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My wife and I have both been self-employed for a few years now, which means that we’ve been on our own when it comes to finding health insurance for ourselves and our two boys.
And I’ll tell you, it’s been a heck of a learning curve. I honestly didn’t know much about choosing between different health insurance plans when I first started, and there are so many different variables that it’s hard to even know where to begin.
But over the years I’ve honed my process and whittled it down to five key variables that I look at every single time I have to make this decision, whether it’s for my own family or for my clients’ families.
And today I’m going to share those five variables with you so that you can make a better decision the next time you’re in charge of choosing a health insurance plan.
A tale of three health insurance plans
In order to show you how I do this in real life, we’re going to compare three health insurance plans that are actually available to me and my family for 2018, using real numbers so that you can see exactly how this works.
For our purposes here, I chose three different plans that represent three different levels of coverage, including the plan I ended up choosing for my family. Here they are:
Bronze plan (smallest premium, largest deductible)
- Monthly Premium = $1,070
- Annual Deductible = $12,000
- Annual Out-of-Pocket Max = $12,000
Silver plan (medium premium, medium deductible)
- Monthly Premium = $1,664
- Annual Deductible = $7,000
- Annual Out-of-Pocket Max = $14,700
Platinum plan (largest premium, smallest deductible)
- Monthly Premium = $2,120
- Annual Deductible = $0
- Annual Out-of-Pocket Max = $4,000
With that, let’s break it all down!
Variable #1: Are our doctors and hospitals in-network?
This one is pretty obvious, but it’s often the most important variable, especially if you have specific doctors that you want to make sure you can continue seeing.
For example, when we lived in Boston my wife had an OB/GYN that we both absolutely loved. She delivered both of our boys and was, quite honestly, one of our favorite people in the world. We still talk about her even though we moved to Florida and haven’t seen her in almost four years.
When a doctor like that is involved, it would take a lot for me to choose a health insurance plan that didn’t have her in-network.
These days we don’t have anyone quite on that level, but there are certain doctors we would prefer to keep and a particular hospital that’s closer to us than any other. All else being equal, we’d like for all of them to be in-network.
One of the nice things about getting health insurance through healthcare.gov is that it looks this information up for you. But no matter where you’re getting insurance, you can typically search through the provider directory on the insurance company’s website to find out which doctors and hospitals are in-network.
It’s also worth noting that a provider being out-of-network shouldn’t be an automatic disqualifier. Some health insurance plans offer reduced benefits for out-of-network providers, and those benefits still may be preferable to another plan.
In our case, all three of the health insurance plans we were looking at covered all of the doctors we cared about. Which meant we could move on to the financial variables without worrying about this part of the equation.
Variable #2: What is the guaranteed cost?
This where the fun really starts.
Health insurance plans all have a premium, but I prefer to call it the guaranteed cost because it’s the amount that you’re guaranteed to pay even if you don’t see a single doctor for the entire year.
The trick is to calculate your guaranteed cost as an annual amount so that you can easily compare it to other numbers – like your deductible and out-of-pocket max – that are shown as annual amounts by default.
Here’s the guaranteed cost for each of the plans we’re comparing here:
- Bronze plan = $12,840
- Silver plan = $19,968
- Platinum plan = $25,439
That is, the guaranteed cost of the Bronze plan is $7,128 less than the guaranteed cost of the Silver plan and $12,599 less than the guaranteed cost of the Platinum plan.
Another way to look at it is that you’d need to spend $7,128 on health care under the Bronze plan just to equal the guaranteed cost of the Silver plan. And that’s assuming that all of that care would be free under the Silver plan, which is not the case.
For me, it’s incredibly helpful to see these numbers as annual amounts. Because while I already know that certain plans are more or less expensive just by looking at the monthly premium, it’s often eye-opening to see exactly how much more money I’m committing to health care over the next year.
Variable #3: What is the maximum cost?
Now that we know the minimum cost of each plan, it’s time to figure out the most we could possibly spend in a given year.
This one is pretty easy to calculate as well. All you have to do is add the maximum out-of-pocket amount to the guaranteed cost of each plan, and you have your maximum cost.
Here’s the maximum cost for each of the plans we’re comparing here:
- Bronze plan = $24,840
- Silver plan = $34,668
- Platinum plan = $29,439
One interesting thing to note at this point is that the maximum cost of the Bronze plan is less than the guaranteed cost of the Platinum plan. So while I will continue including the Platinum plan in the comparisons below for informational purposes, in real life we could safely rule it out as an option.
It’s less clear when it comes to the Bronze plan vs. the Silver plan. Both the guaranteed cost and the maximum cost are higher for the Silver plan, which argues in favor of the Bronze plan.
But the maximum cost of the Bronze plan is higher than the guaranteed cost of the Silver plan, so we still need to evaluate one more variable.
Variable #4: What is the estimated cost?
This is where things get a little tricky and imprecise, because this is where you need to make some guesses about the kinds of health care you’ll use in the coming year, figure out how much those services will cost under each health insurance plan, and add those costs to the guaranteed cost to get your estimated cost.
Now, you can get really detailed and thorough with this, trying to outline all of the different doctor’s visits everyone in your family might have and figuring out what all the copays and coinsurance amounts for those services will be.
And while that will occasionally be helpful, most of the time I find that it’s not necessary. It’s often enough to just look at just a couple of services.
As an example, let’s say that you have a chronic condition and you have to see a specialist every month. Here’s how each of our example plans covers specialist visits:
- Bronze plan = Full price until the deductible is met
- Silver plan = $65 per visit
- Platinum plan = $20 per visit
Now let’s assume that the full contracted price of each visit is $200. This means that under the Bronze plan, you’re paying $135-$180 more out-of-pocket each time you have to see this specialist.
Using these numbers, here’s the estimated cost for each plan assuming 12 visits per year:
- Bronze plan = $15,240
- Silver plan = $20,748
- Platinum plan = $25,679
Despite the big difference in the cost of these monthly specialist visits, the Bronze plan is still pretty far ahead.
But what if something really bad happens? What if, on top of those specialist visits, you also have a 3-day inpatient stay that, without insurance, would cost $30,000 dollars? How would that impact the estimated cost?
Let’s break it down.
This particular Bronze plan requires you to pay the full amount of inpatient care until the deductible is met, after which the plan covers the rest of the cost. With a $12,000 deductible, $2,400 of which has already taken up by the specialist visits, this inpatient stay would cost $9,600, bringing the total estimated cost to $24,840.
The Silver plan requires you to pay the full amount of inpatient care until the deductible is met, after which the plan covers 80% the rest of the cost up to the out-of-pocket max. With a $7,000 deductible, $780 of which has already taken up by the specialist visits, this inpatient stay would cost $10,976, bringing the total estimated cost to $31,724.
The Platinum plan simply requires a $350 copay for each day of inpatient care. Over three days that inpatient stay would therefore cost $1,050, bringing the total estimated cost to $26,729.
All of which is to say that given these particular plans, the low-premium, high-deductible Bronze plan seems to come out ahead even when a significant amount of expensive care is needed.
Variable #5: What is the HSA-adjusted maximum cost?
In this situation, the decision is pretty easy. The Bronze plan has the lowest guaranteed cost, the lowest maximum cost, and the lowest estimated cost. Case closed.
But there’s still one more variable that we haven’t considered yet, and that’s the possibility of using a health savings account.
You can click here to get all the details on health savings accounts, or HSAs for short, but the quick version is that you get to contribute money tax-free and then withdraw it tax-free for medical expenses, which essentially results in a discounted cost of healthcare.
How much money it saves you depends on how much you contribute and what tax bracket you’re in. The maximum family contribution in 2018 is $6,900, which, if you’re in the 25% tax bracket, would save you $1,725 in taxes ($6,900 * 0.25).
The catch is that you are only allowed to contribute to a health savings account if you are enrolled in a qualifying high-deductible health insurance plan. And in our case, the Bronze plan we were considering is HSA-eligible while the Silver and Platinum plans are not.
So, if we chose the Bronze plan and contributed $6,900 to a health savings account, we would effectively reduce the maximum cost of that plan by $1,725.
This variable doesn’t end up affecting the decision in this example, since the Bronze plan was already clearly the best option. But in other situations it might be the tipping point that sways you to choose the high-deductible plan over your other options.
Choosing the right health insurance for your family
Your health insurance options and your family’s medical needs will be different than mine. Sometimes it will make sense to take the lower premium with the higher deductible, and other times it will make more sense to pay a higher premium in return for a lower deductible and/or better coverage of certain types of care.
Either way, this process should give you a better sense of the true cost of each plan, making it easier for you to choose the right health insurance for your family.
