By Fred J. Meijering, GAIN Health Advisor
Welcome to the third in our eight-part series on gaining insight into the mysteries of health insurance, brought to you by AVB partner Group & Affiliate Insurance Network, or GAIN. This month’s column uncovers the costs inherent in different kinds of health insurance plans.
T’is the season when you and your employees choose a plan for the following year. When doing so, it is a good idea for all to consider total healthcare costs — not just the bill, or premium, paid to your insurance company every month.
Additional charges, sometimes called out-of-pocket costs, have a big impact on total spending on healthcare, and can sometimes be greater than the premium itself.
Beyond the Monthly Premium
You and your employees should first consider deductible and out-of-pocket costs. Here’s what those terms mean:
Deductible: How much a person must spend for covered health services before the insurance company picks up any costs (excluding free preventive services).
Co-payments and co-insurance: These are the payments you and your employees make each time the policyholder or a family member receives a medical service after reaching the deductible.
Out of pocket maximum: The most an individual or family has to spend for covered services in one year. After this amount is reached, the insurance company pays 100 percent for covered services.
How to Estimate One’s Yearly Total Costs of Care
In order to pick a plan based on one’s total costs of care, the insured will need to estimate the medical services they’ll be using in the year ahead. Of course, it is impossible to predict the exact amount, so folks should think about how much care they usually use or are likely to use. Here are some rules of thumb:
- Before comparing the plans your company offers, staffers should estimate expected medical expenses as low, medium, or high.
- After reviewing the plans being offered, people should pick one based on their household’s expected use of care. For example, if a person anticipates high medical costs, they should consider picking the plan with the lowest deductible, co-insurance and out-of-pocket maximum. If they expect low medical costs, they might consider picking a plan with higher deductibles, co-insurance and out-of-pocket maximum.
Actual expenses will vary, but the estimate is useful for comparing plans’ total impact on household budgets.
Total Costs and ‘Metal’ Categories
When comparing plans offered by your company, the plans may appear in four “metal” categories: Bronze, Silver, Gold and Platinum. The categories are based on how the insured and the health plan share the total costs of care.
Generally speaking, categories with higher premiums (Gold and Platinum) pay more of the total costs of health care. Categories with lower premiums (Bronze and Silver) pay less of the total costs. So how does one find a category that works best for their situation?
If they don’t expect to use regular medical services and don’t take regular prescriptions, policyholders may want a Bronze plan. These plans can have very low monthly premiums but have high deductibles and pay less of the medical costs when care is needed.
But if you or an employee expect a lot of doctor visits or need regular prescriptions, you may want a Gold or Platinum plan. These plans generally have higher monthly premiums but pay more of the medical costs when care is needed.
So, the best way to manage the cost of healthcare is to try and project what one’s use of the health plan might be for the upcoming year, based on past history. Oftentimes it makes more sense to pay the higher premium for the better plan if one expects to have lots of medical and/or prescription costs. In this instance, policyholders can actually save money by paying more premium and letting your health plan pick up more of the costs.
Conversely, it might make sense to select the lower-priced plan if the insured doesn’t anticipate using your health plan very much for medical and/or prescription costs.
This approach is not an exact science, but it might help everyone on staff get closer to the most cost-effective plan for them.
Once again, we at GAIN are grateful to be part of the team. Tune in next month for Part V: Insurance is Not My Day Job, So How Do I Decide What to Get and How Do I Know it is Right for My Company?”
Fred J. Meijering is a GAIN Health Advisor at Davidson Insurance Services in Addison, Texas. You can reach him at Fred@davidsoninsservices.com.