Health Insurance

Question
Which private health insurance policy is the most cost effective for me? I had to find some private health insurance recently, and so I did some looking around. I learned a good number of definitions, and ended creating a spreadsheet to run different simulations and find the most cost effective plan.

First some definitions:

• Copay: When you go to the doctor for something routine or when you buy prescription medicine, there is often a copay. It will either be a flat number like $35 or it will be a combination of $30 and 20%. Suppose the medication costs $200. Then you would pay $30, and the $170 left over would be split 80-20 between the insurance company and you. 20% of $170 is $34, so you would be $64 out for this medication.
• Coinsurance: This is the 20-80 split. Almost all plans will have coinsurance for certain cases such as hospital stays, maternity (although private health insurance plans almost never cover maternity which is lame and a half! or 3*lame/2), and often emergency room visits. I was leaving the safety of UT health insurance which had 0% coinsurance for most stuff including emergency room visits (which was nice when we walked out of there for $100 for a bill that was over $13,000!).
• Deductible: This is a tricky one, because each plan is different when it comes to what the deductible is applied to. The idea behind the deductible is similar to the copay. After you pay the deductible, the rest is covered, or there's an 80-20 split afterwards. Deductibles for private insurance are usually between $500 and $10,000, but mostly between $1,000 and $5,000. The UT deductible was $350. Pretty nice perks, but it had a much higher premium around 450/month. There is usually a correlation between deductible and premium.
• Premium: Amount you pay the insurance company each month to maintain the health insurance. This is the monthly cost of the health insurance plan you choose.

Math Time

Well, not so much. The formulas and equations are very useful when there are variables which can be any number (3.4, .0001, 533432.21, etc), but with health insurance plans, there are a few plans which don't have adjustable values. For this type of situation, I prefer to set up scenarios and see how they play out. This requires a lot of realism. If you take the lowest premium, then you'll pay the least ... assuming you never need medical care. That's a big assumption! So the scenarios, which are predictions of the future, must be as realistic as you can make them (often predictions of the future should be based on patterns of the past, but that is a huge topic unto itself).

I looked at a bunch of different health insurance plans online and did some initial filtering to weed out the obvious bad ideas. There are different types of health plans, and I certainly don't understand the different types very well, but I have always had a PPO plan. PPO stands for Preferred Provider Organization. If you want to learn about the nuances and definitions of the different types of plans, start here: http://en.wikipedia.org/wiki/Preferred_provider_organization. I also knew that deductibles of $10,000 were absurd. When I do have something happen, I don't want to be out of pocket by $10,000. That doesn't give me the ability to plan that I desire out of a health insurance plan. If I wanted to pay as little as possible and take a huge hit if anything did happen, I just wouldn't have health insurance (that's the cheapest plan). So how much money was I willing to have sitting around, collecting dust in case of emergency? Less than $3,000. So I only looked at PPO plans with deductibles under $3,000. Now to weed out the ones that only apply for very select hospital where doctor-nobody-recommends-me works. This left me with two different plans that had varying deductibles and premiums and other considerations from Blue Cross Blue Shield (BCBS).

Time to whip out the spreadsheet! I used open office because I didn't have a copy of MS excel, but they're pretty much the same. I calculated the yearly costs of the premiums first for each different plan, just to see what I was looking at paying. I then looked at what a year with a $5,000 medical expense would look like, what one with a $10,000 expense would look like, and what the maximum out of pocket would look like (all plans that I've seen have a maximum out of pocket number which means that you'll never have to pay more than that in a year). Then I took 6 columns and calculated out the two plans with various scenarios for each of their premium and deductible levels. After looking at a riskier one where I would need very little medical care, and a more conservative one where I would need more medical care, I settled on one year out of the next six needing $5,000 worth of medical care, and one year being the max out of pocket out of the six years. Looking at the costs over six years including some medical care showed that the lowest cost plans for me were somewhere in the middle. They didn't have the lowest deductible, but they also didn't have the lowest premium.

Final Answers

After finding out what was likely to be my medical costs over the next 6 years, I divided that number by 72, the number of months in the 6 years, in order to correctly budget for realistic medical bills. Whatever portion of that doesn't go towards the premium goes into a savings account we have set aside for medical expenses. As you can see in the image below, I should be saving 17,356/72 or $241.06 per month with $148 going towards the premium, and $93.06 going into savings. I always prefer a budget that is realistic to one with numbers I made up based on a gut feeling, and if some medical care is needed, I don't have to feel anxious about the financial implications (laughter is the best medicine, not anxiety!). In the screenshot below, you can see the formula for calculating yearly expenses for a year with $10,000 worth of medical care which is the yearly premium plus 20% of (10000 minus the deductible) plus the deductible.

As an aside, they tried to charge me 30% more due to my BMI score (which is around 30, and anyone who knows me realized just how ridiculous the BMI scale is). It took 3 phone calls before someone told me how to appeal it, and a doctors note saying that I wasn't caught in the lethargic grip of obesity, but they did remove that premium hike.