When It Comes to Choosing a Health Plan, It’s Not a Matter of If Your Insurance Company Will Screw You But How

PART I: YOU PAY, AND YOU PAY, AND YOU PAY SOME MORE

It’s not mere paranoia that leaves you with an uneasy feeling when you’re selecting a health insurance plan. Insurance companies win when you lose. Their business model depends on …

1. Getting as much money as they can from you up front
2. Paying out as little as they can when you seek medical treatment

To understand this economic reality better, let’s review the components of the very complex financial instrument known as your health insurance policy.

PREDICTABLE COSTS

First, let’s talk about the three numbers in your healthcare costs that are the easiest to determine: premium, deductible, and maximum out-of-pocket.

Premium: the price you pay each month to maintain coverage. It is a set number that YOU PAY

Deductible: an amount you pay for medical services and sometimes prescriptions before the insurance company begins to pay anything. It is a set number that YOU PAY

Maximum out-of-pocket: the most you are responsible for paying for covered services for the year. This is a set number that YOU PAY.

If you add together your premium and your maximum out-of-pocket, this is your total financial exposure for the year for covered medical services, the worst-case-scenario. This is a set amount that YOU PAY.

So far, it must sound pretty great to be a health insurance company. You may be asking, “Does my insurance company ever pay anything?” The short answer is, “It depends.” There’s one more consideration in your annual healthcare cost burden.

UNKNOWABLE COSTS

Unfortunately for you, there is a great big surprise number beyond these predictable figures hiding behind the term cost-share.

Cost-Share is the amount that you are responsible for paying for your medical bills and prescriptions after you have met your deductible. There are two ways that a health insurance company may “share” the costs with you after you have paid your premiums and met your deductible.

Co-pay is a specific dollar amount per visit or prescription that YOU PAY. It is usually a modest amount between $5 and $25. Co-insurance is a percentage of the cost of the service that YOU PAY (and your insurance company pays the rest).

ESTIMATING THE SPACE BETWEEN

It’s relatively straightforward to determine what you will owe for your premiums, your deductible and your maximum out-of-pocket. The hard part is trying to figure out what you are likely to pay for medical services after you meet your deductible but before you have hit your maximum out-of-pocket. The space between your deductible and your maximum-out-of-pocket can represent thousands of dollars.

In order to estimate how much you will spend, you will have to know what kind of medical services you will use in the coming year, and how often you will use them. If you have co-insurance, you also will need to know how much each one of those services is likely to cost (so you can figure out your percentage).

YOU DON’T KNOW WHAT YOU DON’T KNOW

To make matters even more complicated, each service you use (specialist visit, lab, x-ray, imaging test, physical therapy, procedure) has a different price and is subject to different cost-share provisions under your insurance plan. Prices that aren’t published and are frustratingly difficult to determine, even if you have the luxury of planning ahead.

The cost-share provisions of insurance plans are a black hole for consumers. Consumers don’t know what services they will use or what they are likely to cost. So consumers focus on the numbers that are knowable: premium and deductible. It’s no wonder 80% of people with a choice of plans over-insure by an average of $600 per person. And that’s just how insurance companies like it.

MORE TO COME

This intentional confusion plays out in slightly different ways in the context of employer-sponsored private insurance and the individual market for private insurance. We’ll explore those situations more in the next segments.