Quest for Insurance Part II: The Coverage
The trials chronicled in Part I have a happy ending. I eventually obtained an excellent individual plan from Assurant Health. I followed my own advice and got a high deductible plan that covers no primary care. I thought it would be worth comparing to the traditional PPO coverage I had previously.
The table below shows the salient aspects of each plan. To compare apples to apples, I had to estimate the 2010 premiums for the previous plan. I used a 9% increase over 2009, which is what a PricewaterhouseCoopers survey says will be the average for employer sponsored plans. Note that this is less than the 10.8% actual increase my company saw from 2008 to 2009 on this plan.
|Office Visits||$35||$0, after meeting deductible|
|Generic Drugs||$15||$0, after meeting deductible|
|Brand Name Drugs||$35||$0, after meeting deductible|
We see something very interesting here. The annual premium on the new plan is $9,833 less than the estimated annual premium on the old plan. Now, we all get checkups each year. Also, my wife and son have monthly medications they take for allergies. Adding in the copays for those yields extra $500 on the old plan, pushing us to $10,333 more guaranteed expenditures on the old plan than the new plan. Obviously, this excess is more than the new plan’s deductible.
So there’s no way I can loose on the new plan. If we stay healthy, I get to pocket $10,333 minus the cost of routine visits and medications. If something bad happens and someone has a major medical issue, I save at least $8,333 due to the deductible and coinsurance on the old plan. Probably much more due to co-pays for additional office visits and prescriptions, which are not limited by the out-of-pocket maximum. I actually ran the scenarios and there’s no way I don’t save at least $5,000 per year.
Moreover, the new plan is much better at insuring against catastrophic loss. The lifetime maximum is 2.5 times as high. That’s a real selling point for me. I don’t want the plug pulled on my ventilator because my insurance ran out.
How can this be? Why do we even have PPO plans? You may think the tax deductibility of employer-paid premiums is the reason. But this doesn’t explain why employees wouldn’t choose an employer-sponsored version of the high deductible plan. Those are paid with the same pre-tax dollars. (It also doesn’t affect me because I’m technically self-employed and deduct my premiums anyway). It certainly explains why the CEO of Whole Foods is absolutely right to offer his employee’s a high deductible plus HSA plan. It saves everyone money. The math speaks for itself.
The only explanation that makes sense is that people want to spend more on health care when it doesn’t come out of their own pockets. A combination of moral hazard and mental accounting. On the moral hazard front, they go to the doctor more often than they otherwise would because the marginal cost to them is so low. On the mental accounting front, the automatic monthly deduction from their pay is less painful than personally writing checks to pay doctors. But it’s irrational.
Perhaps some marketing wizards should figure out how to pitch high-deductible plus HSA plans in a way that the average person would find attractive. How about an infomercial that promises to save you thousands of dollars every year with a proven system and throws in a set of handy dandy steak knives if you act now?