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Unhealthy Choices

Richard Quinn

I’M GOING TO SHOW you how to lose money. All you need to do is avoid some simple math, while embracing the widespread but illogical fear of health care costs.

Years ago, I designed employer health plans that gave employees several choices. Each option covered the same health care services. The differences among the options were the deductible, out-of-pocket maximum and premiums. The lower the deductible, the higher the premium you paid. Over time, the plan with the lowest deductible charged higher and higher premiums to the point where it wasn’t a good deal for employees and it was closed to new enrollment.

Nevertheless, many employees wouldn’t change to another option because they had the “best” coverage. It was dubbed the “Cadillac” plan. Actually, they didn’t have the best. When you considered the premiums they had to pay, it was mathematically impossible for them to come out ahead relative to the other plan options. Eventually, we simply eliminated the option because hundreds of workers couldn’t be convinced to drop it.

Overestimating the risk of health care costs is common. Aside from those with chronic conditions, many families go years without incurring expenses that exceed their plan deductible.

Seniors aren’t immune to this fear. Consider Medigap policies. Today, the most popular option is Plan G. Go back a few years and Plan F—which has been eliminated except for those who first became eligible for Medicare before Jan. 1, 2020—was the most popular. The only difference between the two plans is that F reimburses for the Medicare Part B deductible and G doesn’t.

I spoke with a senior who has Plan F and was convinced she had the best plan. I urged her to look at the premium difference between F and G, and compare that with the Medicare Part B deductible.

The Part B deductible in 2023 is equal to $18.83 a month. If the extra she was paying for Plan F relative to G was more than that amount, she was guaranteed to lose money each year. Indeed, when I checked the premium difference, I found that most Plan F premiums were more than $18.83 higher than Plan G. When I explained all this to the retiree, the response I received was, “Plan F works for me.” Result: She’s throwing away $20 to $30 each month.

As a retiree, I can buy dental coverage using a health care reimbursement account that’s funded by my old employer. But when I compared the premiums to the benefits, the coverage wasn’t worth it because it doesn’t cover the most expensive dental care, so I cancelled the policy.

But a friend loves his dental insurance. He pays $50 a month for $1,500 in annual coverage. But his insurance caps the reimbursement for each dental service, plus it only covers routine care, so it’s unlikely he’ll get the full $1,500 benefit. The upshot: Self-insuring is likely a better deal.

My advice: When picking health insurance for 2023, take the time to run the numbers. Remember, premiums are a guaranteed fixed cost—and the most expensive option probably isn’t the best one. Look at your actual spending over the past few years. How often do you and family members actually visit a doctor? You may find your best bet is a high-deductible health plan with its relatively low premiums and the ability to fund a health savings account.

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OBX9397
OBX9397
4 days ago

Richard, may I ask a slightly different question about the value of health insurance?

Many of my kids’ friends do not think they need health insurance because even low premiums seem more than the cost of the rare medical help they need. I ask them to factor in what I believe is one of the biggest benefits of health insurance:  the prices insurance companies negotiate with providers. This seems true regardless of the size of the deductible. When I look at an EOB and compare the provider’s charge with the allowed charge, I always feel relieved to have insurance. I would hate to have to haggle over prices for something I know so little about.

I would appreciate your, or anyone’s, thoughts.

Thank you.

Dwain Sims
Dwain Sims
5 days ago

Don’t try to confuse me with the facts. My mind is made up.

Ben Rodriguez
Ben Rodriguez
7 days ago

Feelings don’t care about your facts.

R Quinn
R Quinn
6 days ago
Reply to  Ben Rodriguez

Very true

wtfwjtd
wtfwjtd
9 days ago

…and that gap between plan F and play G is likely to grow wider, since plan F is closed to new enrollments so its risk pool is only going to get older (and sicker). Anyone on plan F should really check into switching to a plan G now, provided they can pass the underwriting. And assuming, of course, that in your area switching makes sense after running the numbers 🙂

R Quinn
R Quinn
6 days ago
Reply to  wtfwjtd

Excellent point.

mytimetotravel
mytimetotravel
8 days ago
Reply to  wtfwjtd

That medical underwriting can be a problem. I switched from UnitedHealth Plan F to Humana Plan G because Humana temporarily waived underwriting, but miss UH – their EOBs are much easier to read.

R Quinn
R Quinn
6 days ago
Reply to  mytimetotravel

Many people don’t realize the Medigap plans can underwrite, reject you or charge higher premiums simply based on age.

OldITGuy
OldITGuy
9 days ago

A good article. I’ve come to realize many people don’t “run the numbers” when it comes to their health insurance (or a lot of things). I remember working as a federal employee when HDHP’s and HSA’s were first offered as an option. At that time, as a single person the low monthly premium was almost entirely offset by the combination of their monthly contribution to my HSA and the tax saving on my monthly HSA contribution (an amount I would have been saving anyway with after-tax dollars). That’s right, my health insurance was virtually free instead of the $75 a month premium for the standard insurance plan. Plus my max annual out-of-pocket was about the same. But when I shared my spreadsheet showing this, my co-workers were dubious and to the best of my knowledge no one switched their health plan. I was shocked since “running the numbers” is a key component of any analysis for me. I guess a lot of people use some other method to compare options. I don’t understand it, but that’s what I saw at the time. That’s one of the things I like about Humble Dollar. It’s nice to engage in discussions with folks who do run the numbers. As far as the HDHP went, I kept it until I retired and now my wife and I have a tidy sum in our HSA to help buffer medical costs in retirement.

Chris Wieser
Chris Wieser
9 days ago

Richard: I, too, was the primary decision maker for what plans the Company offered. It took a few years, but I was able to convince all non-union employees that they could never be better off in the traditional co-pay plan, so we eliminated it. However, about 60% of our employees were in a Union & the plans offered were part of negotiations with the Union. Try as I might, in face to face meetings, using simple math, I could not convince many (one-third?) of the union members to leave the traditional co-pay plan. I like to compare traditional co-pay plans to car insurance: Do you insure oil changes, new tires, batteries, etc.? Of course not. But that’s exactly what you’re doing in a traditional health care co-pay plan.

R Quinn
R Quinn
9 days ago
Reply to  Chris Wieser

How right you are. I often used the same analogy.

DrLefty
DrLefty
9 days ago

Interesting. We did just switch to a more expensive plan through Open Enrollment this year, but not because it was more “Cadillac” than the others. For reasons I won’t bore you with, this will be our third different medical group in a year and a half. Right now we’re in the university-affiliated group, but here’s the rub: the hospital, specialists, and all diagnostic testing are 25 miles away in a major city. After a year of that, we already feel it’s too much of a hassle, and as we get older, we’re not going to want to make the drive, which involves traffic and multiple freeway changes.

The group we’re joining in January is completely within our college town—hospital, specialists, mammograms and colonoscopies, everything. We have friends here in town who are retired medical professionals (he was an orthopedic surgeon, she was a nurse), and they chose this group for themselves through Medicare. We also were able to choose new primary care doctors that our friends personally recommended.

We’re a bit under three years from being eligible for Medicare, and in the meantime, we can afford the extra premiums, but we’ll see how it goes when we’re 65 and contemplating retirement.

William Perry
William Perry
10 days ago

Thanks Richard,

For many pre-medicare insurance years I followed your above advice and used a HDHP with a paired Health Savings Account. I am happy I chose to fund the maximum HSA contributions to the HSA for my wife and myself. With our medical insurance now covered through Medicare I have been able to fund our current OOP/deductible Medicare expenses and our Medicare Part B and D from accumulated HSA savings on a tax free basis. The Medigap premiums are not eligible for reimbursement from a HSA. I was lazy and did not invest the HSA funds beyond the small interest the account earned.

I would encourage anyone deciding to use HDHP insurance to fund the maximum to the HSA and to also to do the additional catch up contribution for both spouses if eligible.

Anyone signing up for Medicare after age 65, as was the case for me, needs to be aware of a tax trap that when you claim your social security benefit the Medicare part A coverage starts retroactive back to age 65 or up to six months before the month you claim social security. Thus, your HSA contribution may be limited and you should stop your HSA contributions post age 65 or six months before claiming social security to avoid overfunding your HSA and incurring the related tax penalties.

Once you have any Medicare coverage you are no longer eligible to contribute to a HSA under current tax law.

Best, Bill

R Quinn
R Quinn
9 days ago
Reply to  William Perry

An HSA or HRA can be a valuable tool to help a surviving spouse as well who may be facing a significant reduction in income upon a partners death, but still must deal with high health care costs.

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