Health insurance: forget the fine print, read the bold first

Health insurance companies have a single, driving purpose: to collect money from people and to keep that money to the best of their abilities.  As a patient, your job is to select a plan that is both affordable and best meets your medical needs.  But you must—must—remember that they are smarter than you.  It’s like going to the casino: sometimes it may pay off, but in the long run, the house never loses.

If you have insurance, the cost to you comes in various layers: your premium, your deductible, your maximum out-of-pocket expenses, and others.  We’ll stick with the first two to keep it simple.   The premium is the amount you pay for your insurance, the deductible is the amount you pay your health care providers before your insurance even kicks in.  The way most non-HMO insurance companies seem to work is that the lower the premium, the higher the deductible.  There are a nearly infinite number of plans, and employers, unions, and other large groups can sometimes make more favorable arrangements, so there is no rule, but still, the house always wins.

In general, if you suspect you will not be needing much in the way of health care, you may take the gamble and choose the high deductible plan, knowing that if you happen to get sick, you’ll have to pay your entire deductible before your insurance company kicks in some dough.  If you know you’ll be using a lot of health services, you’ll choose a low deductible plan so you won’t have to pay as much out of your pocket, but you will pay a higher premium.

Here’s an example:

Plan 1: Yearly premium $4000.00 (333/mo), annual deductible $1500.00.  If you need to see doctors, maximum cost to you will be about $5500.00 per year.

Plan 2: Yearly premium $2500.00 (208/mo), annual deductible $3000.00. If you need to see doctors, maximum cost to you will be about $5500.00 per year.

See where I’m going with this?  The insurance company has already decided how much money you will contribute.  They simply give you the equivalent of a choice in payment plans.  The only way you can control your costs is to avoid getting care.

Good luck trying to game that system.

11 Comments

  1. JScarry

     /  October 6, 2011

    If you have a high deductible the most important part to you is not how much the plan costs, but which plan is best at screwing the doctors and hospitals. I’ve had $650 charges from doctors where the allowed amount was $212. My wife’s had $$48 charges reduced to $6. So from my perspective, I want a plan that screws the providers just enough that they don’t drop my insurer.

    You can compare costs among insurance companies, but as far as I can tell there is no way to compare the out of pocket costs among plans. So there is really no way to tell which insurer is best for you.

    Which is another reason we need a national health insurance system that pays doctors fairly and that self-employed and unemployed people can buy into.

  2. Karl Withakay

     /  October 7, 2011

    “In general, if you suspect you will not be needing much in the way of health care, you may take the gamble and choose the low deductible plan,”

    I think you meant this to say “high deductible plan”, but it’s not really a gamble if you set aside $125/ month on your own for a “break glass in case of excess medical spending” fund.

    So if I read your sample plans correctly, your worst case scenario is the same with either plan, but your best case scenario is $1500 / year ($125/month) less with the high deductible plan, and that’s just for a single year. The more years that go by with $1500 or less (really anything under $3000/year) in medical spending, the better the high deductible plan becomes (and with these two plans, the high deductible plan is NEVER worse, no matter how much you spend). After 5 years of $1,500 or less a year, you save $7,500 in premiums, and after ten years, it’s $15,000.

    And yet most people will go with the low deductible plan. Why, probably because few people really think out the math or are disciplined enough to set aside the $125/month that would be spent on the higher premiums towards a deductible fund. After one year of squirreling away the $125/month, you can stop until your spending exceeds $1500/year, and pocket the $125/month for other purposes.

    “…as a species we’re just really bad at understanding costs that come later on. Instead, we assign a disproportionate amount of importance to what’s immediate and tangible.”

    -Barbara Kiviat of Time.com writing about credit cards but applicable to far more.

    Of course, your examples are equal in all other ways other than premiums and deductibles. This is not always the case. It often take seemingly endless hours to properly compare any two plans to really figure out if one is better overall vs another

    • Teaspoon

       /  October 7, 2011

      That assumes that people have $125/month to squirrel away in the first place. For a great many people, that’s not a matter of “discipline,” it’s a matter of preferring to eat and keep the lights on in the same month.

      People with low incomes may choose a low-deductible/high-premium plan because they know that a small hardship every month may be more survivable than the potential large hardship of a high deductible. People with still lower incomes may choose a high-deductible/low-premium plan because they can’t afford the high premiums–but these are the same people who will not receive needed care because they can’t afford the high deductible, either.

      Many of the folks making these Morton’s fork style decisions are entirely aware that it costs less money overall to pay $40 for four widgets packaged together instead of $15 per widget to buy them one at a time. It’s not that they don’t know better, it’s that they only have $14.78 and are hoping to find a quarter in the couch.

      • Karl Withakay

         /  October 7, 2011

        “That assumes that people have $125/month to squirrel away in the first place. For a great many people, that’s not a matter of “discipline,” it’s a matter of preferring to eat and keep the lights on in the same month.”

        Not really with the plans in Pal’s example, it’s a matter of discipline because with the other plan, they are paying the $125 / month on the higher premiums anyway. In one plan, the $125/ month is not optional because it is built into the premium; in the other model, it takes discipline to not spend the $125 saved for potential deductible costs with the lower premium. Sure, in the first year, there’s the chance that you might have to pay the full deductible before you’ve saved enough to significantly offset the cost, but after the first year, you’re golden.

        Your argument of eating and paying for lights only applies to the person who really can’t afford either model. They can afford the lower premiums of the high deductible plan as long as they don’t need to use it and pay the deductible. Either way the max cost is $5500/year.

        Simple math:

        Plan 1 min cost= $4000, max cost=$5500
        Plan 2 min cost =$2500, max cost=$5500

        Min cost= Don’t use at all
        Max cost= Exceed $3000 of use

        The only downside of plan 2 for someone disciplined enough to set aside the $125/month that WOULD OTHERWISE GO TOWARDS PAYING THE PREMIUM is the potential that they may exceed $1500-$3000 spending in the first year before they’ve saved enough to offset the deductible costs. There are currently tax advantages of being able to pay the premium pre-tax vs the (theoretical in the current market) ability to earn interest on the savings, but after somewhere in the second year, even zero interest savings trumps any tax benefits.

        • Teaspoon

           /  October 7, 2011

          Your simple math still leaves out people who are forced to “choose” the lower premium because they do not have an additional $125 per month to spend on health insurance because they have to use the $125 they aren’t spending on premiums for other basic survival needs.

          No amount of discipline is going to make up for insufficient income. Enough self-control to put aside money every month for a year will not magically create money to put aside.

          • Karl Withakay

             /  October 7, 2011

            @Teaspoon,

            ??? You’re not making much (if any) sense to me.

            What exactly are you arguing for or against here? My comment was regarding the advantages of choosing plan 2 over plan 1, specifically that the worst case scenarios are the same for both and the best case scenarios are heavily in favor of plan 2, especially over the time span of multiple years, with the caveat that in year one, you have the CHANCE that you MIGHT end up having to pay between $1501 and $2999 in deductible costs before you’ve save the equivalent;ant amount, assuming you can be disciplined enough to save the $125/month manually rather than putting the SAME AMOUNT EXTRA towards the premiums of plan 1. I’m not arguing that anyone “magically create” an extra $125/month from anywhere. I’m arguing the opposite. I’m arguing that they don’t go with plan 2 and then consider the $125/ month they save on premiums with plan 2 vs plan1 to be “magically created” money they can then spend and other things, at least until year 2 of the plan.

            People who do not have the extra $125 a month to manually set aside with plan 2 will not be able to afford plan 1 either, which includes that extra $125 /month built into the premium Plan 1 is NOT an option for those who can’t afford an extra $125/month; those people’s only options (in the context of PalMD’s thought experiment) are: A.) No health insurance, B.) Plan 2 and hope they either don’t need to use it or they can beg/borrow/steal the money from somewhere if they need to cover the excess deductible. Your people who can’t afford to set aside the extra $125/month aren’t likely to be able to afford either deductible either anyway. If they can’t “magically create” $125/month (to either pay the excess extra premium costs or set aside manually to cover excess deductible), then they probably can’t come up with $1500 or $3000 in deductible costs either. In fact, those people’s best option is to go with plan 2 and try to comes as close to my method as possible, even if they fall however short of saving $125/month. If they can afford a premium that is $125/month higher, they can afford to pay the lower premium and manually set aside $125/month, with the small caveats I previously mentioned.

            Are you arguing for some 3rd, hidden and unspecified option here or what?

          • Teaspoon

             /  October 7, 2011

            @Karl Withakay: I’m arguing that your comments that “it’s not really a gamble if you set aside $125/ month on your own” and “few people really think out the math or are disciplined enough” seem to be coming from a place of privilege and prejudice that you might want to take a look at.

            There are many people in the US today who must “gamble” because they don’t have $125 to either put toward a high-premium/low-deductible plan or to put aside in a savings account, and for them it really is a gamble, no matter your blithe assertion that saving the difference in premiums is all it takes to remove the gambling element.

            The second comment of yours that I quoted is just a fancy way to say that people are stupid and lazy, which is “common knowledge” among those who want to blame poor people for being poor. You suggest that they aren’t smart enough to know to do the math and pick the cheapest option overall, ignoring the fact that for many people, they are forced for lack of immediate resources to pick the cheapest option for today–and most of them are painfully aware of it. You suggest they are too undisciplined to set aside the difference in premiums in order to have the larger deductible covered, while ignoring that they do not possess the difference in premiums in the first place.

            I’m arguing that neither the math nor the decision is as simple as you make it out to be. You’re comparing the plans on their own faces to find out which has the bigger payout, but I agree with the original post–both choices are a losing bet for everyone who depends on health insurance to access medical care. The house always wins, indeed.

    • Fixed

  3. Ahhhhh……this is where the AK-47 comes in handy 🙂

  4. Karl Withakay

     /  October 7, 2011

    @Teaspoon

    I hope you’re keeping warm by that strawman you’ve created.

    It seems that I needed to word my comments differently if I wanted to make sure you were going to understand what I was saying.

    I wasn’t talking about people who couldn’t really afford either plan, including deductibles. I was talking about people who could afford plan one and went with plan one instead of plan two. What I meant by what I said was that going with plan two INSTEAD OF PLAN ONE is not a gamble. Plan two is always a better deal than plan one, with the caveats I mentioned. P.E.R.I.O.D.

    The people who cannot afford to set aside the $125/month cannot afford plan one either, and I was not talking about those people, do you understand that?

    My comment about not doing the math was about people who choose plan one instead of plan two because they believe they will not be able to afford the higher deductible of plan two (and thus feel plan one is more affordable), and I maintain that most of those people have not really done the math, and I stand by that comment. I never said they were stupid or lazy. For these people there is no gamble other than the caveat I mentioned about year one; I stand by that comment as well.

    My comment was certainly not a result of privilege and prejudice, though your comments seem to be from a perspective of prejudice of privilege to assume mine were so. I was not blaming the poor people for being poor as I was not even discussing poor people at all. In fact, if you read between the lines, I hinted and implied that those people could not really afford plan two if they could not afford plan one, but would be more likely to be able to afford plan two that they would plan one, but implied no value judgment on them for this.

    I think (in my opinion) you may have misunderstood Pal’s gambling comment in regards to the high deductible plan (if I did indeed interpret it correctly)
    “In general, if you suspect you will not be needing much in the way of health care, you may take the gamble and choose the high deductible plan”
    I take that to mean that by going on the high deductible plan, you gamble (vs going with plan one) that you may have to pay the higher deductible if you need in excess of $1500 in healthcare. My comment was that this is not really a gamble vs going with the high premium plan, and I think I supported that comment rather clearly. Just to be clear, I’m not saying you missed to point of the post, only the gambling comment. It seems clear to me that the general point of the post was indeed that the insurance companies have made sure to work out the options so they always come out ahead.

    If you can afford plan one, the math and decision are precisely as simple as I make them out to be, with the caveats I mentioned.

    Not that it’s relevant to my comments at all, but just so you understand my perspective and position, I do understand that many people can not afford either plan in Pal’s thought experiment or any health care option available to them in real life. My personal position is that it would probably be better to go with a publicly funded health care system and eliminate private health insurance entirely or at least relegate them to a supplemental role. Provide universal health care across the board and spread the costs across the entire (tax paying) population. It seems to work well enough in most other civilized nations, the European debt crisis notwithstanding. Of course, even if I’m right, the hardest part is often not figuring out the destination, but rather how to get there from here.

  5. Margaret Flowers

     /  October 9, 2011

    I am an “old oncology nurse” that used to work in bone marrow transplant. I used to say the same thing to my patients. i.e. “The insurance company is in the business of NOT paying out money, and you, the patient, are trying to get as much money from them as possible.” No wonder there is so much conflict. It is just annoying to me that you see the billboards with all the cutsey apples, and Snoopy’s and faces smiling…….giving the impression that your well being is in their hearts. Nope, it is the bottom line. It is a business.

%d bloggers like this: