2013
If you are shopping for health insurance, you need to answer three basic questions.
What is the state of my health and the health of my family members?
What have I spent on health care during the last year or so?
How much financial risk am I willing and able to absorb in a year?
The answers to these questions are key to deciding if your search for health insurance should focus on the premium or the level of coverage and out-of-pocket costs. In addition, this information will help you evaluate your acceptance of a limited provider network. (1)
These three questions apply whether you are enrolling in your employer plan, looking for individual coverage or shopping in a Obamacare marketplace. Many people fearing health care bills overestimate their potential risk and as a result over insure paying higher than necessary monthly premiums.
There is a simple balance here, lower premiums equal higher possible out of pocket costs, especially an upfront deductible. Higher premiums mean a lower deductible. Paying higher premiums guarantees that expense for you each month. Lower premiums mean you have the potential risk of losing those savings if you must pay medical bills.
If you are reasonably healthy without a chronic illness, the odds are in your favor, plus one bad year of bills does not necessarily mean that will be an ongoing occurrence. Compare your monthly premium savings with your out of pocket risk. Let’s say a higher deductible plan saves you $150 a month. In that case you won’t be losing money until your out of pocket expenses exceed $1800 for the year.
Your risk can be further managed if you take a portion of the monthly premium savings and place that money in a tax advantaged vehicle such as a flexible spending account (FSA) or, if eligible, a health savings account (HSA).
The point is don’t assume you need the highest level of coverage or that the most expensive plan is the best plan for you and your family. Insurance is financial protection, not health care. Approach your decision from that perspective and do a little homework by determining what you and your family actually spent on health care over the last few years (total bills, not your out of pocket portion). Finally, understand the maximum potential financial risk under the plan. That is, the maximum out of pocket cost for one family member and for the family combined.
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(1) Generally speaking a plan with a very limited network of health care providers (such as a exclusive provider organization (EPO) popular in the Obamacare marketplace) will have lower premiums. However, that may mean giving up your family pediatrician, the gynecologist of choice, etc. Best to check with the family before jumping on this bandwagon. You will have no coverage if you use a provider not in the EPO.
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