Open enrollment: our annual pilgrimage into our personal healthcare analysis. Whether under age 65 or over this is a time that we should all review our recent medical care usage and forecast upcoming expenses as best we can.
Many of us have options between high deductible plans and copay driven plans, but how do we choose? Using the high deductible plan without copays for an example:
- First determine the premium difference between the two options and be sure to factor in the tax advantage you may have if premiums are treated pre-tax or are in some way tax-deductible. For one group of our clients the premium difference for a single individual is $90 (greater for those with dependents.) Calculating a 25% tax saving (7.65% for FICA, 6% for Georgia State income tax and at least 12% federal income tax, rounded down) brings the premium savings to about $67.50 per month.
- Looking back at the number of office visits we had for the prior year let’s assume two diagnostic visits with a family practice doctor and two specialist visits. Assuming that the general practice visits bill at about $70 after network discount and the specialist visits bill at about $150 after the network discount we have $440 in expected visit cost.
- Lab and x-ray expenses are often billed separately from the office visit copay and can run $150 each at the discounted rate. Three of those per year will add another $450.
- Determining prescription costs is not difficult as they are disclosed on the pharmacy envelopes, and yet do we notice the discounted rates for those pills? Many of us are on generic maintenance drugs which run between $10 and $25 per month, but brand name drugs are often $250 per month. For our example let’s add in two generics for a total of $30 and one brand name for $250.
So here is our formula of predictable expenses:
Premium difference: $67.50 times 12 months = $810 saved
Office visit costs: $440 per year
Lab & x-ray expenses: $450 per year
Prescription costs: $280 times 12 months = $3360
We will face a predictable claims cost of $4250, but having “not spent” $810 in premium our net expense will be $3440.
If, on the other hand, if we apply these claims to a copay based plan our predictable expense formula would be:
Office visit costs: 2 doctor visits @ $50 copay each, 2 specialist doctor visits @$100 each = $300
Lab & X-ray expenses: included in office visit copays
Prescription costs: 2 generics @$10 each, 1 brand @$70 each = $90
We will definitely spend $810.00 more in premiums with a predictable cost of claims of $390.00 for a total predictable expense of $1200.00. In this case the patient appears to be best served by selecting the copay based plan.
As confusing as this may appear we each need to look at our predictable claims, apply them to the plan designs from which we can choose and determine which choice is best for us. Big claims may surprise us, but our maximum financial responsibility is usually similar between high deductible and copay based plans, so the important homework is to make decisions about what we already know.
Next week I will use an example of an insured who does not have as high a claims ratio to show which plan may make the most sense for that claimant. In the interim, dig out a yellow pad and whatever resources you have that will show how you and your family have used coverage so far this year, and start your research. A simple grid may help you determine how best to use your healthcare dollars and put aside the money you don’t need to spend now for a rainy day.
If you need help navigating the best path, call us at Czajkowski Dumpel & Associates, Inc. – we are here to help!