Aah yes, health insurance. Better to have it and not need it than need it and not have it. This could not be more true for this topic. Every breathing day that we are on this planet, we have a chance of needing medical attention. A really bad pneumonia, a broken leg, a car accident, an organ transplant, an ambulance ride. The list goes on. And if you don't currently have health insurance right this second, you better have a pretty solid emergency fund in the bank waiting to be withdrawn. But wouldn't it be better to pay a couple hundred dollars every month to reduce the severity of these pitfalls when they come? Yes.
Not only that, the Affordable Care Act requires you to have health insurance. If you're not enrolled in some form of it, you have to pay 2% of your income or $325 per adult per month. So obviously you need something! Even more urgently, the open enrollment period for 2015 coverage is November 15, 2014 to February 15, 2015. That means you have until this Sunday to sign up for health insurance, otherwise you will have to wait until November of this year unless you qualify for special enrollment (marriage, birth of child, loss of other coverage).
Now that you're convinced, let's dive into it!
Health Insurance Basics
Health insurance, as I'm sure you know, is a way of distributing your medical bills over your entire life. Instead of paying the entire hospital bill, you pay a company every month and they, in turn, help pay for a large chunk of that hospital bill. But be warned that they will NOT cover everything always. Some things they won't cover at all, or until you reach your deductible. To break this down in an easy-to-digest way, I'll explain what my coverage is and why I picked it.
After much research, I came to choose Lifewise as a provider and the Silver 2000 plan as my coverage. Across the board, companies tend to offer similar coverage for similar prices. Later in this post I will compare a few different options. So to get started, here is my plan:
Lifewise Silver 2000
Monthly Premium - $263 - Premium is just a fancy term for fee. The higher your premium, the cheaper your medical bills will be. Higher premium gives you a smaller deductible and cheaper prescription drugs.
Deductible - $2,000 - The deductible is the amount you have to pay out of pocket before a lot of the benefits of insurance kick in. For instance, if I was hospitalized, I would have to pay up to $2,000 out of pocket. After that, I would only pay 20% of the remaining bills for the rest of the year while the insurance company pays the other 80%. Deductibles are cumulative, so if I paid $500 for hospitalization, $1,000 for a child birth, and $500 for an emergency room visit, I would hit the deductible for the rest of the calendar year. So if you want to get hurt, do it near the beginning of the year! Keep in mind, however that this deductible is for in-network providers only. If you choose an out-of-network hospital, the deductible is doubled to $4,000.
Coinsurance - 20% - This percentage is the amount you'll have to pay once your deductible is met. Twenty percent is pretty standard for most plans. Some of the cheaper plans actually have a zero percent coinsurance, but the deductible is as high as $5,000 before it kicks in.
Maximum Out of Pocket - $6,350 - This massive amount is the maximum that you'll ever have to pay in a calendar year. This includes the $2,000 deductible and any of the 20% bills I paid after that. More expensive plans generally have smaller maximums. So if you have $6k in the bank, you could survive one year of heavy medical bills with this plan.
Office Visit - $15 copay - Most plans offer $10 - $20 office visits. This includes a general checkup without any special treatment or prescriptions. Having such a small price for office visits has encouraged me to check in with my naturopath several times per year now. Before I managed my insurance, I never thought to go get checkups at all.
Prescription Drug Prices $15 - $50 or 20% after deductible - Prescription drugs come in four different tiers. Generic drugs being the cheapest while specialty drugs are more expensive and require meeting a deductible to have insurance help. I recently got an antibiotic for a dental surgery for $15 when it would have cost $80 without insurance. Needless to say, I was thankful for that.
Everything Else - Besides these items, there are tons of little details about what exactly is covered and when coverage kicks in. My plan covers chiropractic care right away, but therapeutic massage coverage doesn't kick in until I hit the $2,000 deductible.
How to Choose Your Plan
Now comes the tricky part. There are tons of companies that offer dozens of different plans each. You might look at some gold plans that offer $1,000 deductibles or bronze plans that have a much larger $5,000 deductible. Let's do some math to find out what would be best for you. We'll compare a bronze, silver, gold, and platinum plan across a couple different scenarios. These values were taken from the average plan costs at www.ehealthinsurance.com.
- Bronze Plan - $200/mo for $5,000 deductible
- Silver Plan - $250/mo for $2,000 deductible
- Gold Plan - $300/mo for $500 deductible
- Platinum Plan $350/mo for $250 deductible
In all of our scenarios, we will look at the course of ten years to average things out. We'll start with an extremely healthy person and then a very unhealthy fella.
Scenario One - Healthy Jim
Jim is a 20-something in excellent health. He works out and eats right. Miraculously, he will survive the next ten years with absolutely no medical attention. Let's see what he would pay in each of these plans:
- Bronze Plan - $24,000
- Silver Plan - $30,000
- Gold Plan - $36,000
- Platinum Plan - $42,000
For Jim, the Bronze Plan was obviously the winner, but one major accident could have drastically changed those numbers. Meet Marcia.
Scenario Two - Healthy, Unlucky Marcia
In this next scenario, Marcia is also a healthy young woman. She doesn't plan on having kids for awhile and she loves talking about whichever diet she's on this week. But oh no! An errant football flies from out of nowhere and hits her square on the face, breaking her nose and fracturing her cheekbone. So much for her healthy streak! Now she has to go in to the hospital and get fixed up. The total bill? An arbitrary $5,000. Ouch. Let's see what she would have paid over the course of ten years with this one medical bill.
- Bronze Plan - $29,000
- Silver Plan - $32,600
- Gold Plan - $37,400
- Platinum Plan - $43,200
The gap between the Bronze and the Platinum quickly narrowed just from that one accident. Bronze is still the winner, but not by much. Let's look at a less healthy patient.
Scenario Three - Unhealthy Brian
Brian works a 60-hour week and spends most weekends drinking and eating takeout. He doesn't exercise and has a couple health issues. He's also prone to getting ill and gets hospitalized every couple years from it. Let's say it's pretty bad at $3,000 per year. This includes the medications he's on, the doctor checkups, the hospital visits, the physical therapy.
- Bronze Plan - $54,000
- Silver Plan - $52,000
- Gold Plan - $46,000
- Platinum Plan - $55,000
As you can see, the Gold Plan here picks up the right balance of cost vs coverage. Hitting that $500 deductible every year helps pay the bills while the premium isn't quite high enough to totally break the bank.
A Hard Choice
From these examples, you can see that it's a tough decision to make. If you get the cheapest plan, you'll be paying way less every year, but as soon as you get hurt, you could see a $5,000 bill in the mail. On the other hand, you can invest a lot more every month to then barely flinch when your $1,200 bill comes in the mail (for a $5,000 bill, platinum costs $250 for deductible + 20% of the remaining $4,750 to total $1,200). In the end it really comes out to a wash. If you're healthy, you can safely pay a little less. If you're into extreme sports or are less than healthy, you might want to invest now to prevent major expenses later.