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How Hard Can it be to Pick a Health Plan? Pretty Hard

Zachary Tracer, who writes on healthcare policy and the healthcare business for Business Insider, wrote a great article about how he decided to eat his own dog food this year and review all of his health insurance options offered through his company — and specifically why he chose a more expensive PPO plan instead of the free plan his company offered.

A few observations…

  • He notes a super-simple low/high scenario model that I think is really helpful to consider, especially if you’re young and relatively healthy. On one end, you spend $1,000 for something relatively minor; on the other end, you get “hit by a bus” and have medical costs of $50,000 or more.
  • He was surprised by the fact that, in both low and high models, the high-deductible health plan (HDHP) was the most financially sound option. This result is because of the way that out-of-pocket maximums work (i.e. a health insurance company can only charge you a certain amount for covered services in any given year — the backstop in case you get “hit by a bus” or need cancer treatment) and also how the deductible, copay and coinsurance work. He covers it in good detail in the article but, in a nutshell (and as we discussed here and here), you need to look at more than just premium and deductible.
  • I’ll state it again because it’s really valuable: what he discusses about out-of-pocket max and network considerations is super-helpful. In fact, I’m gonna write about those two things, so stay tuned!
  • The big twist in the article is that, despite seeing that the HDHP was the cheapest option based on premium and low/high scenarios, he still went with the PPO! I say “twist” and not “surprise” because that’s what a lot of people do every year. Heck, I went with the PPO even though I knew the HDHP to be a better financial decision because I just felt more comfortable with the perceived safety and choice of the PPO, until my wife got pregnant and I mapped out the expenses and talked to friends in similar circumstances.
  • What we’d say, from the FI perspective, is that this choice was solely about the relative pros-cons of how the plans cover you in case you need to utilize them for special circumstances. In other words, he was making an insurance decision first and a financial decision second. Everyone’s mileage may vary on that point but make sure you’re thinking of the value of the health savings account (HSA) attached to the HDHP as well. Because it’s not a 1+1=2 scenario — it’s a savings and retirement vehicle that in this case probably would have differentiated the HDHP even more from the traditional PPO.

With that said, ultimately everyone needs to take their own circumstances into account when selecting coverage. But when you do, be sure that you’re making the decision both with your immediate and long-term health needs in mind and, as much as you can manage it, your immediate and long-term financial needs in mind as well.

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