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Maximum Thinking

Jonathan Clements

WHEN I PICK HEALTH insurance each year, my focus is twofold: What’s the monthly premium—and what’s the out-of-pocket maximum?

Sure, I want to stay with my primary care physician. But my doctor just announced that she’s leaving Philadelphia to return to her native Massachusetts, so that became a non-issue for 2023.

Meanwhile, I’ve long wanted a high-deductible health plan so I could fund a health savings account (HSA). But since 2014, when I started working for myself and had to buy individual coverage, either such plans weren’t on offer where I lived or they struck me as overpriced. I’ve come to suspect that some insurance companies, aware of the nifty tax benefits that come with funding an HSA, have concluded that they could overcharge for these plans.

The good news: When I went to pick a health plan for 2023, the pricing on one high-deductible policy looked compelling. That meant that, after eliminating plans with steep monthly premiums but often high out-of-pocket maximums, I found myself weighing two choices.

One option was my current plan, which wanted to charge me $590 a month in 2023 to cover my soon-to-be-60-year-old body. For that premium, I’d get a policy with an $8,500 deductible and a $9,100 out-of-pocket maximum. There were also relatively modest copays for various medical services, plus—as with all health insurance—I’d benefit from the price discounts that the insurance company had negotiated with medical providers.

But the reality is, if anything went seriously wrong, I’d be looking at forking over the $9,100 maximum. Combine that with the $590 monthly premium, and my possible health-care expenses in 2023 would be $16,180. That’s the number I focus on when picking health insurance, and it’s another reason to set aside some emergency money.

To be sure, a $9,100 out-of-pocket maximum is steep, but it wouldn’t be a catastrophe—and it’s far better than the bad old pre-2014 days, when out-of-pocket costs were often unlimited and medical expenses sometimes forced families into bankruptcy. (Note that there’s still no out-of-pocket maximum for those covered by traditional Medicare, which is a reason for the 65-plus crowd to buy Medigap insurance.)

But in the end, I didn’t renew my current coverage—and instead opted for the high-deductible policy I’d found. Why? I was pleasantly surprised to discover that this high-deductible policy had a lower deductible and lower out-of-pocket maximum than my current plan, plus the premium would be just $3 more per month. My new plan’s deductible and out-of-pocket maximum are both $5,800. Add the premium, and I’m looking at $12,916 in potential health care costs in 2023.

Admittedly, with the high-deductible policy, I may pay more for each doctor’s visit and prescription than I do under my current plan. But I also know that my total cost for 2023 will be lower in a worst-case scenario. The cherry on top: I get to fund a health savings account to the tune of $4,850 in 2023, which includes the $1,000 catchup contribution for those age 55 and older. That contribution will be tax-deductible, the money will grow tax-deferred and withdrawals will be tax-free if used for medical expenses.

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David Powell
David Powell
8 days ago

When I look on ehealthinsurance and our state’s ACA plan finder, all plans seem to cover out of network providers only in case of a medical emergency. Is that typical? I’ll have COBRA coverage in 2023 but likely need something to replace that in 2024.

Jonathan Clements
Admin
Jonathan Clements
7 days ago
Reply to  David Powell

I’m no expert on health insurance, but it seems to me that most individually bought policies restrict you to in-network providers. I suspect your workplace plan is far better than you can buy on your own.

tshort
tshort
9 days ago

We just enrolled in Covered California, our state’s version of ACA. Since my wife retired this past May and I’m already out, our income will be quite a bit different in 2023. As a result, our premium for a Bronze plan will be – nothing.

The CoveredCA website has a great tool that shows you what your out of pocket will be for various plans based on your answers to a couple questions about how much you think you’ll use in a year. It adds up prescriptions, office visits and monthly premiums for each plan you want to compare and shows you a total.

For us, the Silver and the Bronze totals came in within a few dollars of each other. The difference is, while the Silver had lower co-pays, it came with much higher monthly premium versus the Bronze plan at $0. They both had roughly the same (high) dedeductible.

Based on our past couple of years’ experience, we decided to roll the dice and go with the Bronze figuring no premiums for sure and not very many visits (hopefully) was better than several thousand in premiums for sure and more visits than anticipated (maybe).

Arnold Hold
Arnold Hold
12 days ago

When I had to deal with this, always looked first at the medical network first, especially the hospitals. Staying in network kept you from being tagged with extra bills, and even recent changes can still balance bill out of network as they just have to tell you upfront if I understand this correctly.

Anyway, HSA’s were great since I had few medical issues at the time, and max funded the HSA account for a number of years until no longer eligible to do this. Different story now, and the cash built up in this account works fine for the prescription copayments as they really add up.

R Quinn
R Quinn
12 days ago

What this discussion illustrates is that the ultimate solution to be fair and eliminate bad and risky decisions and shifting costs in various ways is a universal insurance system with income based premiums. All the different systems we have simply can’t work and that has been demonstrated for decades.

mjflack
mjflack
12 days ago

It is articles like this one, where the Humble Dollar shines – writers sharing their personal experiences so readers can learn from them.

Question: Did you purchase your high-deductible policy through healthcare.gov? I’ve looked on healthcare.gov for one over the last few years and have never been able to find one.

Jonathan Clements
Admin
Jonathan Clements
12 days ago
Reply to  mjflack

No, I found it through ehealthinsurance.com. I’ve looked there for coverage over the past eight-plus years because I knew I wouldn’t be eligible for ACA subsidies and I find it sometimes offers a wider choice. But it’s listed as a “silver” plan, so I assume it is indeed an ACA-compliant plan.

wtfwjtd
wtfwjtd
12 days ago

I’ve also become a cautious fan of HSA’s, but readily admit that they are far from perfect, and seem to have several annoying tics and quirks of their own. For example, when paying for an urgent-care visit, I’ve discovered that I get a better rate if I pay in cash, at the time of service. But by handling it this way, I’ve been told my payment might not count against my health insurance’s annual deductible–go figure. And of course, the thought of an emergency room visit still sends cold chills down my spine, as the ever-higher spiraling cost of even one such visit could easily exceed our annual deductible of $3k. Yikes.

Dan Malone
Dan Malone
11 days ago
Reply to  wtfwjtd

wtfwjtd,

You may be tired of hearing about healtchare sharing, but your experience of getting a cash discount as a self-pay patient is one way that sharing plans pay lower reimbursement rates than many (most?) insurance plans. We assume insurance companies have our best interest in mind when negotiating reimbursement rates for certain procedures. I am convinced, however, that companies allow small claims within the deductible amount of most policies to be paid at higher rates, in exchange for lower reimbursements on larger claim procedures that the company actually has to pay itself. Call me skeptical.

Since sharing plans are not insurance, and generally do not reimburse until 3 – 4 months after a procedure, to my heathcare providers I am a self-pay patient. So I typically request a self-pay or cash discount, and actually shop for prices of my medical care now, because my savings get passed along to everyone else in the sharing plan. My experience is that almost all healthcare providers offer a cash discount, and/or offer the equivalent of (low) Medicare reimbursement rates to their self-pay patients.

Another big way healthcare sharing plans save is by getting VERY large discounts on the large claims made by their members/clients. This is when the overall dollars saved can really add up.

Also, nonprofit hosptials must provide a certain amount of charity care to maintain their tax-exempt status. Therefore, they offer preset discounts of 20% – 100% based on the family income in comparison to Federal Poverty Level income, and based on the amount of the bill in relation to your income as well. The higher your medical bill in relation to your income, the greater the discount — up to 97.5% to 100% discounts. Here is the discount schedule of a local nonprofit hospital in my area (Texas), on page 13:
http://www.texashealth.org/-/media/Project/THR/shared/Documents/PDFs/Business-Office/Financial-Assistance/Financial-Assistance-THR-System-Policy.pdf Yes, I was quite surprised at how much income a family of 5 can have and still get discounts — up to $200k. And if the bill exceeds 20% of your income, even greater discounts are available. (Google “charity care” and the name of your nonprofit to look for the discount schedule at your local nonprofit hospital.)

There is a cottage industry known as the Free Market Medical Association. http://www.fmma.org FFMA concepts are much bigger than healthcare sharing, but include many likeminded persons who subscribe to free market solutions to the healthcare crisis and the healthcare industry’s disfunction in the U.S.

Last edited 11 days ago by Dan Malone
Dan Malone
Dan Malone
12 days ago

Health sharing is another option that many self employed and early retirees are using. Most of these plans require some kind of statement of religious beliefs or church attendance, so they’re not for everyone. But if you are in relatively good health (important because of reduced sharing for pre-existing conditions for a certain period of years), and looking for a low monthly premium PLUS a low deductible (many are $1,000 or less), healthcare sharing is worth a look.

I’ve been using my plan for about 6 years, and have become a believer in this alternative to state-regulated health insurance. Because it is NOT health insurance with a contractual guarantee of payment, however, you must conduct your own due diligence before choosing a healthcare sharing provider. For example, I spoke to members using my sharing plan who had submitted a large claim (which were all postive reviews), and annually request my provider’s annual audited financial statements, which is Christian Healthcare Ministries, or CHM. Based on this due diligence, I’ve gained a high degree of confidence in CHM’s commitment and financial ability to pay large claims, like my six-figure, nondiscounted claim submitted in 2019 when a very serious medical condition requiring an expensive, emergency medical procedure arose. You can learn more about CHM here: https://tinyurl.com/y3xhk43u I’m also happy to share what I’ve learned.

Last edited 12 days ago by Dan Malone
wtfwjtd
wtfwjtd
12 days ago
Reply to  Dan Malone

Health-sharing “ministries” aren’t health insurance, but more of a “pay and pray” strategy. This might work out OK for younger, healthier individuals with no assets, but for those who are older with significant assets it strikes me as more a form of high-stakes gambling, rather than a sound financial plan.

A piece of friendly advice: Don’t bet anything at that casino table you can’t afford to lose.

Dan Malone
Dan Malone
12 days ago
Reply to  wtfwjtd

wtfwjtd, 

I felt exactly the same way when a healthcare sharing plan was initially described to me 10 years ago or so. You could not have been more skeptical than me.

But I can assure you that CHM is neither “high stakes gambling” or “pay and pray” — if by that your intended meaning is if you get sick, good luck getting reimbursed for your medical expenses. I thought exactly the same way at one time, but my research and now personal experience confirmed for me that mentality is simply not accurate — at least not when considering CHM. 

My conclusion — which is a reasonable one after due diligence of reading CHM’s audited financials, contacting members in my area who had large claims (who I found on my own and who had no reason to lie about their experience), now confirmed by my own personal experience with large claim I submitted in 2019 — is that there is actually very little difference in healthcare sharing and health insurance other than: 1) the state regulation (which is a good thing overall) vs. no state regulation with healthcare sharing plans. So a slight advantage here to regular healthcare insurance vs. healthcare sharing plans; 2) exclusions in sharing plans — including abortion, injuries caused by DUIs or not wearing a seat belt, “maintenance” doses of prescription medicines, among others — creates an increased risk of not having coverage under a healthcare sharing plan under these circumstances. These differences are not relevant to my lifestyle or current health; 3) savings in my monthly premiums of over $400/month, or $5,000/year, with healthcare sharing. So a clear advantage to healthcare sharing in out-of-pocket premiums; and, 4) I receive what is essentially a $500 deductible per incident, which disappears if the medical provider offers a discount to me as a self-pay patient.

I calculate my typical annual savings in the $5,500 – $7,500 range. If I were to become a diabetic who needed expensive drugs which constitutes “maintenance stage” drugs with CHM (and probably most other healthcare sharing plans, although I don’t claim to be an expert), healthcare sharing is NOT a good option. In that event, I would switch to my wife’s group plan or get an individual plan on the ACA marketplace, a/k/a Obamacare.

My argument is not that these plans are the answer for everyone’s healthcare risk management needs. But CHM is an alternative worthy of consideration for those who fit its religious belief system and whose current health is relatively good. It is an attractive alternative in those circumstances.

Last edited 11 days ago by Dan Malone
R Quinn
R Quinn
12 days ago

HDHP have their place especially in conjunction with an HSA, but they are a financial burden for the average income American who is faced with premiums, funding an HSA and potential OOP costs in excess of the HSA fund at any point in time. Things can work well for years and then crisis. My son has run into health care costs that in a month have wiped out his accumulated HSA.

And for average income folks the HSA takes away from retirement savings.

Ginger Williams
Ginger Williams
12 days ago
Reply to  R Quinn

HDHP and HSA work well if you plan to use the HSA as a retirement account, which is how I’m approaching it. I cash flow my deductible and co-pays, instead of having HSA reimburse. I have ample emergency fund, which I tapped the year I hit OOP max early. Replenishing the emergency fund required cutting back on little luxuries for a couple of months, but it was worth it to keep HSA intact.

Jonathan Clements
Admin
Jonathan Clements
12 days ago
Reply to  R Quinn

In the individual coverage market, you can find conventional plans with low deductibles, but — from what I’ve seen — the out-of-pocket maximum is usually very high. Thus, if you have major medical expenses, you’ll almost always end up hitting the out-of-pocket maximum.

Harold Tynes
Harold Tynes
12 days ago

Very timely article. I will be shopping for coverage for my wife soon. Would it be advisable to consider an HSA for the 3 years before she hits Medicare? She just retired and is coming off her employer coverage.

William Perry
William Perry
12 days ago
Reply to  Harold Tynes

My wife was in a similar situation a few years ago when my former job ended and I was over age 65 and I signed up for Medicare but she was under age 65. Because the period to age 65 for her was short and her coverage was through my employer, a large PEO, the COBRA coverage surprisingly had the lowest projected cost for us and was a HDHP eligible to be paired with a HSA. We still got the benefit of the income tax deduction for her direct contribution to her HSA but there was no FICA savings for her HSA contribution. If your wife is eligible for COBRA it appears she is too far away from age 65 to only use COBRA before being age eligible for Medicare.

The recently signed Inflation Reduction Act extended the period of time through 2025 that the federal poverty 400% cliff applies so it may be that a Market Place plan could benefit some middle and higher income individuals. The CMS has a calculator to estimate if you are potentially eligible. See https://www.healthcare.gov/see-plans/#/

My wife and I are now both covered with traditional Medicare plan, a Medigap plan G and a part D drug plan. We opted for a premium drug plan (no deductible) with a cost of 3X the standard drug plan as we both take some high tier Rx for life and the higher premium is much less than the avoided deductibles.

I hope this helps you make your decisions.

Best, Bill

Jonathan Clements
Admin
Jonathan Clements
12 days ago
Reply to  Harold Tynes

As I indicated in the article, I like high-deductible health plans. But 2023 will be the first year — after nine years of self-employment — that there’s been a HDHP on offer in my area and which has reasonable pricing. If you’re picking a plan for your wife, look at the details, and don’t buy just because you can fund an HSA.

MikeinLACA
MikeinLACA
12 days ago

I agree with Jonathan that the marketing / pricing of high-deductible plans is confusing. My current plan has premiums comparable to a regular PPO plan – until you find out that the plan directly funds part of the HSA. So, the typical selling point of a HDHP (low premium) isn’t even apparent on its face. My share of premiums is about $350 per month (yup, partially subsidized by my employer). After the insurer pays $240 to my HSA, though, it’s really only $110 out of my pocket. Wouldn’t it be in the insurer’s interest to make that super clear in the marketing? Sheesh.

R Quinn
R Quinn
12 days ago
Reply to  MikeinLACA

Keep in mind that if you work for an employer of any large size -1500 or more employees – chances are they are self insured meaning the employer designs the plan and sets the premiums and the administrator of claims which may be a large insurance company actually has no financial stake in the plan, but rather is paid a fee to process claims, etc.

MikeinLACA
MikeinLACA
12 days ago
Reply to  R Quinn

I work for the federal government. The plan is designed and marketed by Aetna to huge number of federal and military families. So confusing.

R Quinn
R Quinn
12 days ago
Reply to  MikeinLACA

Designed to federal specifications.

johny
johny
12 days ago

Everything about healthcare in this country involves maximum endless thinking and stress.

R Quinn
R Quinn
12 days ago
Reply to  johny

When it comes to health care coverage, having choices is counterproductive because there is no such thing as making the right choice as circumstances can change overnight. Not to mention choices lead to adverse selection and shifting costs among individuals,

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