Whether your employer offers multiple health insurance plans, or your spouse gains coverage, or you are simply choosing between options on the open market, at some point in your life you are likely to have to shop for health insurance. For many, this process is staggering at best and befuddling at worst.
Understanding health insurance does not have to be on par with brain surgery or rocket science. With just a basic comprehension, you can run calculations that will allow you to make the best choice based on your situation. I’m going to walk you through a sample comparison.
First, be aware that the price you pay for health insurance may not necessarily be what it costs. Many employers will cover a percentage of the cost of the insurance, sometimes up to 100 percent. That factor alone can allow for massive price differences between plans in a comparison.
Gather the data
The data you must have in order to make your calculations and comparison are the costs of the premiums, the amount of the deductible, the percentage of coinsurance (the amount for which you are responsible after the deductible), and the maximum out-of-pocket cost, also known as the stop-loss.
If you are considering an employer-provided plan, the costs are usually quoted per pay period. Determine the annual premium by multiplying the offered price by the number of pay periods in a year.
Calculating the costs
The costs of a health insurance plan can be difficult to calculate since nobody knows how sick they are going to be in any given year. It requires a comparison between three scenarios: the best-case, the worst-case, and the probable case.
You will need to calculate the annual premium, deductible, and additional contributions in each scenario to gain an understanding of which works best for you. To do this, create a grid-style chart. A spreadsheet works best, but you can just as easily scratch it out on a cocktail napkin.
In the left-hand column, list the costs (premiums, deductibles, coinsurance), and add a line at the bottom for totals. Across the top, make a column for each of the three scenarios.
Let’s explore a pair of hypothetical situations for Joe and Susie, a married couple with two young children. Joe just became eligible for health insurance benefits through his employer, and he would like to choose a plan that covers the entire family since Susie is a stay-at-home mother.
Example 1
The company’s HR department gave Joe a benefits brochure detailing the two plans offered, and he must decide between Plan A and Plan B.
In Plan A, the premiums for Employee + Family (the option Joe needs) are $404.25 each pay period, and Joe gets paid twice each month, a total of 24 pay periods each year. Therefore, his annual premium is $404.25 X 24 = $9702. The deductible, for a family, in-network, is $6000. The maximum out-of-pocket is $12,000, and the coinsurance is 80/20.
Let’s begin with the best-case scenario. In a best-case scenario, nobody in Joe’s family gets sick or needs a hospital visit all year. If that were to happen, Joe would spend $9702 in premiums, $0 in deductibles, and $0 in coinsurance, for a total of $9702.
In the worst-case scenario, somebody in Joe’s family had a major medical emergency for which the costs exceeded the out-of-pocket maximum. In this spot, Joe still spends $9702 in premiums, but must now also meet the $12,000 maximum. His costs for the year are $21,702.
In the probable scenario, let’s assume that the family has a medical need totalling $5000. The premiums have not changed, they still cost $9702. Now because Joe’s need is less than his deductible, he would be responsible for shouldering the entire $5000 cost, and his total cost for the year would be $14,702.
PLAN A | Best | Worst | Probable |
Premiums | $9702 | $9702 | $9702 |
Deductible | $0 | $6000 | $5000 |
Coinsurance/Max | $0 | $6000 | $0 |
TOTALS | $9702 | $21,702 | $14,702 |
Turning the page, we can see that Plan B carries lower premiums and higher deductibles. How does that impact Joe? His total premiums in all scenarios will be $236.78 X 24 = $5683. Here, the deductible is $9000, the out-of-pocket max is $13,000, and the coinsurance remains at 80/20.
In the best-case scenario, Joe spends only the premiums of $5683. In the worst-case scenario, Joe spends $13,000 more, for a total of $18,683. In the probable case, his cost is just $5000 more than his premiums, equalling $10,683. In all three scenarios, Joe comes out ahead using Plan B with the higher deductible.
PLAN B | Best | Worst | Probable |
Premiums | $5683 | $5683 | $5683 |
Deductible | $0 | $9000 | $5000 |
Coinsurance/Max | $0 | $4000 | $0 |
TOTALS | $5683 | $18,683 | $10,683 |
Example 2
Let’s assume that Susie goes back to work a few years later, and she is now eligible for her own benefits package. The comparison is the same, but there are some extra steps to work through as we determine who should be on which package.
Susie worked through the same steps as above and determined that the Consumer Choice PPO was the best plan offered by her employer. But now she and Joe need to compare between their two plans to find the best deal.
Typically, the employer covers a large part of the cost for the employee, and therefore it is usually advantageous for the employee to use his or her own plan. This is certainly the case with both Joe and Susie. But one of them will need to carry the kids, so now let’s compare Joe’s plan at the Employee Only price to Susie’s at Employee + Children, and then a similar comparison in reverse where Joe carries the kids.
Joe’s premium drops to $49.35 X 24 = $1184, his deductible falls to $2000, his maximum drops to $4000, and the coinsurance is unchanged. His totals in each scenario are $1184, $5184, and $3784 respectively. In the probable case, he paid $1184 in premiums, $2000 in deductible, and 20% coinsurance for the remainder of the cost, which came to $600 in this case.
PLAN B (Emp Only) | Best | Worst | Probable |
Premiums | $1184 | $1184 | $1184 |
Deductible | $0 | $2000 | $2000 |
Coinsurance/Max | $0 | $2000 | $600 |
TOTALS | $1184 | $5184 | $3784 |
Susie’s premiums are $33,30 X 24 = $799, her deductible is $4000, her maximum is $8000, and the coinsurance is 80/20. As a result, her respective totals are $799, $8799, and $4999. Now we add Joe’s and Susie’s totals together for the family totals: $1983, $13,983, and $8783. All of those are better than when Joe carried the whole family.
CC PPO (E+C) | Best | Worst | Probable |
Premiums | $799 | $799 | $799 |
Deductible | $0 | $4000 | $4000 |
Coinsurance/Max | $0 | $4000 | $200 |
TOTALS | $799 | $8799 | $4999 |
Let’s run those numbers in reverse and assume Joe carries the kids. Premiums are $219.45 X 24 = $5267. You can already see that this is going to be a more expensive choice in every scenario. Joe’s plan just does not favor carrying the children, and now it’s an easy decision. Joe should remain on his plan, but Susie and the kids should jump on to the new insurance.
This is simply for cost-comparison purposes. There could be other circumstances that affect your situation, such as your health, your doctors and networks, your age, and your likelihood of remaining with your employer, so it’s a good idea to confer with your advisor before making any final decisions.
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