit her out of pocket maximum of $5,000, which she was going to do no matter what kind of plan she had, and the premium she saved over the closest comparable deductible co-pay plan, was over $3000 for the year. She was going to hit that out of pocket maximum anyway, so…. in her pocket-– or someone else’s?

I had a young family in their early 30’s with two children, struggling with the premium. They couldn’t qualify for a subsidy but wanted a plan with co-pays. After 15 minutes of quizzing, I discovered that the children only went to the doctors for wellness exams (all of which have  no out of pocket costs these days, with any plan or carrier), and maybe one cold a year.  They could get a $3000 deductible with no co-pay benefits for a good $600 per month less than a plan with the same deductible but with co-pay benefits. Mathematically, you can see where this went.
Insurance was never designed to cover 100% of everything, but to provide adequate protection for the services that can bankrupt you, that can stretch your budget so thin that making the mortgage payment starts competing with paying the insurance carrier. Great philosophy: “If you can’t afford a high deductible, you certainly can’t afford a high premium.”

Here’s another funny statistic: you have a one in 20 chance of meeting a deductible in any given year. You have a 10 out of 10 chance you are going to pay that premium every month - whether you use the insurance or not.

Start looking at insurance with an eye to the scales: what are you spending to protect how much? How often do you go to the doctor? Can you afford the little stuff if you can save an extra $200 or so per month on your premium? Could you put some of that difference aside so that if you have that expensive MRI or ER visit, you would have something in reserve to cover the cost?

Note: H.S.A.-compatible plans are great: you don’t have to set up a health savings account to have an H.S.A.-compatible plan (that is always optional), but if you do, you can never lose what you put into it…. Putting aside an extra $150-3000 per month tax free isn’t a bad idea at all. Many people buy those plans just to have another avenue to shelter some of their income - as much as $7200 per year in some situations. An H.S.A. account is basically a medical IRA. Not all non-co-pay plans are H.S.A.-compatible, but plans with co-pays are not H.S.A. compatible. And, H.S.A.-compatible plans do not need to be high deductibles - deductibles can start at $3000 and go up to over $8,000. How much you can contribute is based on age, not on the plan’s deductible. 

So next year, or next time you have to review your insurance, remember: after all is said and done, it’s all about the numbers. Money in, money out – and who can keep the most in their pocket at year’s end.  

June Shaffer
Arizona Life Lines