Managing Risk, Part 3 – Which Is Better?
Let’s focus on managing risk. Here are the health insurance plans that were offered to the employees of the Birdville Independent School District (which just so happens to be my alma mater) during open enrollment in August, 2013:
I think it’s pretty obvious which policy is the best.
Take a single Employee, for example. Add up the In-Network Deductible and the Co-Insurance Maximum Out-of-Pockets and you’ll see how much you could expect to spend if you were say, hit by a train during the course of the year. On healthcare. That’s in addition to those pesky premiums for your health insurance.
So with the Active Care 1-HD plan you could be on the hook for $6,250. Pretty scary, huh? Which is why I’m sure most people would opt for one of the other policies – the $1,000, or even $300 deductible – to minimize their risk.
I mean, a $2,400 deductible? $6,250 out of pocket? You might as well not have insurance, right?
Because the most significant difference between gambling on your health and walking into a casino is the fact that in Vegas it will cost you nothing to lay your money down and kiss it goodbye. There is no door charge.
But with a health insurance policy there is a hefty door charge, and the less you risk, the more you’ll pay:
For the Active Care 1-HD plan a single employee would pay $100 a month, but the low-deductible, Active Care 3 policy would cost almost six times as much.
So if you wanted to assume more risk with the high deductible plan, it would cost you $1,200 a year. But if you want the insurance company to take on that risk for you, that’ll be $6,852 – and as they say in Vegas, thank you very much for playing.
It gets better and better, though. Assume you’re hit by a train and have to spend the maximum out of pocket on healthcare for the year. Again, do my favorite kind of math – addition – of the premium, the In-Network Deductible and the Co-Insurance Maximum Out-of-Pocket amounts. Take a look at how these plans stack up against each other for a single employee:
For the Active Care 1-HD policy you’d spend a total of $7,450 for your health insurance AND health care. But for the Active Care 3 policy you’d pay over $700 more – $8,152.
The real kicker is the fact that, when faced with three choices, most people will opt for the medium size – a large may be too large, and a small is too small, but there’s safety in the middle.
I’m sure the insurance company knows this, too. Take a look at the numbers for the Active Care 2 plan – $3,648 for premiums, $1,000 for the deductible, and $4,000 for your co-insurance out of pocket maximum, and you’ll spend a total of $8,648 for your healthcare.
That’s $1,198 more than you would have paid if you’d picked the Active Care 1-HD policy.
Just for grins, here are the same figures for a Family (let’s assume two parents and two children):
Although this scenario doesn’t exactly mirror that of a single employee, the end result is equally surprising. The less risk you assume, the more you will pay. Period.
So to wrap up, which of these health insurance plans would you choose? It makes perfect sense to want a low co-pay, low deductible, and low out-of-pocket expenses, but how much are you willing to pay for the privilege?
I think the answer should be obvious here as well. When it comes to managing risk with health insurance, remember:
It’s not the COSTS of healthcare that are outrageous…it’s the CHARGES.