This is the fourth post in my mini-series on health insurance. We’ve already looked at what to do when your company ends its insurance plan, and what makes high-deductible plans and HSAs so awesome. Today, we’ll put it all together and demonstrate how we save a lot of money every year. Stay tuned for the last post in the series, which will talk about using AFLAC for pregnancy.
When most people hear about our high-deductible plans, their first natural reaction is skepticism and fear. The most common replies are:
- “Why would you want to pay out of pocket for doctor’s visits?”
- “What if you get hurt and need to go to the hospital?”
- “I would rather pay more for peace of mind.”
Even when I present them with irrefutable numbers that prove we can’t lose, they still can’t believe it. In my humble opinion, that’s nuts and we are either too brainwashed or too stubborn to look at reasonable alternatives to save money.
Please—leave your preconceived notions at the door and let’s look at how we save some major bucks every year.
Running the Numbers
If you’re not comparing insurance plans before you make decisions, you’re either making emotional decisions or putting too much faith in your friends. Anyone who’s been through it will find that every family and health situation is different and what works for one person may be the worst choice for someone else.
Here are two options that we seriously considered when we went shopping for insurance:
- Traditional plan with $2,000 deductible, $20 co-pays. Premium: $650/month
- HDHP with $3,000 deductible. Premium: $350/month
There are lots of things to think about when comparing these two, including the cost of prescriptions (not covered with the HDHP), maternity, and more. But at the core are two major considerations:
- How much regular health care costs (doctor’s visits and regular check-ups).
- The cost of emergency/major care in case of the “what-ifs.”
Regular health care: On a traditional plan, doctor’s visits would cost us the customary co-pay, usually around $25 for general care and $50 for specialists. On an HDHP, we pay out-of-pocket for all doctor’s visits. However, there are two important points to note:
- The amount we pay goes toward our yearly deductible so that if something else happens, our total out-of-pocket liability is lower.
- Most preventative care, including all child well visits are 100% free. At 8 visits this year, averaging just over $300, this is a huge benefit.
Emergency care: On a traditional plan, emergency care would usually be covered under an emergency room co-pay, typically something like $250 or $500. For certain things, the deductible would kick in. On an HDHP, we pay out-of-pocket for emergency care.
This makes us think twice about going to the emergency room for every little thing when many times, the urgent care center or even a doctor’s office is not only cheaper but time-saving and more comfortable.
More importantly however, there is a key observation to make here about how our plan makes sense financially. Even if we eat through 100% of our deductible this year, and every year (which is $3,000 by the way), this is LESS than the $3,600 savings in premiums we collect. Remember, the difference in plan costs is $300 per month.
So how are we saving thousands every year? It’s simple—we’re not using our entire deductible! Statistically speaking, I doubt we’ll use it any more than maybe every 3-5 years. Unless you’re accident-prone or have serious illnesses (in which case this plan may not be for you), you’re not going to end up in the ER every year.
Our savings amount to $3,600 in insurance premiums every year minus our total out-of-pocket spending this year: about $400.
Answering the Critics
Remember those standard questions I always get when I tell people about my insurance plan? Well, I’ve kinda developed some standard responses:
Why would you want to pay out of pocket for doctor’s visits?
Why would you want to pay out of pocket for insane insurance premiums? A dollar is a dollar—is it not? What makes an insurance payment a less painful transaction than writing a check to Dr. Smith when it’s coming from the same pot? If the numbers work, it doesn’t really matter much to me how the money leaves my wallet.
What if you get hurt and need to go to the hospital?
Then I will pay my deductible as agreed and my insurance will cover dollar for dollar for everything else. Even though my deductible is more than paid for by smaller premiums, I don’t plan on landing in the hospital once a year, do you? Didn’t think so.
I would rather pay more for peace of mind.
Peace of mind against what? The “unknown” of getting a $95 doctor’s bill instead of $78 dollars today, versus paying $20 every time? Having to cover a large deductible when most traditional plans have similar or even larger limits? Sometimes it pays to introduce a little bit of “risk” into your life.
Summing Up
Seriously, I hope you can see I’m passionate about this. It’s your money that you’re throwing down the drain and I hope you can find the best plan for your family instead of being scared of what you’re not familiar with.
That may or may not be an HDHP plan, but whatever it is—you owe it to yourself to figure it out.
Photo by fsecart
Fiscal Fizzle 
I like that you are passionate about choosing health care plans because you don’t like the feeling of just throwing your money away! I think your post has a lot of impact when you break it down by the general categories of how one would use their health care. I generally don’t go to the ER unless something crazy happens, so I mostly use my health care for the doctor’s visits and those are not really that expensive in the long run. I guess I should review my plan and see if there is anyway to scale back on what I am spending! Thanks for the reminder 🙂
Please feel free to check out my blog at http://thefinancialite.com – I’d love to hear what you think!
Exactly–I look at two things when it comes to any kind insurance: how have I used it in the past on a regular basis, and what’s the worst-case scenario for the future?
The biggest savings when going individual vs. group insurance is that, if you’re young and healthy and on a group plan, you’re paying for other people’s insurance.
In a group plan, the healthy pay extra to cover costs of the “non-healthy”. And non-healthy could be a variety of things: older, pre-existing conditions, pregnancy, genetic dispositions, etc.
That may sound harsh, but it’s exactly how the system works.
I’m curious what would happen if fewer healthy people opted into group insurance (other than the costs going up for those in the group). Would the system crash and burn?
Well put. I believe that is actually the main argument of opponents of HSAs–mostly only the young and healthy use them, destroying the social re-distributive aspect that insurance relies on.
This is my third year with an High Deductible plan and I love it. Not only are my premiums much lower, I love that I’m able to put about $4,500 of my own money into an HSA – this money is tax deductible the year I put it in and the earnings are all tax free – sweet.