Open enrollment season is upon us once again. Step one usually consists of insurance companies reducing benefits and raising prices, ironically they blame one or both of those action on the Affordable Care Act (ACA). Step 2 is trying to decide which plan is best for our situation.
When evaluating a health insurance plan there are five things to consider:
- Flexible Spending and Health Spending Account Options
- Total Out of Pocket (OOP) Cost
First it is important to remember that all plans are required by law to pay for most preventive care procedures.
Premiums, Deductibles, and Benefits
Premiums are the most talked about facet of health insurance but only one of many things to consider. Your premium should be considered your minimum cost. The deductible is a very important often overlooked part of health insurance. The deductible represents the amount of money you have to spend OOP before the insurance kicks in. The benefits are also important as coverage at 85% vs 95% can make a huge difference (see the graphs below). Also it is important to note that the HSA plans usually cover everything at only a percentage whereas standard PPO plans will cover some non-preventive care procedures at up to 100%. My favorite example of a PPO is when I had ACL reconstruction and paid $60 in copays for the surgical consults but just $100 for the surgery. (In case you are wondering this insurance plan no longer exists)
Copays and Maximum Cost
With few exceptions the premium minus any employer contribution to your FSA/HSA plus the Out of Pocket Maximum equals your maximum cost for the year. The biggest exception is that some plans still require you to pay copays even after you meet the OOP maximum. This is important because if you are going to the doctors regularly the copays can add up quickly. Using my ACL reconstruction example I paid $30 for every physical therapy session after the surgery. I paid much more for the rehab than I did for the surgery.
Flexible Spending Accounts (FSA) and Health Spending Accounts (HSA) are important to take advantage of because they allow you to use pretax money to pay for healthcare costs. The key difference is that FSA's must be spent every year (you lose any left over amount) whereas with HSA's you keep the money indefinitely (even into retirement).
There are some really great advantages of HSA'S but that is beyond the scope of this article.
Like any financial decision I generate a spreadsheet complete with graphs to help in the decision process. The examples I am posting don't have exact numbers because it wouldn't be of any value (since rates change based on person, company, family status, and year). This first graph shows three plans (two HSA plans and a standard PPO style plan) and where they hit the maximum OOP in relation to each other. However, this graph is mostly useless because most people rarely reach the OOP maximum. (we are talking 5 or 6 figures of medical bills).
In most cases we want to look at up to around $10k of medical bills. In my example you can see that the standard plan has a higher premium and reaches the low deductible quickly afterwards, the cost to the user is fairly low for additional medical expenses. The two HSA plans have much lower premiums but high deductibles. This cost which is covered by the user at 100% quickly exceeds the user cost of the standard plan, until you get to what would be serious medical bills. (Note: The example graphs are technically a worst case scenario for the standard PPO, I count employer contributions to the HSA as a reduction in premium. I also don't take into account the PPO plan covers some procedures are higher rates or a flat fee. For reference HSA 1 covers at 80% after deductible whereas HSA 2 covers at 95%)
Special Consideration for Dual Income Families
Two extra things for dual income families to consider when choosing health insurance:
- Some employer sponsored plans charge you extra if your spouse has an employer plan that you don't use.
- Some employer sponsored plans don't contribute to dependent's premiums so it may be cheaper to have one parent on a "self" plan and the other parent on a "self plus one/child(ren)" plan.
My general rule of thumb is that if you expect to spend less than the deductible of an HSA plan that is the preferable option. Otherwise go with the standard PPO plan.