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Medical insurance – easier, cheaper, and better than I thought May 13, 2008

Posted by Jeff in Uncategorized.

Switching to my own business means that I’ve had to purchase medical insurance on my own, and because any post on insurance is bound to be a crowd pleaser, I thought I’d share my learnings with you.

First, I’m looking for a policy that covers the 5 of us, ages 31, 30, 5, 2, and infant.  No one is a tobacco user or has any major medical problems.  Because we are pretty healthy, we decided to look for a high deductible health insurance policy that included some preventative care coverage.  

This is a pretty big change for us, because when I was working in the corporate world, I was used to the company-subsidized plans that were essentially socialized medicine: it cost me a total of $30 to have each of my first two kids because the insurance picked up the tab.  Of course, the monthly premiums for that kind of coverage were pretty insane – well over $1000/month for the family.  The part of it that was deducted from my paycheck was a lot smaller (more like $150/mo), but the part that the company picked up ($850/mo) was a cost to them and can be understood as the portion of my salary that I never saw.  (That’s equivalent to more than $10,000/year in salary that was disguised as the “employer’s portion” of my insurance.)  I never really got a positive return on investment.  In exchange for losing $10,000 in salary, I got medical coverage that would allow me to pay for any problem for just $30 out of pocket.  But because we are pretty healthy, we don’t abuse the insurance, and we can only have so many $30 babies, we paid a lot more in premiums than we ever took out.  I cannot say the same for some of my coworkers who smoked, who went to the ER with every little problem, and who otherwise engaged in behavior that drove up my premiums.  In the corporate world, every family was paying the same amount for the same plan, regardless of how much they used the plan.  Because a $30 copay is so affordable, the obvious reaction for the more hypochondriacal among us was to seek medical assistance, even when it wasn’t needed.

My goal in seeking insurance now that I’m on my own was to save some money on premiums and buy insurance that would cover the family for things that we truly need insurance for:  catastrophic events that we would not be able to pay for out of pocket.  If I get the flu, either my body will heal itself or I will need to see a doctor and get some medicine.  The former costs me nothing out of pocket.  The latter has a small cost, which I’d be willing to pay out of pocket in exchange for saving more money on my monthly premiums. 

I did my shopping through the plans offered by Extend Health, which I found out about on the Sam’s Club website.  You don’t have to be a member of Sam’s to buy these plans.  I called Extend Health and talked to one of their advisors who explained the differences in the high deductible policies – which ones were “hospital only”, which ones were compatible with health savings accounts, etc.  I decided on a plan from Humana that has a $10,400 deductible each year for the family and pays 100% after that.  This means that if I get in a car wreck and have $6000 of medical bills, I will have to pay that $6000 myself.  If I get a major illness, I will have to pay $10,400/year and the insurance will pick up the rest.  Yes, those seem like big numbers, but consider the following:

  • Insurance is a bet I make with the insurance company.  I’m betting that I’m not going to get a major illness any time soon.  Yes, it could happen, but in all likelihood, it won’t.  If it does, I’m covered  for everything beyond $10,400, so my liability is limited.
  • My monthly premium for the entire family is only $225.  That means that I’m saving nearly $800/month off of the premium my former employer was paying for me.
  • The amount that I save on premiums can be saved in a Health Savings Account, which belongs to me and allows me to put aside money for medical expenses tax-free.  Note that if I’m saving $800/month, I can save $10,400 in just 13 months, and I do not expect to have a major illness every 13 months.
  • Our medical plan covers preventative care (up to $300 each, per year, before the deductible), so I don’t have to pay for annual physicals or well baby coverage out of pocket
  • Any medical expenses that I do have must come out of pocket, and these can be paid for from the HSA.  For these expenses, I am a “cash payer”, which means that I can shop around to different doctors and hospitals and find those who are willing to give me better deals.  Note that it is not uncommon for doctors to give a 50% (or more) discount on service fees to cash payers, simply because they do not have to deal with the insurance companies…therefore, my out of pocket liability drops even further.  (Quick story:  one friend on a similar high-deductible plan told me that when he planned to have a baby, he called around to the nearby hospitals, told them he was a cash payer and asked them for rates on baby deliveries.  He found that the rates were about 1/2 of what they were had he been using insurance to pay.)
  • If I’m not feeling intrepid enough to do this kind of shopping around, I can always take advantage of the pre-negotiated rates offered through another Sam’s Club program.  This program doesn’t cost anything beyond being a Sam’s Club member, and that membership is something we’d have anyway.  Therefore, if I go to a doctor who is in the network of the Sam’s Club pre-negotiated rates, I can take advantage of the lower costs for cash payers without having to do my own shopping around.

So, at the end of the day, I’m going to pay $225/month for catastrophic coverage and preventative coverage for the 5 of us.  I’m expecting to pay for everything else out of pocket, but since I can put what I’m saving on premiums into an HSA and use that only when necessary, we will quickly build up the amount of money needed to cover the $10,400 deductible *if* something major does come up.

But wait, there’s more!  Although we don’t expect any of us to get some major illness, we do recognize that we could be in an auto accident that could result in medical bills in the thousands of dollars.  To account for this, we turn to our car insurance.  Car insurance (at least in Texas) includes PIP coverage, which pays for the medical expenses you have as a result of an auto accident.  Our auto insurance company, Progressive, tells me that we can increase our PIP coverage to $10,000 for $3/month.  That’s not a typo.  What this means is that if we are in an auto accident, we will be able to cover up to $10,000 in medical bills with our PIP.  Our medical insurance would then kick in for everything over $10,400, which means that even for a bad accident, we’re only out $400.  

If I count that $3/mo. PIP coverage as a part of my medical insurance premium, my total monthly premium  becomes $228, and it covers the following:

  • All preventative care 100%, no deductible
  • All medical expenses resulting from auto accidents 100%, no deductible (ignoring, for the moment the $400 difference in the PIP and the medical insurance deductible)
  • All other catastrophic events 100% after the deductible (an event we are betting doesn’t happen)
  • All other non-catastrophic events 50% (assuming that’s the discount we get by being cash payers.

I haven’t talked about prescription drugs here, but I would point out that all of the drugs that any of us have been prescribed over the last 10 years, plus any drugs we expect to be prescribed in the next few years, are all on the list of drugs that Walmart and several other retail pharmacies are offering for $4.  Again, it is a wager on our part that we will not face expenses for drugs that are much more expensive, but for this stage in our lives, it’s a pretty safe bet.

All told, my medical insurance is going to cost me $228 per month, plus whatever out of pocked expenses we have each year, typically on the order of a few hundred dollars per year.  Let’s say that that brings my total cost of medical coverage for our family of 5 to around $300/month.  That’s less than some people spend on a monthly payment for a new truck or home entertainment system, and sometimes, those are the same people that claim that medical insurance is too expensive.  I would say that for us, it is not too expensive – that it’s actually very reasonable.  With a little bit of shopping around and with the decision not to smoke or do other things that result in major medical expenses, we give ourselves a raise with the money we save and we get rid of most of the stress and hassle of dealing with insurance companies.



1. Mandi - May 13, 2008

This is fascinating. Thanks for sharing.

2. Jeff - May 13, 2008

No, really, thank you.

3. Jamison - May 14, 2008

I’ve been waiting… waiting… waiting for my company to switch over to a REAL insurance plan, not the prepaid ‘insurance’ we currently have. I know the Pres. of our company is amenable to them but so far… no dice. That said, I’ve no desire to be out on my own for work so I’m quite content to sit in my little cubicle and be socialized, at least for the time being.

Mandi, be nice to your husband! He was, after all, a Rice Owl for a year. It’s just too bad those Aggies got ahold of him.

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