high deductible health insurance vs a traditional plan for us

November 1st, 2007

High Deductible Health Insurance vs A Traditional Plan – For Us

At the health insurance meeting I went to at my spouse’s employer last week, I found out that the company was going to start offering two options for health insurance plans – the plan we already had (which I am now calling the “traditional” plan) and a new high deductible health insurance plan. Naturally, the premium for the high deductible plan is less, about $20 less a week for us, or about a $1040 savings over the course of a year. Along with that, the high deductible plan has a health savings account, or HSA, attached to it, which my spouse’s employer will fund with $700 every year for employees who choose that plan (employees can choose to add more to it if they wish), bringing the total savings for us to $1740.

So, that high deductible plan sounds great, right? Well… not so fast. Rather than be sucked in by the flashy exterior, I needed to dig into the actual numbers to see what worked for our family. The person representing the health insurance company that was there to explain the plans and answer questions was quite annoying and a bit condescending. If it was my employer and not my spouse’s, I would have been a little more forthright with my opinion on what he was saying, but since it is my spouse’s employer, I asked mostly innocuous questions and refrained. The traditional plan was really characterized as the option for “less healthy” individuals who are not “proactive” in their health care choices. I’d like to point out that if we had had this high deductible plan when I was pregnant, we would have paid about twice as much out of pocket as we did with the traditional plan just from basic expenses related to childbirth, and I’m not sure when pregnancy became an indication of poor health. But, I digress… lets look at the general details of both plans.

The traditional plan has an individual deductible of $1000 ($2000/family) and an individual out-of-pocket limit of $3000 (which I hit with both my pregnancies/births) or $6000/family. It is a copay-driven plan, we pay $20 copays per doctors visits (well-child checkups and yearly adult checkups are free) and a $15 (generic) or $25 (name brand) copay on prescriptions. Copays do not count towards our deductible. After our deductible is met we pay 30% out of pocket until our out-of-pocket limit is met.

In contrast to that, the high deductible plan has a $3000/individual deductible ($6000/family) with a out of pocket maximum of $5000/individual ($10000/family). After the deductible is met, you pay 20% out of pocket up to the out of pocket maximum per year. There are no copays – everything counts towards the deductible. But that means until you meet the deductible, you pay the full cost of everything out of pocket. Including prescriptions.

And here’s where the math comes in. I have mentioned before that my spouse has asthma. He takes Advair daily to control his asthma. Advair at this point has no generic equivalent, and according to our pharmacy receipt, costs $174.99 per month. We pay a $25/month copay for it, or $300/year. If we chose the high deductible plan, we would pay $174.99 x 12 or $2099.88 a year for it. The high deductible plan saves us $1040 in premiums and a $700 contribution to an HSA for a total of $1740… so we come out behind before we even begin. $2099.88 (what we would pay for advair under the high deductible plan) – $300 (what we pay for advair under the traditional plan) = $1799.88 which is more than our savings ($1740) for choosing the high deductible plan.

So for us, it immediately from a mathematical point of view doesn’t make sense. Without that, I might have to do a more thorough analysis of the risk and benefit and really think things out. I would most likely at this financial juncture choose the traditional plan because we don’t have a lot of money to come up with the full costs of doctors visits and prescriptions, and with two small children it seems those types of things pop up rather regularly – but I can see why the high deductible plan would be attractive to someone who generally uses the benefits very little.

If you enjoyed this post, make sure you subscribe to my RSS feed!

You can also: Stumble It!  
Bookmark  
Submit to Reddit  
Submit to Tip’d


22 Responses to “High Deductible Health Insurance vs A Traditional Plan – For Us”

  1. My family recently moved to the US and I must say it was health insurance that just about made me want to move back (to New Zealand). We were trying to compare everything as equally as possible, but it’s like apples and oranges. In the end we chose what we think is the best plan that fits within our budget and pray that we all stay healthy! It seems that in America we just can’t be without health insurance.

  2. We recently had the choice to move to an HDHP if we wanted, and we turned it down as well. It sounds nice, but the fact that you have to pay full price for everything up front is a real turn-off. The idea is that if it’s your own money, you’ll be more judicious about how you use the healthcare system. But, it’s not like there is any information out there to give us a sense of what things should cost, what the markups are, etc to help us make decisions, negotiate with our doctors, etc. Until that’s in place, I think it would be hard for me to make the jump to an HDHP.

  3. Don’t forget to take into account the tax savings from using the HSA. It’s all before tax money, whereas with your traditional health plan you would likely not be able to deduct any of your medical expenses on your taxes. The impression I get is that the high deductible plan is not a good deal. There should be more of a difference in price than $1000 annually, considering that most families pay around $10,000/year in premiums. The maximum cost of the traditional plan is $16,000 per year (assuming $10,000 in premiums), which may or may not be tax deductible. The maximum cost of the high deductible plan is $20,000, minus $1740, or $18260. The minimum cost of the traditional plan would be $10,000 and the high deductible plan $8260. So basically the insurance company is giving you $1740 in order to take on $2260 in additional expenses if you get really sick and max out the plan. Since the insurance company is going to pick up the entire tab if you have to have a brain transplant or something ($10,000,0000), and it’s these catastrophic illnesses that comprise the majority of their expenses, I would expect them to be straight up with the deductible and give me *everything* back for opting for the high deductible plan. The high deductible is supposed to be a money saver for the customer, not a money maker for the insurance company. In fact, you might even expect them to give you more, because chances are you won’t get extremely sick, and they are not going to be paying anything unless you hit your out of pocket maximum, unlike in the traditional plan where they have to pay the balance after your copay. So your savings really should be at least $1740+$2260, or $4000, for taking on the financial responsibility of a high deductible plan. They stink and are trying to screw you over. Nice of them to insinuate that people who choose the traditional plan are irresponsible. Nice of them to swindle people into taking on more financial burden in exchange for a small short term savings. They should be in the rent-to-own business. This is why we need transparency in health insurance. We need to take away the advantage that their armies of actuaries give them and force companies to provide comparable plans so people can comparison shop. And then make group plans available to everyone so that people can actually do that, rather than being at the mercy of their cheap ass employer.

  4. I should have put this in the post, but we have a Flexible Spending Account for health-related expenses, so actually in the example I illustrated, both things are before tax money (I pay for my spouse’s prescriptions out of the FSA). Which is why I didn’t include taxes in my discussion.

    Health insurance makes my head hurt and I get very cranky. I can understand wanting to flee the country over it ;)

    I also was very turned off by the pay everything up frontness of the HDHP.

  5. This is an IRS problem, not a problem with your company plans.

    The IRS requires that drugs not be discounted and that they count against the full deductible in an HSA.

    Stupid rule that should be changed.

    See:

    http://www.wiley.com/WileyCDA/Section/id-301976.html

  6. Great points in this post. I think you bring up an imp. point at the end with the statement about the HSA possibly being better for one who is overall less likely to use medical services frequently.

    As someone with some serious and longterm chronic health issues, I just wanted to point out how easily someone can move from that category to the one I’m one, essentially that of “professional patient,” which can get quite costly, and even more so when paying a percentage of expensive medical procedures (and medicines? not sure exactly how the plan works after deduct. is met) instead of a controlled copay.

    An accident or an up till then undetected or new illness is all that’s needed to change one’s life forever. Health is in some ways the great equalizer and I’d warn anyone who thinks him/herself to be in the “healthy” category to make choices (such as skipping disability insurance, etc.) without considering how easily the category you’re in can change.

    And as someone who is sick, I appreciate your taking note of the obnoxious comments made by the ins. rep. about how those in poor health are not being “proactive” about their health. I can’t believe someone who is paid to come in and talk about health ins. can get away with comments like that.

    Does that person need a list of how many illness and injuries have absolutely nothing to do with how proactive one is or is not about their health. It’s the blaming the victim thing again, which is so popular nowadays when it comes to health (and a good topic for a post/rant, which I think I’ll write on soon).

    Thanks for this explanation of the two plans!

    M

  7. For us it is actually the high deductible that turned out to be cheaper. Right now the biweekly premium is $10. The family deductible is $2500, which is what we contribute to hubby’s HSA and a max out of pocket of 2K. His employer also contributes $1200 through a couple of wellness incentives to HSA. So “total cost is $3560. The other plan we would consider has a family deductible of $1200, plus biweekly premiums of about $37 and max out of pocket of $2K. Employer offers $200 in wellness incentives for a total cost of $3956.
    I initially thought that his company offered crappy health insurance but it turns out it’s not too bad after all. Just a little worse than what we had.

  8. I’ve decided that, in my situation, the HSA would make sense if my income went up a lot and I needed to hide money from the IRS. That’s a ways a way for me.

    As for the tax savings, you still get them with PPOs and HMOs. The premiums are deducted pretax, and you pay for meds pretax if you have an FSA.

  9. Let’s be careful about what we mean when we say “full price”. It’s very common for insurance carriers to negotiate prices with pharmacy chains. Thus a truly uninsured person may pay what is really “full price”, but anyone with insurance will pay whatever their insurance company negotiated. This applies to HDHP insurance as well. Thus even though I pay for my medications from my HSA (rather than the insurance company paying for them) I pay less than “full price”.

    Secondly, have you price shopped for your medication anywhere other than your local retail pharmacy? Since there are many dosage variations of Advair, I can’t do that comparison for you, but a simple Google search for Advair turns up dozens of vendors selling brand name and generic equivalents at a wide variety of prices. Drugs which are brand-name-only in the U.S. are sometimes available as generics through Canadian pharmacies; Advair is one. Of course with the “traditional” plan you have no financial motivation to do the legwork. If you do that comparison, how to the plans stack up?

  10. Man, this post made my head hurts. But for what it’s worth, we also went with our coinsurance plan instead of the high-deductible plan. I think HD plan only make sense for young single guy, not someone with a pregnant wife about to give birth.

  11. @tgeliot – the price on my receipt is the negotiated price through my insurance company. I get an “explanation of benefits” from my insurance company every time I fill the prescription telling me to be thankful to them (okay I am exaggerating that part) that they cut a check for $159.99 to the pharmacy.

    I have actually filled the prescription at several local pharmacies over the past two years and the negotiated price is always the same. If I chose to fill it through an online Canadian pharmacy – yes I might get a cheaper price to pay out of pocket (I haven’t looked) but I would also not get the benefit of it counting towards my deductible, which is another bigger gamble I’m not willing to take. It is not my medicine to decide to change to a generic that is not available in the US, it is my spouse’s and with the complications he has had before finding Advair, I’m not sure he’d decide to. I could ask him.

    But honestly, this was the easy part of the decision. I don’t think for *us* the high deductible plan is the right option for more reasons than the Advair – the Advair just made the decision simpler on a purely mathematical sense. The two small kids and kids tendencies to get sick factors in as well.

  12. Found this while doing some HDHP research. My heart goes out to you because both of those plans kind of suck :( That deductible is far above the minimum HDHP regulations by the IRS and my calculations show that your companies employees are paying the same as a family would be paying for the traditional plan, and about $3660 more than our HDHP which is better than yours.

  13. I meant your spouses company and my company. Gah, I got distracted and hit post too soon.

  14. The one of the reasons why health insurance (and the cost of medical services) is so expensive can be seen in the attitude of many of the people posting here (and other places).

    They want something for nothing and in the end, that will always fail. When I read, ” but the fact that you have to pay full price for everything up front is a real turn-off.” I have to just shake my head. Would you say this about any other good or service? Why should I (and everyone else) have to pay for your child or you chronic illness? Maybe we should have food insurance and then I won’t have to pay full price for all of my food. I will head right over to the meat department. Or maybe we should have home electronic insurance, where I only will have to pay $200 for a plasma TV, because the other $2000 will be subsidized by the rest of you.

    I am sure that if we did some account of the people that “can’t afford” to pay full price for their health insurance, we will find high car payments, TVs, Video games, etc. You can’t do with out that, right?

    Maybe it is time for Americans to take a bit more responsibility for themselves instead of trying to pass off their burdens on to someone else, even if they do have “deep pockets.”

Trackbacks:

  1. The Friday Gathering for 11/2/2007 | Gather Little By Little
  2. Sunday Money Roundup – One More Week Till Mexico Edition. | My Two Dollars
  3. A Contest Winner and Featured Carnival! Stick Around for a Review of Stories and Risk | I’ve Paid For This Twice Already…
  4. Consumer’s Health Insurance Blog
  5. Expect the Unexpected – How to Prepare for Hospital Expenses (Guest Post)
  6. A Tale of Two Doctors | I’ve Paid For This Twice Already…
  7. » Frugal Tip: High Deductibles With A Plan on the Festival of Frugality
  8. » Frugal Tip: Have Appropriate Insurance on the Festival of Frugality