Remember the pre-Obamacare days, when health insurance was optional? These days, if you don't buy into some sort of plan, you'll be slapped with a penalty for noncompliance. On the plus side, under the Affordable Care Act, you may be eligible for low-cost health insurance that just might come in handy should you find yourself in, say, an emergency room-style situation.
Here's the problem, though: Buying the cheapest health plan out there could end up costing you far more than a plan with a higher annual premium. When shopping for health coverage, it's easy to get lured in by those low-premium plans designed for people who magically never get hurt or sick. But unless you've got a crystal ball, you may be doing yourself a disservice by being frugal.
When you buy an inexpensive health plan, what you're essentially doing is buying limited coverage. Now if you're young and healthy, this may not be a problem, but if you unexpectedly get injured or diagnosed with a medical condition, you may be in for a big-time blow. With some cheap plans, certain diagnostic tests and treatments simply aren't covered. It may boil down to your provider's interpretation of medical necessity, but the lower your premium, the less generous your plan is likely to be, which means you could either find yourself on the hook for monumental costs or wind up in a situation where you're forced to skimp on the care you need to avoid going broke.
In fact, a study found that medical debt is the No. 1 cause of personal bankruptcy filings in the United States. What's scarier, however, is that an estimated 78% of people who file for medical bankruptcy actually have insurance. Furthermore, it's estimated that about 15 million people would deplete their savings to cover medical costs, while another 10 million would find themselves unable to pay for essentials like rent and food as a result of those bills. Even more disturbing is the discovery that over 25 million people are in the habit of skipping doses, taking less medication than they need, or delaying prescription refills to limit their medical expenses.
High deductibles and copays
When it comes to health insurance, deductibles and premiums often have an inverse relationship: The lower the annual premium, the higher the deductible. An estimated 80% of working individuals with health insurance have an annual deductible for single coverage that must be fulfilled before services are deemed reimbursable by their respective plans. In 2014, the average deductible for single coverage was $1,217, though some plans come with significantly higher deductibles. The Affordable Care Act limits deductibles for major medical insurance providers to $6,600 for individual coverage and $13,200 for family coverage as of 2015.
However, there's more than just your deductible to consider. If you take prescription drugs, for example, you may wind up with a higher monthly copayment on a lower-cost plan. Similarly, your coinsurance costs -- the percentage you're responsible for once your deductible has been met -- may be higher with a low-end plan.
Weighing your options
Though choosing a plan with a low annual premium may seem tempting, you need to take a big-picture approach when selecting your coverage. Let's say you're offered the choice of two plans: one with an annual premium of $1,200 and another whose yearly premium is $2,400. Now let's say the cheaper plan comes with a $3,000 deductible and $40 in-office copays, while the plan with the higher premium requires a $1,200 deductible and $25 copays for doctor visits. If you never get sick and don't wind up seeing a doctor during your effective year of coverage, you'll most certainly come out ahead by opting for the lower-cost plan.
But what happens if you do get sick, or wind up in the emergency room with an injury? The median cost for ER services is $1,233, but the upper end of median charges is around $3,400 for a kidney stone. Let's say that happens, and that your ER bill comes in at $3,000 even. Under the low-cost plan, you'd be liable for that full $3,000 out of pocket. Add in the cost of your insurance premium, and you're looking at $4,200 for the year, assuming you receive no other medical services other than your ER care.
Now let's look at the plan with the higher premium. Under that plan, your out-of-pocket cost for your ER visit will be $1,200. Let's assume you have an 80/20 coinsurance setup, which means you're responsible for 20% of your bill once your deductible is met. That's another $360, plus $2,400 in premium costs. In all, you're looking at $3,960, assuming you receive no other medical services that year. In this particular scenario, you'd fare better with the higher-cost plan.
Even if you take your deductible out of the equation, it still might make sense to pay up for a better plan with lower in-office copays and prescription costs. What you'll lose in a higher premium, you might gain in savings on the services you know you'll be using.
Of course, in the absence of that crystal ball, it's hard to know which option will ultimately trigger the best financial outcome. It's really just a matter of how willing you are to take a gamble.
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