Comparing Health Insurance Deductibles

(Photo Detail:  Shake Shack, maybe not the healthiest decision)

I’ve been reading a lot of complaints about how the individual policies on the new health insurance exchanges are terrible because the deductibles are so high.  I’ve had a high deductible plan ever since I retired, since no one else is footing the bill anymore, so I don’t really understand the problem.  If you don’t like the plan with the high deductible, you just can buy a policy with a lower deductible.  But then you’ll have to pay more in premiums.  Take this example from an article I read today in the Wall Street Journal:

Ms. Brunstein, a semiretired 64-year-old lawyer, saw her Emblem Health plan canceled her $407-a-month plan in December because it didn't comply with the law. By New Year's Day, she had chosen and paid for a new health-law plan offered by the same insurer. The new policy costs less, $333 a month, and she's eligible for a $94-a-month subsidy, further lowering the costs.

She's still frustrated by the new plan, which has a $3,000 deductible, higher, she says, than her prior coverage. "I don't even think I have $500 a year in medical bills," Ms. Brunstein said. "That's a mighty tall mountain to climb."

So here’s the deal.  She, like many people I’ve read about and watched on TV recently, is frustrated because now she has a $3,000 deductible—higher than her previous coverage.  However, her new policy is almost $900 cheaper per year than her old policy.  And that’s before her $94-a-month subsidy.  In all, that’s $2,000 she’s going to save each year over the cost of her old premiums.

She’s complaining that her deductible is so high, when she doesn’t even reach $500 a year in medical bills.  Maybe she had a really low deductible on her old policy—let’s just, for argument’s sake, assume she had no deductible at all before.  That means, she will pay $500 more each year in medical expenses, but save $2,000 in premiums.  She’s going to come out $1,500 ahead, but for some reason she is still frustrated.

I don’t totally get it, but I presume she feels like she’s taking a risk, a risk that she might have to pay $3,000 in any particular year.   So would she rather have locked in the extra $1,500 expense of her old plan, every single year, to protect against the possibility that she might have $3,000 of expenses one year in the future?

Which is exactly why we chose a policy with a $9,000 family deductible.  The same plan with no deductible would run us $4,700 more in premiums each year.  In the six years that I have had insurance on the individual market we’ve never come close to that in expenses working toward our deductible.  We’re a lot like Ms. Brunstein, maybe spending about $1,000 each year.  Although most of the things we used to pay for are now paid for as preventive care, so it will probably be closer to zero going forward. 

So why would I lock in an additional expense of $4,700 each and every year to protect against the possibility that in one year we reach $9,000 of expenses?   With the savings we’ve pocketed over the years so far, we’ve banked enough to get us through three really unlucky health years, where we both get sick enough to reach our deductible.  And if that doesn't happen for a few more years yet, I’ll just keep pocketing the difference until then.  

Sure, if we develop some ongoing health issues, it might make sense to upgrade to a different policy in future years.  But for now, I’m going to use that savings to fund my tax-deductible Health Savings Account.

Related Posts:

            Navigating the New Health Law

            Shopping for Health Insurance on the Exchange

            How to Get Health Insurance in Retirement

 

Can’t keep track of my non-existent posting schedule?  Subscribe—it’s free!

Comments

[rjack (Mr. Asset Allocation)]

Nice analysis! I agree with you that some people are just very risk averse even if it is irrational. I many people will change their attitudes once they live with the new health care law for a year or two.

[Bob Lowry]

I think many of the complaints are just because of change. The policies that health insurance companies cancelled did not include all the benefits of the plans that meet the requirements of the ACA. They were flawed to begin with.

My new plan is $250 a month cheaper, has superior coverage, and a lower deductible. I had 23 plans to choose from, so yes, it took some time to be sure I made the best choice. The investment of my time had excellent returns.

Some of the complaints are political - if it is Obama it must be bad. Others are because people don't like to put in the effort to see what deal is best.

But the bottom line is simple: health care in this country was completely out of control and on the road to bankrupt all of us. If there is a rough period of adjustment and costs finally are beginning to be reined in, then we will all benefit in the long run, even that woman who is complaining (while getting better coverage and all sorts of free test she didn't get before!)

[dgpcolorado]

I view it the same way you do Syd. I've been buying my own health insurance for fifteen years now, most of it with an HSA qualified high deductible policy. In all those years I've only exceeded the deductible once, for double cataract surgery. In the other years my health expenses have been, at most, a few hundred dollars. Why would I want to pay more in premiums on the off-chance that something bad will happen? I have more than three years of maximum deductible expenses stashed in my HSA, should I ever need it.

I think the problem with the perception that one should have a low/no deductible policy is a general one with how people look at insurance. In my view insurance is for catastrophic expenses that would be difficult or impossible to afford. I have insurance to prevent being bankrupted by a high expense beyond my means to cover. I can pay for the little stuff myself.

I also go with high deductibles on house and car insurance for the same reason. I'm not concerned with trying to collect on a small expense of $500 or so. In the case of house insurance filing small claims is a good way to get your premiums raised or your policy canceled. I have house insurance in case the worst happens and my house burns down or something drastic like that. Because I couldn't afford to rebuild it on my own.

My sense is that people prefer a low deductible policy because using it for claims feels like getting some of their money back from the premiums. But that is false economy. Insurance should be used to protect against major expenses that would be difficult or impossible to pay for otherwise. And, as you know, expenses for major health problems are a leading cause of personal bankruptcy.

[Retired Syd]

dgp: Yep, were on the same page. I learned this lesson he hard way. We had a very low deductible when we bought our first house. We had two losses the first year, so we felt very relieved that we had such a low premium--until the bill came the following year. An increase much more than our claims even amounted to! So yes, you're better off absorbing the smaller stuff and keeping insurance for the stuff that could bankrupt you.

[Rick]

Hi Syd (and Doug) -- No worries here about the high deductible plans. Actually quite happy about a 30% premium reduction and the fact that we can keep insurance since we are considered uninsurable (before the new law insurance companies weren't real keen on cancer survivors in the individual market). HSA contributions are an added benefit.

I would have written sooner on some of your other posts, but we've been too busy enjoying the Pharrell Williams "Happy" music video you posted!

[Rick]

Hi Syd (and Doug) .... No complaints here. In fact, we're pretty happy about a 30% premium reduction and the new law allowing us to be in the individual market with pre-existing conditions. I would have commented on some of your earlier posts but we've been too busy listening to "Happy" by Pharrell Williams :-)

Oh, and Go 49ers!!

[Madeline]

We have always paid our own insurance and always had higer deductibles. We don't use our insurance much (thankfully!) but it is there should we need care. I have always seen a naturopath once a year for $100 out of pocket.I had a skin tag removed last year and it cost me $200 out of pocket. That's about it.

We pay $415 (it went up from 355) on a policy that was grandfathered in,this year. We cannot estimate our 2014 income as we are in the midst of retiring and other stuff-- but in 2015 I expect we will be able to get a great policy on the ACA site at around $250 with a similar deductible.I coudl get it THIS year if we could estimate income.. but if I make a boo boo we would then be responsible for the whole $700-800 premium).Those premiums sure do look steep to me.

What if you're still wokrin, age 55-64, and make too much money for a subsidy?? If your plan is not grandfathered in, the costs are awful.I have friends paying over 1200 a month now--they had been able to find insurance at half that pre ACA.

A lot of bumps in the road till we get to a better situation in this country.

CONTRARY TO WHAT A LOT OF AMERICANS seem to hear in the news: We just met a CANADIAN COUPLE who are scared to death that they may get sick here and have to get snagged by our awful health care system.They carry travel insurance but they told us if they get sick they will hightail it back to Canada PRONTO where THEY LOVE THEIR HEALTH CARE SYSTEM!!

Sooner or later USA will get onto single payor universal coverage. It's the right thing to do.

[Retired Syd]

Madeline: I've heard similar things from the folks I've met from Canada. While I'm sure they exist, I've yet to meet a Canadian that is envious of our health care system here in the U.S.

[John Of Late]

I think a lot of the anger and frustration over the ACA is from people who (a) were never able to get health insurance before and simply do not understand how it works, or (b) are unable to do the math (as in the example you cite). In addition, the ACA is more about insurance than about health care. Parts of the ACA improved insurance in a number of ways, not the least of which is providing access to insurance for people who would previously be denied coverage due to a preexisting condition. Unfortunately, many who did not have insurance before find that coverage is not "affordable" even with a subsidy. The way insurance works, having a deductible, access to basic health services is still difficult, especially for those on a tight budget. People who cannot afford a $200 visit to the doctor's office will still end up in hospital emergency rooms when their medical problems are worse. I agree with Madeline that universal access to health services (and not just the opportunity to buy health insurance)is sorely needed. A single-payer system would be best, but if the politics require continuation of the health insurance business, then there should at least be a public option.

[Cyclesafe]

People are conditioned to view health care as a "free good" like police or fire protection. This may be because many of them received "free" health insurance at work or, much earlier, from their parents or parent's plans. When co-pays were introduced in the '80's, employees felt gouged and when the co-pays started going up - modestly IMHO versus the value of the service received - they blamed their employer's "greed".

Health care isn't a freebie, a common public good that can be drawn upon without consequence, as desired. There is a cost - a big one - that many feel should be socialized. Well, in the United States we have chosen to subsidize, but not wholly cover, health care. Catastrophes are covered, colds and flus are not. This means that the individual has the freedom to manage her/his level of care for the nickel and dime stuff - as it should be - because no one else is as qualified to draw upon health care services so efficiently.

In my view, the ACA acts to wean people away from this perception that health care is a common, free good. U.S. society has been indirectly and directly paying this cost for a long time and with sharp increases in cost, the practice is untenable. Reform was necessary and those who complain about the results are like the growing toddler being denied his/her mother's milk, or, alternatively, if they are affluent enough, they seem to prefer the old way when these costs were incurred, but were hidden. I mean, nobody has been or will in the future be dying in the streets like in India, for example.....

[Retired Syd]

Cyclesafe: I like your analysis. I think also a big problem is the pricing of services. When we have "free" care through our insurance, we the consumer don't tend to ask questions. The doctor says do this and we do this. We have no idea how much it costs, and for the most part we don't care because someone else is footing the bill.

Plus doctors are incentivized to over treat, not just because of money but as prevention of malpractice claims.

And prices for various treatments vary considerably from hospital to hospital, by region, even based on who is paying for it (the individual, medicare, or insurance). I can't believe we accept this pricing model.

There was a good article about the cost of specialists in the NY Times recently: http://www.nytimes.com/2014/01/19/health/patients-costs-skyrocket-specialists-incomes-soar.html?ribbon-ad-idx=21&rref=health&module=Ribbon&version=context&region=Header&action=click&contentCollection=Health&pgtype=article

[Retired Syd]

Rick: Sorry your original comment got trapped in my spam comments! (As did Bob's and John's). I'll have to be more vigilant about looking at that!

Bob: I agree that some of the resistance is just the dramatic change. But I'm worried now that people won't feel the benefits because they are not signing up! This same WSJ article says that the vast majority of new enrollees were people that already had insurance and were either cancelled or found a better deal on the exchange. We've got 48 million that didn't have insurance before the law, and so far, not many have them have come to the table. This worries me.

John: Yes, our health insurance system is a tough sell I think, for someone that has never had insurance. You pay hundreds, even thousands of dollars for a a product that if you are lucky, you don't use it that year. The only way you "win", financially, is if you get really sick. And of course you'd be happy you were insured at that point.

You can look at the whole thing as a win-win or a lose-lose. Either way, you'd be right.

[Cyclesafe]

Syd: don't leave out the kickbacks doctors get from pharma companies!

Two weeks ago I was prescribed Vanos cream for a skin condition. The pharmacy called to inform me that the 120g tube was going to cost me $1998 (no decimal). Yikes! I called the dermatologist's office for an alternate, but they sent me a coupon that (with insurance) would reduce the cost to $35. But an internet search yielded that Vanos is a "high strength corticosteroid" as is clobetalsol propionate, of which I had an expired tube.

Now, two weeks latter, my skin is clear, I'm zero out of pocket, the pharma company is out almost $2000 of profit, and my dermatologist is no closer to his trip to Hawaii.

[Susan Yarnall]

Sorry Cyclesafe, but it's not your doctor that is receiving "kickbacks" from your drug company co-pay coupon. Please don't vilify your doctor - he or she is probably working very hard and earning less than ever thanks to reductions in reimbursements from insurers and Medicare.

Much has been much written about the strategies that brand drug companies will use to combat the "generic wave" of medications becoming available. One answer can be found in the "copay coupon" marketing campaigns now flooding the marketplace. Much is at stake, as each one percentage point decrease in the generic drug dispensing rate raises the amount that employers, unions, state governments, and consumers spend on prescription drugs by $3 billion annually.

From cereal to detergent, consumer brands often use coupon promotions instead of price reductions to lure consumers away from lower-priced competitors. Recently, drug companies have started using copay coupons to increase sales of brand name drugs among those with prescription drug coverage. The difference is that two-thirds of prescription drug costs are not paid by consumers but by the employers, unions, and government agencies (i.e. taxpayers) that provide coverage. As copay coupons reduce the use of generics and more affordable brands, overall prescription drug costs increase dramatically.

By definition, copay promotions target only those who already have prescription drug coverage (i.e., those who pay copays). These programs are not means-tested or designed to help the poor or uninsured. Considered illegal kickbacks in federal health programs, copay coupons are banned in Medicare and Medicaid but are allowed in the commercial market (except in Massachusetts).

By the way - does anyone else wonder about a semi-retired lawyer having access to a silver plan (I assume due to the relatively low deductible) at only $333. a month, as well as a subsidy. A similar plan in California would run more than double that amount. Wonder where she lives, and how she manages to report such a low reportable income?

[Retired Syd]

Cyclesafe & Susan: Interesting discussion--I have never heard of copay coupons until today.

On the subject of the semi-retired lawyer having access to a silver plan--ALL people buying insurance on the individual market have access to all levels of plans: Bronze, Silver, Gold and Platinum. (And also whether you buy it on the exchange or not). While each has declining deductibles, each has escalating premiums so the higher levels may not be attractive to all people.

What you may be thinking of is the Enhanced Silver plan which entitles purchasers to additional out-of-pocket help depending on their income. You must have income under 250% of the poverty level to qualify for that. The article did not specifically mention that she was eligible for that enhanced product. From the numbers, I'm guessing it is not an enhanced silver policy since her subsidy is relatively small. (The lower your income, the higher your subsidy.)

[Retired Syd]

P.S. Clearly her location is a factor. Her old policy with a lower deductible was only $407/month. I am 15 years younger than she and I couldn't find a low-deductible plan for that amount in the past in California--not anywhere near that!

[Cyclesafe]

Susan, you are clearly well informed on this issue and I am certain that many doctors refuse to game the system and are pinched by declining insurance company and government mandated payments.

But as in any population, there are bad apples, doctors who pad bills, order unnecessary tests (well beyond the standard of care to address possible malpractice liability), and take full advantage of the spiffs offered by pharma companies.

Furthermore, pharma companies develop products like Vanos that are functionally identical to tried and true generics, but they are new, molecularly different, and thus protected from competition with a patent. Having the informed consumer actually concern him/herself with health care costs will help drive them down to reasonable levels.

[Susan Yarnall]

Syd

What I meant in my post is that as a "semi-retired" lawyer I would have thought that her income might be too high for a subsidy of any type or level for a plan through the ACA - an assumption on my part due to her past profession. And yes, I live in CA too and plan to retire in a couple of years - there are no $333 plans for someone her age even at the highest possible deduction let alone $3K. I don't believe everything I read even in the WSJ - so much misinformation regarding the ACA and medical policy in general these days.

Copay cards and discounts are very common for brand name pharmaceuticals - just a hint to anyone that if you ask your doctor or better yet google the name of the medication, you will find that quite often there are deals enabling you to get discounts (for up to 12 months not just a one time deal) - whether you are cash paying or insured. Just no deals for Medicare or Medicaid eligible due to strict government policy regarding the reimbursement and pricing of drugs.

Just for fun I just googled 6 common prescription meds and every single one had a copay or discount card available to download and print on their website
(allergy & asthma, cholesterol, HRT, diabetes, etc.)

[Susan Yarnall]

Cyclesafe

Having the informed consumer actually concern him/herself with health care costs will help drive them down to reasonable levels.

I agree with this statement, as well as your analysis of how Americans have considered healthcare a free good. Always better to be an informed consumer, regarding any purchase or financial decision including those related to healthcare.

Just a few quick points - there are virtually no "spiffs" available or accepted by doctors since the Sunshine Act and the Pharma Guidelines were instituted. There are many misconceptions regarding this issue based on pharmaceutical marketing practices of the 1990s and early 2000s.

Pharmacists make more money filling a generic prescription than a brand, so there may be times a patient may be offered a generic that is not functionally identical - buyer beware.

Using an out-of-date medication may be safe in the case of a topical steroid but I would not recommend it for something where reduced potency could cause a lack of efficacy and a negative or dangerous outcome for a patient (ie: antibiotics, diabetes medications, asthma drugs).

Promise this is my last post on this subject - again, there is so much misinformation regarding healthcare (and the new ACA) - hopefully in the future people will be offered information on healthcare that is far more transparent that what we have now.

[Retired Syd]

Susan: This just goes to show you how varied costs are by state. I used the Kaiser Family Foundation calculator to search premium costs for a 64 year old in my zip code. The premium estimate is over $900/month. Then I picked a zip code in Queens, New York (where the Wall Street Journal says this semi-retired lawyer lives), and even before subsidies, the premium estimate is $365 per month--right in line with the premium quoted in the article.

The subsidy calculator doesn't ask your age for New York like it does for California, so I'm wondering if they don't have the same age banding as we do. I also checked that zip code on ehealthinsurance.com where you do put in age, and I get the same ballpark, $359.

[Dawn brown]

health insurance policy is the most trickiest one. You buy thinking it will cover everything within your budget, but you actually pay a higher price.

[Cyclesafe]

Susan, I appreciate the time you took to set me straight. The last time I was exposed to the spiff issue was in 2004 and things do change, I'm happy to learn.

Yes, expired meds should be used with care, not the sort that pharma companies show when they donate expired meds to the third world for the tax write off. Rather than the active ingredient, my skin condition was probably as well addressed by the petrolatum carrier.

The US health care system is broken and the watered-down neutered ACA makes only a baby step to fix it. My expectation is that in a few years it will be proven to be too little too late and thus in some minds ineffective, then subsequently scrapped by the naysayers who will continue to infest congress.

[Hedley Fulton]

Trying to figure out what health insurance is best for you can be a challenge. Everyone has different health care and insurance needs. That is why it is so important for you to look into a lot of different insurance plans. By doing that you can make sure that you find the best plan for you, for the best price. It is amazing how many different kinds of health insurance there is out there.