Getting health insurance without spending, ahem, an arm and a leg

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busWesabe is a young company, so I’ve been using COBRA from my last employer to keep myself in health insurance. That’s often the most expensive possible option, though — with dental and vision, my PPO plan was $465 a month — so I decided to look through what other options I could find.

After asking around a bunch, I decided to go with Blue Cross, where I’ve had insurance before. They haven’t been great, but they’ve been better than Aetna, by previous provider. The options were interesting. I’ve always heard the personal finance mantra of, “Go with a high deductible, you’ll save yourself money!” I didn’t realize just how much money I’d save by following that advice. I eventually decided to go with a $1,500 deductible, which, compared to the $250 deductible I had before, will in all likelihood save me between $200 and $1,000 over the next year. If the worst happens and I max out the amount I could possibly spend on health costs with this insurance plan, it’s still only about $100 more than I would spend with a low deductible plan.

I put together a spreadsheet comparing the four PPO plans from Blue Cross California, which vary primarily in the amount of the deductible ($500, $1,000, $1,500, or $2,500). I’ve posted my spreadsheet on Google Spreadsheets, so you can see the different plans and how they compare to each other. The big unknown, of course, is how much I’ll have to spend on health costs over the next year. So, I listed three scenarios to see how much I would spend under each of the four plans:

  1. The good life: how much would each plan cost me if I had no health expenses?
  2. A moderately bad year: how about if I had $2,500 in expenses?
  3. Hit by a bus: finally, what if I had a big disaster, and had $25,000 in expenses?

I chose these because they are good inflection points — if something happens that incurs more than $25,000 in expenses, under these plans, my costs wouldn’t change (at least until I hit the maximum insurance amount). At the bottom of the chart, you can see how each plan compares to the others for each of these three scenarios.

How does my $1,500-deductible plan compare to the $500-deductible plan? In “the good life” scenario, by taking the higher deductible, I’ll save $888 over the next year. If I have a “moderately bad year,” I’ll still save $118 over the year. Things only work out worse for me if I get “hit by a bus” — but even in that case, I only lose $112.

I could save even more in the first two scenarios by taking the even higher $2,500 deductible, which I’ll probably do next year if I have a little more saved up. And with the savings I get by taking a higher deductible now, that will be a lot easier.

I was feeling pretty good about this math, and having run the numbers to my benefit, but the insurance company had the last laugh: because I’m allergic to cats, they tacked on 25% more for my premium. No, your eyes don’t deceive you — I carry an inhaler I use once or twice a year, and I got stuck with a 25% price increase as a result. They must have a “figured out the high deductible trick” strike team that looks for ways to get back at you for getting around their price structure. Bah! Still, if they applied the same surcharge on the low-deductible plan, I’m still saving over $1,000 a year in the best case.

Health insurance is pretty nasty to figure out in the U.S. If you’re looking for insurance, I’d strongly suggest you take a look at my spreadsheet and run the numbers for your own options. (You can copy my spreadsheet using Google Spreadsheet’s “File -> Copy” command, and then modify it for the plans and prices relevant to you.)

14 Responses to “Getting health insurance without spending, ahem, an arm and a leg”

  1. jolly Says:

    Note that there are other benefits to a “High-Deductible Health Plan” as the IRS defines them. You may be able to set up tax-advantaged savings accounts. Small-business owners should also take note as this may be beneficial to your employees.

    See, for example, http://www.irs.gov/publications/p969/
    for details, and consult your tax advisor.

  2. Jonathan Says:

    25% increase for being allergic to cats? That’s rediculous! I hope my health insurance doesn’t find that I’m allergic to almost everything (dust, grasses, trees, cows, cats, dogs, etc.). I’d hate to see my rate increase.

    I’ve elected for a “spending account” with Aetna thinking it will help me with my monthly prescription costs. I’m not sure how much it will help me come tax time yet (this money gets put aside pre-taxes specifically for my medical expenses). The down side is that I’ve still needed to pay out of my pocket and submit my bill for re-imbursement. This is not my ideal way of handling my monthly task of filling a prescription. I’m wondering if it would just be easier to pay out of my pocket.

    Plus, if I don’t use up the money I am putting in to my spending account by the end of the year, I lose it. Seems like yet another way for the health insurance companies to make some money.

  3. Wes Says:

    I think the killer combination is the high deductible plan, plus a health savings account. These have just been around for a couple years. The difference between them and a flexible spending plan is: you don’t lose money if you don’t spend it all by the end of the year. In fact, you can put it in a money market account or something where it earns interest until you need to spend it. And it’s tax free, and you can spend it on anything vaguely medical, from doctor bills to even aspirin or band-aids or whatever.

    I haven’t quite taken this plunge yet, as my family has quite a few ongoing medical expenses, and I’m not quite sure how it would work out for us. But I am going to have a crack at that spreadsheet. Thanks!

  4. christopher Says:

    not that this will help help any… but since you’re a fellow RoR and you as a small co are dealing with insurance and HSAs… well gosh – send me an email and I’ll give you free (forever) access to our RoR app. Start-ups need to support each other whenever possible, so this is on-the-house. Hope it helps and send me an email.

    – christopher

  5. Mitsu Says:

    What happens to you if you get cancer, the latest and best treatment is not covered and you end up running up a million dollars in medical bills?
    If you read the fine print, you will find that the really expensive stuff is just not covered.

  6. Silver Sage Says:

    The ridiculous thing is that anyone even HAS to buy health insurance. Americans spend more per person on healthcare and premiums than any other country yet rank something like 38th in healthiness. Uniform, single-payer (government) national healthcare is the nobrainer solution. Medicare, for example, was (emphasize “was”) the most efficient healthcare delivery system in the world, with only 3% overhead, until Republicans turned it into a cash cow for insurance companies, drug companies and hospitals.
    But, since it is what it is, what do you do now, especially since every single state has completely different regulations?
    First, think long term, i.e. over the next ten years. A Health Savings Account paired with a qualifying high deductible plan is the only way to go. However, do not select a deductible so high that- if you developed a chronic condition -would be impossible to pay annually. Second, be sure you actually deposit money into your HSA! Third, pick a HSA that has a minimum guaranteed interest rate, no annual fees, debit card access to your funds & online account management. Assurant Health has a couple.
    And last, do what most Americans do not: take care of yourself!!

  7. Steven Says:

    What does “uniform, single-payer (government) national healthcare” mean? I think Silver Sage is idealizing what other countries have. I live in Japan where there is a govenment health plan, but we still pay from about $300 to $500 per month, either to the government or to large employers who are allowed to adminster their plans on behalf of the goverment. From reading this post, it sounds like about the same fee as the poster is paying in the U.S.

    I guess the difference is that in Japan we don’t have a large underclass of people who don’t pay their premiums for whatever reason. And the insurance doesn’t cover as much, in all probability. “Vision”? Does insurance pay for your eyeglasses? Why should insurance pay for that? If Americans expect insurance to cover everything possible, good luck in getting cheap universal medical coverage! At some point you just have to be financially sane, save money, live at or below your means … and recognize that at some point, we die.

  8. KT Says:

    Hi there,

    I’m wondering what you think about the difference in benefits for men and women. As I recall, the high deductable plan doesn’t cover pregnancy. Or contraceptives.

    Considering that women are already at an unfair disadvantage wrt income, do you have any suggestions to overcome this disparity.

    Or, perhaps, have a spreadsheet which also includes pregnancy in the heuristic.

    Best,
    KT

  9. Louis Says:

    KT, Here in Texas, some of the high-deductible plans for small groups (2-50 employees) offer a maternity rider, whereas the individual plans usually do not.

    In our case, the two employees for my S-corporation are myself and my spouse (our two children are covered on my wife’s plan). We pay about $500 for a plan with a $2600 individual, $5,200 family deductible. The maternity rider for my wife did not cost extra, and it covered the expenses we incurred this summer during her normal delivery.

    I also created an Excel spreadsheet similar to the one described at the top, but I charted the expected total out-of-pocket costs (including premiums) against the total medical expenses incurred during the year, so that I could show all the plans on one graph and see exactly which is cheaper for any projected total medical bill.

    Louis

  10. Cole Says:

    Kids that do not currently have health insurance are likely to be eligible, even if you are working. The states have different eligibility rules, but in most states, uninsured children 18 years old and younger, whose families earn up to $34,100 a year (for a family of four) are eligible.

  11. Tom O'Reilly Says:

    If you’re self-employed and paying for health insurance on your own there are ways to make it more affordable and comprehensive. One way is to take advantage of tax laws that have been on the books for years but few people know about them or take advantage of them. One is Tax Law 105.

    Here’s How Section 105 Works.
    Do you have income from a sole proprietorship business, farm, or investment real estate?

    Can you legitimately employ your spouse to help manage it?

    If so, you can hire your spouse, establish a “Section 105” Medical Expense Reimbursement Plan, and reimburse them for all medical expenses they incur for themselves, their spouse (you!), and their dependents.

    (If you’re not married and you operate your business as a C-corp, you can establish the plan for yourself.)

    You don’t even have to pay them a salary. You can pay them in benefits only (and avoid managing a payroll) so long as you follow a few simple formalities and the reimbursements are “reasonable compensation” for the work your spouse performs.

    Once you’ve established the plan, you can deduct all your medical bills:

    Major medical, supplemental, Medicare, “Medigap” and long-term care insurance premiums,
    Co-pays, deductibles, and prescriptions,
    Dental care, vision care, and chiropractic care,
    “Big ticket” expenses like LASIK surgery, braces for your kids’ teeth, fertility treatments, and special schools for learning-disabled children,
    Even non-prescription medical expenses and supplies!

    You can learn more and contact me at http://www.AGroupHealthPlanForYou.com

  12. Bill Anderson Says:

    Thanks dude, I’m setting up a startup right now and needed exactly this info to figure out how to evaluate the various options. I’m going to use your spreadsheet – will save a bit of time.

  13. joe Says:

    The health Insurance Companies are NOT needed! They are all about making profit for themselves. They do not care that people are suffering, because they are sick with greed. They are doing the devils work. To all the people who will say I’m un-American and don’t know what I’m talking about, just wait.If you get seriously injured or sick, you will find out the hard way, and I hope you do. God knows you deserve it!

    All these greedy, un-caring people will someday be judged before God for their evil deeds. I’m sure many will just say I was just doing my job or it’s just business, well I hope you like things really hot!

  14. John Says:

    It’s amazing how much you can save when you increase your deductible. Sometimes the saving is more than the differences between deductibles. From what I’ve heard, statistics have shown the lower a persons deductible, the more claims a person will have. That is why when you have a low deductible, your premium goes up quite a bit.

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