Saving Hundreds per Year by Not Assuming the Worst Case Scenario

I am one of the millions of people caught in the ACA (Obamacare) net. I have individual insurance and my insurer is no longer carrying my policy, so I was thrown off and into the health care exchange pool. I started thinking a lot about health insurance.

Insurance is a bet. You place a bet against the house (insurance company) that your house won’t burn down, your car won’t be stolen and you won’t have a serious health problem. When figuring out what insurance to buy, you’re trying to figure out what the odds are that you will get seriously sick or injured in the coming 12 months – the worst case scenario. Your insurance company is doing the same thing.

I started doing a lot of math around insurance policies and thought I’d share what I came up with. Below are the three calculations I did to figure out what plan was right for me:

1. Add the annual out-of-pocket max plus the premiums for one year (your monthly premium multiplied by 12) and compare policies that way. What you’re comparing is the most money you’d have to shell out in one year under the worst case scenario (a car accident or stroke).

2. Think about how many times you went to the doctor (your regular doctor, or a specialist) in the last 12 months for something other than a check up or screening test (pap smear, colonoscopy)

Assume each visit is about $150 (may be low for some specialists). Take the deductible for the plan you’re looking at and divide it by $150. The number you get is how many visits to a doctor it would take before your insurance kicks in.

If the number of visits you made to the doctor last year exceeds the deductible divided by $150 then you will probably use up your deductible in the coming 12 months and your insurance would kick in to pay for the rest of your expenses.

If the number does not exceed the deductible divided by $150 you will probably NOT use up your deductible in the coming 12 months and thus you would pay your monthly premiums and STILL have to pay out of pocket for your 1 or 2 doctor’s visits per year because you have not used up your deductible.

3. Your out-of-pocket max is higher with plans that pay lower monthly premiums as you can see by doing the math in #1. Essentially, to pick the right plan, you have to place a bet on whether you will have a typical health year (maybe 2 doctor’s visits outside your check up), in which case you should go with the higher deductible plan as long as you have the out-of-pocket max saved in an account somewhere.

If you see the doctor a lot for various reasons and your answer to #2 was yes, your number of visits is higher than the deductible divided by $150, you should pick a low deductible plan.

Obviously, nobody can know if they will experience the “worst case scenario” and be hit by a car or worse. Nobody wants to place an economic bet on what the future holds for their health, but that’s what you’re being asked to do.

My knee jerk reaction is the lower the deductible the better it is because if I need my insurance I won’t be on the hook for a high deductible. But, your actual health insurance usage may be a lot lower (depending on your answer to question 2) and you can handle a higher deductible, thus saving money each month on your premium.

The big item to remember is no matter what deductible you choose, make sure you have at least that amount tucked away in a savings account just in case.