Shawn, a subscriber and frequent commenter here at Clever Dude, as well as a personal friend of the Clever Dude and Dudette will be posting occasional guest articles. You can read his introduction here.
It’s that time of year again. No, not the start of the Christmas Season. For those of us lucky enough to work for an employer that provides health benefits, it’s open enrollment time.
Over the next few days, I’ll be examining the options offered by my employer for 2008. Even though I’m concentrating on my employer plans, I hope that this information will be useful to all of you. Please note that I’m not an insurance or tax professional, so please consult the appropriate people if you have questions about your particular situation.
There are many variables to consider when choosing the right plan — premium costs, deductibles, negotiated rates, co-payments and out-of-pocket maximums. Let’s define some of these terms and outline our own options and assumptions:
The premium is the monthly cost to actually have the insurance policy.
The deductible is the amount you will have to pay out of pocket for medical treatment before the insurance company will begin paying benefits. Typically, there are two deductibles — per individual and per family. Each individual on your policy will need to pay 100% of the medical costs until you’ve paid an amount equal to the individual deductible. Once this happens, the insurance company will begin paying benefits for the individual(s) that have met the deductible.
However, once you’ve paid an amount equal to the family deductible, the insurance company will begin paying benefits to all individual(s) on the plan regardless of whether any individuals have met the individual deductible.The deductible amount affects the premium cost — the lower the deductible, the higher the cost to own the insurance.
In order for a provider to be able to accept a particular insurance plan, the provider must agree to provide services at a rate set by the insurance company. This rate is almost always less than the rate the provider would charge if you did not have insurance.
Also referred to as co-insurance, a co-payment is the portion of a medical service you will be required to pay once your deductible has been met. This can either be a flat fee per service or it can be a percentage of the negotiated rate.
The out-of-pocket maximum represents the maximum amount of money you would spend on medical care for the year (not including your premium). When the amount you spend on your deductible and co-payments reaches the out-of-pocket limit, the insurance company will pay 100% of any further medical costs.
Like the deductible, there are normally two figures associated with the limit — individual and family. Once an individual has met the limit, all services for that individual are paid at 100%, and if, as a family, you reach the family limit, all services for the family are paid at 100%. Therefore, if one member spends the limit for insurance, but 2 other members haven’t had to use any of the insurance, then all 3 are now covered at 100% under the family plan.
Estimating Your Medical Costs
This is the hardest part of the process. There are many situations where we know what our medical usage will be, for example, getting a yearly physical. However, it’s almost impossible to plan for everything. If I knew I was going to break my arm falling off a ladder, I probably wouldn’t get on the ladder in the first place. But, accidents do happen, and they throw a wrench into this whole process. If you’re a klutz like me, you can just plan on one or two emergency room visits per year.
For this series, I’m going to detail my process for choosing the correct plan for myself and my wife.
- My wife and I go for yearly physicals.
- My wife is pregnant and is due in May.
- We will have many pediatrician visits starting in June.
- I will plan for one ER visit.
Obviously, #2 is where a lot of our expense will arise. This will involve numerous OB appointments and the delivery itself. In addition, I will need to account for additional premium costs when it comes time to add the kid to my insurance policy.
I had no idea how to estimate those costs, so I called the insurance contact at my wife’s OB to get an idea of the costs involved. They have a “package fee” of $4624 that includes all routine OB visits, labs and a normal delivery of a single child (a caesarean section would cost about $5240). The negotiated rate from my insurance company is about $2500 ($2800 for the C-Section scenario).
Now, these are just the OB fees. I still have to estimate the hospital charges (for both mother and child). The lady was able to give me some estimates from the hospital. The cost for the mother would be $5,500 – $10,000 and the cost for the child would be $2,000 – $3,000. Given that the negotiated rate is about 54% off of the quoted rate, I can assume that those would drop to $2,973 – $5,407 and $1,080-$1,621 respectively. This would give a total charge of about $9,500 – $12,500.
For the “planned” ER visit, I’m going to estimate based on the cost of an ER visit 3 years ago. The negotiated rate worked out to $4,000.
My final assumption is that I will contribute around $2000 to a Health Care Spending Account. For us, this will give us around a $500 tax savings for the year. The monthly contribution for this works out to $166.67.
I have 5 options to choose from this year, and I’ll write a separate post detailing 4 of them with my estimated costs for each. You can reach that post if the link appears below. When the series is over, you will be able to see the write-up for options 1-4, as well as a summary:
- High Deductible Plan
- Low Deductible Plan
- No Deductible Plan
- In-Network Only with No Deductible
- Elect No Insurance
The “Elect No Insurance” option really isn’t an option for me since my wife’s company does not provide benefits. Also, without insurance, I’m not eligible for the negotiated rates and could expect to spend more than $25,000 for expenses just for the pregnancy and birth alone. I’ll just outline the actual health plans and then wrap everything up in a nice clean comparison for you.
I hope that you’ll be able to use my comparison techniques to both help you run some numbers as well as brainstorm some risks to your own health that would impact your decision. Keep your eye out for 5 more posts in this series.
Photo courtesy Superturtle