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How do you decide what health insurance option to select when it comes time to set up or adjust your options? Do you just pick the lowest deductible you can afford? That may not be your best bet.
I know it can be very confusing with all the different plans and deductibles you are sometimes faced with, but there is a lot of opportunity for savings. We learned that the hard way last year.
We had the top option with the lowest deductible for our family last year (actually for several years). Because my employer had recently gone bankrupt (we’re on my wife’s policy), I was very focused on our costs. I looked at our medical spending for 2009 and noticed that we hadn’t even spent enough to hit our low $500 family deductible for the year. That means we overpaid for insurance. Since we didn’t even reach our deductible, the main insurance never kicked in! We could have had a $5000 deductible and it would have made no difference to our expenses.
I ran the numbers and the difference between the top plan and the fourth plan down the list amounts to over $1100/yr savings. Since we didn’t hit the deductible anyway, the #4 plan with its $3000 family deductible would have served us just as well and we would have spent $1100 less overall (minus tax implications). Now if this had been the only year we had low medical expenses, I might not have made a change. Historically though, we’re a pretty healthy family of 5. We do make several trips to the doctor to have various minor ailments checked out, but in general, we have no major health related issues during a typical year. That being the case, I downgraded our health coverage to the lower option for this year to save that extra money. Even if we end up going over the original $500 deductible, as long as we stay below the $1100 savings we’re getting, it’s still a win.
Now, there is an additional watch-out here. You need to have an emergency fund in place that is big enough to cover your potential risk just in case a major accident or ailment comes along. I’m looking at a $2500 additional risk between the $500 and $3000 deductible which our 3-6 month of expenses emergency fund will easily cover. It is a risk, but past history tells me it is an acceptable risk. Two or three years of low medical expenses will easily pay for the added risk, so to me, that’s an acceptable risk.
Don’t forget to look at you other insurance policies such as auto, home, renters, and others and use this same philosophy. If you have a history of not having any claims against your insurance policies, then you can probably save money by increasing your deductible. Ask for quotes on various deductible levels, and see which one seems to be the best value based on your claim history. I raised our deductibles there as well. I didn’t go with the highest deductibles available because it would have taken far too long for them to payback the risk, but I did find an acceptable level that gave me a payback in just a few years of no claims. Again, keep in mind that an emergency fund is a necessity in case that “accident” does occur.
I hope this helps you to understand a potential way to save yourself some money so that you can get those debts paid off more quickly, or increase the amount of saving you’re doing. If you have any questions, please feel free to contact me and we can look at your individual situation.