Which Health Plan Is Cheaper?
By Richard H. Thaler (NY Times) November 2017
Doing a thorough comparison of health care plans is difficult.
But there is an imperfect, yet fairly, simple way to check whether a high-deductible plan might qualify for “no-brainer” status, meaning, it enables you to save on health care no matter how often you go to the doctor.
Here’s how to do it: Start with your premiums
Figure out how much you would have to pay in total annual premiums for low- and high-deductible plans. Do this by multiplying the cost of the plan per paycheck by the number of paychecks you get per year: 12 if paid monthly, 26 if biweekly, 52 if weekly.
Do a zero-expense test
Then turn to the high-deductible plan. If your employer contributes to a Health Savings Account for you, subtract that amount — say, $1,000 — from the cost of the premiums.
Compare the result for the two plans. The high-deductible plan is bound to be cheaper. The difference is how much you would save if you have zero health care expenses.
Clear the high-deductible hurdle
Next, try a test that is more difficult for high-deductible health plans: Consider what happens if your expenses are exactly equal to the deductible for each plan.
For example, say the low-deductible plan has an annual premium of $3,650 and a deductible of $1,000. You’d pay $4,650 if your bills equal the amount of the deductible.
By comparison, the high-deductible plan has an annual premium of $2,000 and a deductible of $3,250. You would spend $5,250 if you hit the deductible, except for one important thing: Your employer contributes $1,000 to your H.S.A., so your total costs only come to $4,250.
That is $400 less than the amount for the low-deductible plan.
So far, in this case, the high-deductible plan is a “no-brainer.”
Do it all again
Finally, repeat these steps, using the maximum-out-of-pocket limit for each plan in place of the deductible. If the high-deductible plan is still cheaper, it may be a “no-brainer.
That’s it. You’re done with the simple test.
A note of caution
Remember, these calculations are not perfect because there are complicating factors, such as how prescription drugs are covered in the two plans. Still, this is a good starting place for your comparisons. Your employer’s website may provide a plan comparison tool. See what it says. But, most important, consider your options instead of automatically taking a version of last year’s plan.
