Thursday, March 11, 2010

Health Care Diary - Part 3: A False Sense of Security

Like most Americans, I felt relieved having employer-provided health insurance. It gave me a sense that, in the event of an unexpected health crisis, I'd be covered. The safety net was there for me.

To a degree, that's true. Let me give you an overview of the health insurance plan I selected from 3 options I was given, and how it works given my current predicament.

I haven't had to go to a doctor in two decades. I know that puts me in a small minority. Knowing that I'm not prone to run to a doctor unless my condition seems serious, I opted for a plan with the highest deductible and the least monthly cost.

Mine is an HSA plan in which my employer makes a contribution each pay period into a savings account which I can use at any time for any medical expense. I was also fortunate in being able to add txrad to my plan as my partner. This turned it into a family plan with a $5,000 deductible instead of a $2,500 deductible.

While evaluating the three available plans at the time I signed up, the deductibles seemed rather abstract until you find yourself in a situation where you are having to seek treatment, and then it becomes a concrete reality. My insurance, my "safety net," covers nothing until I hit the $5,000 threshold in medical expenses!

Fortunately, the HSA account had accumulated a bit over $2,000, so my out-of-pocket expenses were technically reduced to $3,000, or so I thought.

This past Monday I was notified by my HR department that my oral surgeon is out-of-network. This caused me to switch into panic mode for an hour or so as I pondered the ramifications.

First, the out-of-network deductible is $7000 on the family plan, and this is a completely separate tier from in-network, meaning that each threshold must be met separately. In theory, I could be out-of-pocket by as much as $12,000.

Although my in-network doctor recommended the surgeon, and I was very impressed with my initial exam and consultation, I thought I'd have to switch to an in-network oral surgeon to keep my costs reasonable. But get this: there are no in-network oral surgeons under my insurance plan in the city limits of Austin. In fact, there are none in Travis county -- a county of over one million people. All of the in-network oral surgeons are 35-50 miles from my house, in neighboring counties, one of which is suburban San Antonio, not suburban Austin.

I began to berate myself for not signing up for health plans B or C which offered a family plan deductible of $6000 and $3000 respectively. And then I started doing the math.

Plan B has a $6,000 family deductible, regardless of whether I am in or out of network. Sounds better. However, they only cover 80% in network and 70% out of network expenses beyond the deductible amount. Furthermore, the cost per pay period is $108 vs the $30 I pay now. That's an extra $2,028 per year which, over the course of 3 years, would eat away over $6,000 for a plan with a deductible of only $1000 less than my current plan.

Plan C has a $3,000 family deductible for either in or out of network. That's $4,000 less than my current out of network deductible. However, only 80% of my expenses beyond the deductible are covered. And that cost per pay period is almost $205. That's $4,550 per year more than I'm paying currently in order to have my deductible reduced by $4,000!

Plans B and C sound OK from the standpoint of the deductible, as it is the same for in and out of network. But here's the rub: that 70% and 80% coinsurance payment.

I do not yet know what my surgery will cost. I should have an idea within the next day. But given the scope of it, I'll be very surprised if it is less than $10,000, given that I paid $365 last week for one simple x-ray and an office visit. With plan B, that would be $4,000 over the deductible, and with 70% coinsurance, I'm left owing $1,200, for a total out-of-pocket of $7,200 including deductible.

With plan C, I'm $7,000 over the deductible, and with 80% coinsurance, I'm owing $1,400, for a total out-of-pocket of $4,400.

Plan C sounds much better than my current out of pocket of $7,000. And that's where the monthly employee contributions for the insurance start to quickly eat away at that savings.

Annual Employee Contribution Recap:
Plan A (HSA): $780
Plan B: $2,798
Plan C: $5,320

With Plan C, I might have an out-of-pocket savings of $2,600 right now as I walk out of the hospital. But with an annual contribution of $4,540 more than I'm currently paying, the savings is very short-lived.

With my HSA plan, my coinsurance is 100%. $7000 is what I pay, period. Even if the surgery costs $15,000 or $20,000. In the event my surgery does cost $20,000 vs the $10,000 I used in this example, the end result is an ever greater contrast with plans B and C.

It took me awhile to figure all this out and start to calm down. I feel that I made the best choice for me, despite the upfront costs. What Americans need to understand about our current health care system is that, despite having health insurance, you would be wise to have an emergency fund set aside. The amount should probably be equal to your deductible if you are on my Plan A. And it's probably not a bad idea to have that $5000-$7000 set aside even if you are on my Plan B and Plan C, due to the coinsurance which will come out of pocket.

This is what drives many into bankruptcy. I'm sure many people have opted for the higher up-front costs of plans B and C, despite the strain on their budgets, thinking the deductible looks best, and paying no attention whatsoever to that coinsurance percentage. Having $100,000 in medical costs can result in $20,000-$30,000 out-of-pocket. And how many of us can easily set aside an amount such as that for an unexpected emergency?

Among the millions of Americans who do have health insurance, I wonder how many of them understand the importance (or even the need) to set aside a few thousand dollars for medical care. And among the tens of millions of non-Americans who live in a country with "socialized" medicine, I wonder how many of them can't even grasp what this post is about.

Once my deductible(s) are met for 2010, it's smooth sailing for the rest of the year. But God forbid I have another emergency in January 2011, because this cycle starts all over again. Health care reform: who needs it?

The IT director at my first job used to say this: "You pay now or you pay more later." That applied to IT enhancements, in his usage. But I have found it applies to a whole lot more in life which is why that has stuck with me for the past 15 years or so.

With health care you pay now AND a whole lot more later. There is no "or."

Related posts:
Part 1
Part 2

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