Unhealthy Choices

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.