Most people choose their health plan based on old wives’ tales and other less than rigorous methods.
Unless you’re in the top 5%-10% of the individual health care expenditure distribution, you should be buying a high-deductible health plan with the largest annual out-of -pocket maximum you can afford. That way the health insurer has a smaller pot of your money to skim from.
intercst
Spot on!!!
The Captain
@intercst wrote: “Unless you’re in the top 5%-10% of the individual health care expenditure distribution,…”
But NOBODY KNOWS whether they will be in that top 10% of the distribution, suddenly and unpredictably!!! That’s the whole point of insurance!
Sheesh!
Until a nurse practitioner placed a stethoscope on my chest when I came to the clinic for a totally unrelated UTI, I had no idea that I had a severely calcified, bicuspid aortic valve and aortic aneurysm! NO IDEA!
If you still call insurance an “old wives tale” after your experience I can only shake my head. I have used insurance many times for fire, illness and even a tree falling through my garage roof but NEVER did I expect the event.
Wendy (Medicare supplemental Part G for peace of mind)
Sure you do. And health insurers rely on you not understanding the arithmetic to boost their profits.
Barring the relatively few people who have an expensive chronic condition with a high annual cost, most people have the occasional, one-time big expensive medical event like a hospitalization, or a cancer treatment, and then return to some lower baseline level of medical expenditures. You don’t want to pay for first dollar medical coverage for the baseline, unless your baseline exceeds the annual out of pocket limit plus premium on a high deductible policy.
And also, a for profit insurer will likely make you pay inflated prices for drugs and services as a condition for counting those expenditures towards your annual deductible. If your deductible is well in excess of your annual medical expenditures, you may be able to price shop on medical services, pay cash, and avoid the insurer’s price gouging.
For example here in Washington State, if you sign up for a Medigap plan, you have a choice between $238/month for the lowest cost plan G with 1st dollar coverage, and $48/month for a high deductible Plan G with about a $3,000 annual deductible.
If you currently have low medical bills, you can capture that $2,280 annual saving while limiting your out-of-pocket to $3,000 during that rare year where you have a $1 million illness.
That’s what I mean by understanding the arithmetic.
And even without a high-deductible Medigap plan, my 2025 medical disaster with about $400,000 in medical billings and a Medicare reimbursement of $150,000 in 2025, my out of pocket for the year would have been less than $20,000. If you can handle that, you don’t even need the $48/month high deductible policy.
intercst
This logic is mostly correct.
Coverage (adequate, or complete) along with out of pocket maximum is the second level qualifier for those at the high expense portion of the spectrum.
If you don’t need health care coverage, minimize the (unused, but mandatory) expenditure.
If you need health care coverage, get covered!
If covered, minimize the total expense (premia + deductible+out of pocket coinsurance).
It’s absurd that in this country we have to make a gamble like this. The average person shouldn’t have to be an insurance expert.
A THOUSAND TIMES THIS, Todd1001.
But a lot of powerful people are making money off American’s lack of arithmetic skills.
I estimate that about 30% of the average middle-class family’s monthly budget is lost to “legal” skim, scam and fraud.
intercst
As we’ve discussed before, this is not universally correct. Paying for your health care through a workplace health insurance program confers significant tax advantages, since health care premia are paid with before-tax dollars. Since the median filer in the U.S. is in the 22% tax bracket, it would take a very large “skim” indeed for this to make sense. And since employer-based health care insurance tends to have a lower administrative load, and since many (most?) employer-based health insurance programs will have some degree of employer participation in premium payment, it’s often going to be advantageous to do the opposite of what you’re suggesting. You might want to maximize how much of your health care dollars run through insurance, rather than minimize it, depending on your specific circumstances.
It’s a great point, albaby1.
Even though my family is a top 1% healthcare insurance consumer (sadly), I pick a high deductible plan for two reasons:
You may be able to chose a high deductible plan with your employer. Of course, if your employer is offering 1st dollar coverage with no network restrictions or “prior authorization” nonsense, that would be the plan to select (and what I had during my working career in the 1980’s and 90’s) but those kind of high quality plans are pretty rare today.
When I had a golf ball sized brain tumor removed under my employer health plan in 1988, the only out-of-pocket charge I saw was a $2 co-pay on a bottle of prescription-strength Tylenol. And the employer health coverage had a $0/month premium to me. Those days are long gone.
Americans pay double or more for a health care system that’s worse than other large industrialized countries. The “skim” rate on health care averages 50% or more.
That’s certainly the folklore, albaby. But when you study the arithmetic, you find the largest employers are often paying the highest prices when they send a patient to the hospital, because of the lack of transparency in the system. Mark Cuban has written extensively on this.
State Farm Insurance HR executive explains how they get screwed on employee health insurance coverage – and why Mark Cuban is right.
intercst
Even if it’s not first dollar coverage, it still may be better for you to pick more coverage in your employer-based health care plan rather than going for the highest-deductible/lowest premium. Because, again, you get to pay for healthcare purchased through insurance with before-tax dollars, rather than after-tax dollars.
We’ve had that debate before, and no need to repeat it here - but even if the “skim” on health care generally is 50%, that doesn’t mean the skim on health care insurance is 50%. Whether you pay for your health care through insurance or out of pocket, whatever the skim on the provider side is you face either way. For this decision, you only care about the administrative load associated with your insurance - and for many people, it won’t be higher than the tax savings.
Not at really relevant to your decision, though. If you’re ending up admitted to hospital, you’re probably paying that through insurance even if you’re in an HDP - so you’re in that basket. Your decision is mostly whether you want to funnel the first X dollars of your health care expenses through insurance or not, where “X” is almost certainly lower than what a hospital admission costs, and you’re choosing between “ordinary” coverage (where X is $2K/$4K for individual/family) or high-deductible plans (where X is closer to $10-12K for a family plan).
If you’re self-employed or near-retired and independently wealthy but able to keep your income levels low, going HDP may be better for you - there’s no employer contribution, your tax savings are low, and individual coverage plans often have very high administrative loads.
But that doesn’t mean that experience would be representative or typical. Most people get coverage through an employer, and most people who work will work for an employer with at least 50 employees - and are therefore in “large group” coverage). Large group coverage has a much lower administrative load than small group/individual coverage. Large group coverage has a max administrative load of 15% (not 20%) under the regulations, and unlike individual/small group plans rarely gets even to there (median admin load is only 9%, with 75% of plans coming in at 9.2% or lower). Which is going to be much, much lower than the marginal tax rate for most people.
Administrative Costs of Larger Health Plans in 2024 | Sherlock Company Navigator
My gawd we really need European style universal coverage here.
Right. But they DO know that if that time comes, they will only have to pay the first $10,000 or so, and then the insurance will roughly cover the rest.
I assume you are instead suggesting that we go with the “sure thing” and have VAT on everything purchased (including many services), special additional taxes on many big items like cars, and a new 5% payroll tax. All these additional taxes to provide funds to cover health coverage for all.
Unfortunately as we often see, putting something large under the umbrella of government also results in plenty of legal skim, scam, and fraud. Maybe the problems of skim/scam/fraud are endemic to humans, not specifically government versus non-government?
No you do not.
But I thought insurance premiums were slightly under the liabilities. The difference is made up in the markets.
BTW, my father had long-term care insurance. He died on January 10 this year. He used a very small amount of the coverage before passing away. As a family, we do not mind the premiums we really got no return on.
Dad had walking pneumonia and fell backward on his head bleeding into the brain back in October. He did not know he was ill when he fell. Miss him dearly. Keep thinking I want to talk with him.
The “skim” on health insurance is 50% or more since you typically have to pay the health insurer’s inflated prices if you want the expenditure to count towards your deductible and annual out-of-pocket maximum. As a matter of fact, I’ve never heard of a health plan that will count a prescription bought at a lower price with a GoodRx coupon towards your health plan deductible.
Same thing goes for MRIs, x-rays, and lab test. If you shop around, you can typically buy these services at less than the insurance company wants to bill you at the “network provider”.
Don’t forget, the insurance company isn’t beating the bushes to find you the best prices on health care services. They actually make more money by applying their admin rate to a larger volume of charges and expenditures. Again it’s just arithmetic.
intercst
Ridding ourselves of the skim(s) is crucial, but we also need to get past the USAian insanity of fighting off incipient death (but not the pain and suffering of all involved) as long as possible. INSANE! and also unbelievably expensive, sad, radical, and cowardly and….
All my ancestors died at home, including Mom and Dad and sister. If I can manage it, I will too, after living as long as I reasonably can.
I want my closest friends, humans and animals and plants, dousing me with love undistracted by the mechanisms of life extension.
Are you forgetting that, in doing the above, we’d not have insurance premiums (from either the employer or the employee), and would instead be buying into a system that is LESS EXPENSIVE OVERALL than what we have today?
So yes, sign me up.
I can see that you are not the least bit mathematically challenged.
I have bad news for you. The move toward a VAT has already begun and- surprise, surprise, it has been started by the Republicans through tariffs. But instead of getting health coverage for all, we are getting an untrained, lawless “police” force answerable to one person unleashed on us.