The Cheapest Plan Isn't Always the Cheapest
When picking a health plan, most people look at one number: the monthly cost. It makes sense. That's the number you see on your paycheck. But the plan with the lowest monthly cost can end up costing you the most. Here's why.
Two kinds of costs
Every plan has two kinds of costs:
What you pay to have insurance. This is your premium. You pay it every month, no matter what.
What you pay when you get care. This includes your deductible, copays and coinsurance.
Usually, when one goes down, the other goes up. A low premium often means a high deductible. A high premium often means a low deductible.
The real cost = both added together
To find a plan's true cost, add up:
Premiums for the year + what you'll likely pay for care
The tricky part is guessing how much care you'll need. That's where your own history helps. How often did you see a doctor last year? Do you take medicine every month? Is a big event coming, like a surgery or a baby?
Meet Chris
Chris is choosing between two plans:
Plan A: $100 a month, $3,000 deductible, $6,000 out-of-pocket max
Plan B: $300 a month, $500 deductible, $3,000 out-of-pocket max
Let's see what happens in two different years:
Premiums for the year
Plan A: $1,200
Plan B: $3,600
Light year ($500 of care)
Plan A: $1,200 + $500 = $1,700
Plan B: $3,600 + $500 = $4,100
Big year ($20,000 of care)
Plan A: $1,200 + $6,000 = $7,200
Plan B: $3,600 + $3,000 = $6,600
In a light year, Plan A saves Chris $2,400. In a big year, Plan B saves Chris $600.
So which is cheaper? It depends on Chris's year.
Check your worst-case year
Here's a simple trick. For each plan, add:
Premiums for the year + out-of-pocket maximum
That's the most you could pay in a really bad year. Ask yourself: could I handle that? If not, a plan with a lower out-of-pocket max might be safer, even if it costs more each month.
Don't forget the extras
Does your employer add money to an HSA with one plan? Count it as savings.
Are your doctors in the network? Going out-of-network can change everything.
Are your medicines covered? Check the plan's drug list.
Key takeaways
A plan's true cost is premiums plus what you pay for care.
Low monthly cost often means a high deductible.
Check your worst-case year: premiums plus the out-of-pocket max.
