There are multiple ways you probably pay too much for your plan. Most of us just look at the monthly premiums and choose the best coverage for a cost we can manage. But when choosing a plan, know that more than just premiums are going to burn a hole in your pocket.
Premiums
Premiums are pretty straightforward. It is the set monthly cost you pay for your coverage plan. A rare (usually small business) employer will pay 100% of your premium. Most employers (and the government if you choose a plan offered by the Affordable Care Act (ACA or Obamacare)) pay a percentage of the total and forward the balance to you, which is deducted from your paycheck before taxes are applied. Every single health insurance plan has a premium.
However, there are two other types of payments that should be factored in your choice, as well: deductibles and co-pays. All three vary with the level of coverage. The broader the services and medications covered, the higher the premiums, deductible(s), and co-pays. The balance is that, with higher deductibles, a plan usually has lower premiums and vice versa. That’s not to say that the premium + deductible amount will be equal between plans. It’s a matter of deciding whether you would rather pay more up front or over the course of the year.
Deductibles
A deductible is the fixed amount determined by the plan sponsor (government or your employer) that most plans require you to pay out of pocket before your coverage kicks in. More lenient plans will allow co-pays for services and medications before you meet the deductible. You may have separate deductibles for in-network and out-of-network expenses.
Deductibles can soar to over $10,000/year. For 2018, any deductible over $1,350 for an individual and $2,700 for a family qualifies you for a Health Savings Account.
Co-pays
Co-pays are fixed amounts that you pay for medical services and prescription medication. The fixed amount is negotiated between the provider and the insurance company. For example, while all preventive services like your annual physical are free under the ACA, seeing a specialist might cost $30/visit and going back to your Primary Care doctor for the flu might be $20/visit.
For prescriptions, co-pays are a little more complicated. There are usually tiers of drugs based on whether they are the generic version or the name brand, and what the overall monthly cost of the medication is. The co-pay is often less if you buy from your pharmacy provider’s mail order service since they can buy and distribute in bulk more easily that way.
Calculating cost
Now it’s time to calculate your total cost.* Co-pays are almost as straightforward as premiums. If you know how many specialist visits you will have per year (the regular ones, not the unexpected), calculating your total co-pay budget is easy. The prescriptions are also a fairly easy calculation if you read the part of insurance policy that lists which medications fall under which tier.
The impact of deductibles on your budget is more difficult to assess. In addition to the number of times you see your providers, it helps if you know how much your doctors charge per visit. You can find these rates with the paperwork you receive from the doctor and the pharmacist. For prescriptions, there is often a label that shows the full price as well as the cost to the patient. For doctor visits, you may have to ask the provider, but sometimes it comes on the paper that shows the condition code (why you saw the doctor).
With all of these numbers in front of you, if you can estimate how quickly you will meet the deductible and the remaining co-pays, you should be able to make a fair estimate of your annual out-of-pocket medical expenses. This will provide a useful tool to reconcile your monthly and periodic medical expenses with your budget, and hopefully make easier the choice of a health insurance plan.
*I will discuss coinsurance, the last part of the equation, in another post, along with secondary insurance.