Health Insurance. I have lots of feels about this. LOTS of feels. I can hold forth about why this industry doesn’t need to exist, and it’s parasitic extraction of dollars from vulnerable populations, but…well I know this blog post is going to be long enough without it.
Our new Health Insurance year starts in August. Why? I don’t know. Last year, my husband’s organization offered one plan to people outside of the DC metro area. Having worked for companies based on the East Coast, we are used to having one, maybe two choices, because we don’t have the benefits of the local network. This means we usually have no choice but to pay high premiums.
This year, as his company adds more staff nationwide, they decided to offer more choices. 60 choices to be exact. Bless them for being more generous, but really?
I’ve known that health care is a big expense for us, but it’s like an iceberg. Part of the costs are visible, when I pay at the doctor’s office, but the rest are hidden in payroll deductions, negotiations between the hospital and the insurance company, employer contributions, and any number of other places. The premium number doesn’t tell the full story.
So, how was I going to figure out which of the 60 plans would be best for us? I needed something to compare it to.
How much did we pay for healthcare in 2019?
I figured the best place to start was with our receipts from last year. Thanks to YNAB, it was easy to pull how much we spent out of pocket on:
- Doctor’s Visits
- Therapy Sessions
- Prescriptions
- Chiropractic
- Eye Exams
- Allergy Shots
- Emergency Room Visits
But like I said, that’s only a part of the story. I went back to my pay stubs, and figured out how much I was contributing per paycheck, before taxes. I also had to account for the reimbursements my health insurance company paid for my out-of-network therapy.
Grand total: $4,549.50 before taxes PLUS $6,989 after taxes.
Well, that’s not confusing at all. What I really need is one number that includes both that shows me the impact on my take home pay. I know from past calculations that I take home roughly 80% of my gross pay. That means that if I hadn’t have paid $4,549 for health insurance, I would’ve seen $3,639 more in my paycheck.
Total Health Care Costs in After Tax Dollars: $10,628
Dear lord.
There are only two people in our house (and one really expensive dog – her bills go in another blog post). $5,300 a year per person for health care? *Resists the urge to get on a soapbox*
How can we Value Engineer Health Care?
Health care is necessary in our world, and that means good therapists are non-negotiable. At the same time, it’s a gamble. We could have a lower premium and hope that we don’t have any emergencies. If something goes catastrophically wrong, then we are out thousands of dollars. Not cool. As a necessity, but not something particularly enjoyable, we should focus on keeping the costs low.
The Process
- Estimate how frequently we will use our benefits
Gathering the receipts for 2019 gave me a huge start on this process. It told me not only how much we spent, but also how often we used health insurance-related things. I made a spreadsheet (of course), with how frequently we went to the various doctors, and adjusted it, knowing what I know now about COVID and my therapy plans.
Between the two of us, I anticipated:
- 4 Primary Care appointments
- 1 Specialist appointment
- 72 chiropractic sessions
- 48 therapist sessions
- 26 prescription refills
- 2 emergency room visits
2. Filter the Plans
As I started to go through the 60 plans, I noticed patterns. First off, only 30 were available outside of the DC Metro Region – whew!
Then I noticed that there were three main types of plans, each with variations of metal level (Bronze, Silver, Gold, and Platinum) and deductible. The type of plan set the rules on what was allowed and wasn’t allowed, and the metal level influenced the copays.
That meant I could compare a Gold Plan with a $500 deductible across all three plans to get a good understanding of what was covered and what wasn’t.
3. Make friends with the Statement of Benefits
Thanks to the Affordable Health Care Act, all health insurance plans have to offer a Statement of Benefits that is formatted in the same way. It lists many common procedures and what you’ll pay in-network vs. out of network.
I made a chart from the Statement of Benefits, listing out the common copays. It’s not pretty, but it got the job done.
4. Make a Calculator
Now that I had a sense of how often we’d use our benefits, and how much they would cost, I made a simple calculator that estimated the out of pocket costs we could anticipate. To really compare plans, you have to know BOTH the Annual Premiums (available from your employer) and the Out of Pocket Spending (OOP). Again, it’s not pretty, but it works.
You notice that the deductible spending is in a different column? I set up my table and calculator so that it would throw an error message (intentionally!) when something required us to meet our deductible first. Because our amazing therapists are out of network, we have to pay between $130-$150 a session. BUT those expenses make sure that we are well on our way to meeting our deductible every year. For each plan, I had to reckon with whether or not we would meet our In-Network Deductible and Out-of-Network deductible. Based on our Explanation of Benefits from last year (this is the piece of paper your insurance sends you after you’ve gone to the doctor), I could roughly estimate how much each visit would cost us.
5. Time for Chart #2: Comparing Plans
After I ran all the calculations to estimate the Out Of Pocket spending, it was time for another chart.
Again, I had to convert the Pre-Tax Dollars to After-Tax Dollars to really compare apples to apples. The total After-Tax cost in in the “Total Realized Cost” column. (I’ve really struggled with the terminology for these columns…it’s confusing!)
The thing that is striking when everything is side by side is that the Platinum and Gold plans end up costing us more in the long run for the types of health care that we use, even through the higher premium is supposed to mean that the insurance company picks up more of the bill. At the same time, the lowest premium isn’t the best deal, because so much of what we use has a co-pay.
6. Make the Final Choice
Ultimately, we settled on going with a Silver Plan that comes with a Health Savings Account (HSA). If we have the same needs as we did last year, we will end up saving about $3,100. If I could trim $3,000 from a few other areas, it would be amazing!
The Magical Nature of HSAs
Health Savings Accounts are much loved in the Financial Independence world, and I’ve heard some podcasts extol the benefits of using this money tax free for all kinds of things. “That’s great,” I think, “But what about those of us who spent over $10K on health care last year?!?”
Spoiler alert: They are still amazing. Let’s look at an overly simplified example.
Say the FI Value Engineer makes $1000 at a regular, W-2 paying job. Using our rough estimate from earlier, her take-home pay is $800. Then she goes to the doctor and pays $100 out of her checking account. Straightforward, right?
Now, say the FI Value Engineer has an HSA. She still makes $1,000, but now she puts in $100 in her account pre-taxes. Her take-home pay is now $720. Then she goes to the same doctor, and pays them $100 out of the HSA. She still has $720 left in her wallet. Using pre-tax money allowed her to get the same amount of service, and have some money left over.
If our family had been able to fund all of our out-of-pocket expenses with pre-tax money using an HSA, we would’ve saved nearly $1,400. Here’s looking at what is possible in 2020-2021!