Compare and Contrast Richard Connor | Oct 28, 2021
IT’S OPEN SEASON for many of us—time to choose our health insurance for the year ahead. It’s a topic I got seriously interested in when I took over management of 500 mathematically astute engineers. They challenged me daily to understand how the various plans stacked up against each other.
I spent a lot of time looking at various ways to assess the value of the different plan choices, and came up with a framework that worked for my family.
This is also the time of year when Chicago financial researchers Morningstar publishes its annual review of health savings accounts (HSAs). These are another favorite topic of mine because of their triple tax-deductibility. My wife and I were able to accumulate a decent sum that we’re now using in retirement to help pay medical costs while we wait to reach the Medicare eligibility age of 65.
I’ve spoken with dozens of people over the years about their benefit choices, and there always seems to be a group that wants the highest-priced plan, regardless of the underlying cost structure. They see plans with high deductibles and high out-of-pocket costs as unaffordable. They often pay so much more in premiums, however, that their total cost is greater.
My advice: As a first step when comparing plans, figure out each plan’s lowest possible cost and maximum possible cost. The lowest possible cost is the sum of your premiums for the year. The maximum possible cost is that premium total plus the maximum out-of-pocket cost.
Say you have two choices. The first is a top-notch health plan with monthly premiums of $700, maximum family deductible of $2,000, a 20% copay after meeting the deductible, and a maximum family out-of-pocket cost of $6,000. The lowest possible cost is 12 months of $700 premiums, or $8,400. The maximum possible cost is that $8,400 plus the $6,000 out-of-pocket maximum, or $14,400 total.
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