Shopping for health insurance (part 3)

On Monday we talked about the fat, dumb, and happy path we took when we got our health insurance from our employer.  On Tuesday we talked about how insurance works and what are the shoals you have to navigate through.  Today, we’ll talk about how the Fox family is going to go forward.

 

 

What we have been spending on health insurance in the past

Let’s look at what we’re going to do and how that impacts us financially.

First, let’s remember what we’ve been paying when covered by traditional, employer-sponsored health insurance.  We directly pay about $1,100 per month, plus the company pays about $1,200 per month.  Remember that $1,200 is really your money.  Your employer doesn’t give that to you out of charity.  You earn that money and you are paid that in the form of subsidized health insurance.  Add those together and it’s about $2,300 per month which comes to about $28,000 annually.

Plus, you have to add all the copays and deductibles.  I track this stuff because I am a nut.  Going back to when Foxy and I got married in 2010, we typically spend about $1,200 each year on copays.  However, there were two years where it was closer to $4,000.  That’s when ‘Lil Fox had to be hospitalized for croup.  More on that scary episode in a second.

Our average premiums were about $28,000 each year, and our out-of-pocket is about $2,000 each year, knowing some years are higher than others.  That’s $30,000 each year that we were spending on health insurance, not that far off from what Obamacare was going to charge.  I had no idea I was spending so much.  I just barfed in my mouth.

 

What we’ll end up doing now

After extensive searching, we found a really good policy from United Healthcare that costs about $500 per month.  It gives us access to their negotiated rates which is the most important thing, and then it covers certain things up to a set amount.

For example, it covers a regular doctor visit up to $100, after which I am responsible for the excess charges.  As I said, figuring out negotiated rates are really hard, but I think on average a doctor visit with the negotiated rate is about $150.  So, I would pay the $50 not covered.

This stuff is really confusing, but looking at all the coverage I figure that I would pay a bit more under this plan than I would in copays under the traditional employer-sponsored plan (or Obamacare which looks a lot like a traditional employer-sponsored plan).  But you can pay for a lot of copays with an $1,800 per month difference in premiums.

With this coverage, we get #1 and #3 of what insurance coverage offers.  But we’re missing #2 which is that protection from some catastrophic medical event like a car accident or something.  For that we can get a supplemental policy that costs about $100 per month and it covers us for any expenses that exceed $15,000 in a three-month period.

That ensures that if tragedy strikes in the form of a car accident or a fire where one of us are stuck inside or . . . I don’t even like thinking about this.  You get my point.  If something really bad happens and one of us (or all of us) is in the hospital for a long time and the medical bills really rack up, we’ll max out at $15,000.

 

How we’ll probably end up ahead

Good news.  We get all our coverage—access to negotiated rates, typical coverage of basic stuff, and protection against catastrophic costs—for about $600 per month or $7,000 per year.  That compares pretty favorably to the $28,000 in monthly premiums from my employee-sponsored plan (or even the $1,100 per month or $13,000 per year that was my portion, but again make no mistake that I was paying for both portions).

There’s no questions that our out-of-pockets will be higher now than they were before.  Typically, we spend $2,000 per year on that stuff, so let’s say it doubles to $4,000 per year (about $350 per month).  That’s a lot of money, but we’re still ending up way ahead because although we spend an extra $2,000 on out-of-pockets we are spending about $21,000 less on premiums.  That’s a huge windfall.  $21,000 a year is enough on its own to fund a nice retirement (about $5 million over a 40-year investing lifetime!!!).

Of course, those numbers assume we’re pretty healthy and don’t consume a ton of medical care.  Let’s say Foxy and I each get our annual check-ups, the boys go twice a year, and there’s one ER visit and a couple urgent care visits thrown in for fun.

But what if catastrophe happens?  After all, that’s the whole point of insurance, right?  God forbid we have a repeat of 2013 when ‘Lil Fox was in the PICU for 4 days with a nasty case of croup.  At the time we were covered under my Medtronic insurance and the total cost was about $32,000 of which we had to pay out-of-pocket about $4,000.

Those are some big numbers.  But let’s say that we were on the hook for the whole $28,000 (instead of just the $4,000).  First, we’d be helped out by the catastrophic coverage, so we’d only pay $15,000.  Given that we’re saving about $22,000 annually on premiums we’d come out about even.  Bear in mind, we’ve had kids for seven years now (including in utero), and that one event was the biggest medical issue we’ve had.  If at it’s worst we break even and then all the other years we come out way ahead, that seems like a winning combination.

 

How we’ll change our behavior

Given that the plan we’ll get is pretty bare-bones, there’s a much closer link between the healthcare we actually use and what we pay out-of-pocket.  This provides a lot of transparency which is actually a good thing (basically what my friend Oguz said in a comment on Tuesday).  One of the big problems is that when things are “covered” by insurance and people don’t have to pay for it, they use a lot more.

For us, we’ll pay when ever we see a doctor or get a prescription.  That will make us more selective of when we actually go see a doctor.  If Mini Fox has a cough (which he actually does right now), we’ll probably wait an extra day or two before going to the doctor (which we are in fact doing right now).  Maybe that sounds like terrible parenting, but actually most experts agree that people are hypochondriacs, and waiting a bit gives your body the chance to heal.  We’d never put our family in harms way, but the body does have the ability to heal itself pretty miraculously.  We’ll take advantage of that.

Also, we’ll be more mindful of using the most expensive types of care.  The most obvious example is an emergency room versus an office visit or urgent care.  If you don’t pay the costs, it doesn’t matter and most people will do the quickest thing they can (ER).  However, if you’re paying for it, you’re a lot more likely to have the inner dialogue at 11:30pm when you’re kid is puking: “Do I really need to go to the ER or can I wait until morning and go to the urgent care?”

Those are the little things that can save the healthcare system a ton of money.  But we as consumers only think about it when we have skin in the game (again, to Oguz’s point).  Now that we’ll have a more bare-bones policy, we’ll be thinking about that, and it’s a good thing.

 

There are bargains to be had

Another major benefit of the bare-bones coverage is that with less things “covered” we’ll need to shop around more for our medical treatment.  We’re becoming more engaged in the process which is a good thing.  Also, this allows us to actually find some major bargains out there, and who says “no” to getting better quality while paying less?

There’s a fun little procedure a fox can get when he doesn’t want to have any more cubs.  Vasectomies are covered under most plans.  The total cost is very opaque (again Oguz’s point on transparency), but the typical out-of-pocket was about $200.

However, there are clinics that don’t accept insurance and are only cash pay.  I must say they seem A LOT nicer.  The receptionist answers the phone by the third ring, not after you’re on hold for 20 minutes (literally, I’ve had that experience).  The facilities are beautiful and totally modern.  They do the consult and the procedure all in one meeting which is awesome.  Everything is better.  All for the low cost of $750 which you pay with a credit card at the time of the procedure.  Bear in mind, the monthly premium for coverage that covers vasectomies is $2,300 per month and the premium for the plan that doesn’t cover vasectomies is $600.  Simple math to me.

This very similar example can extend to all sorts of stuff like Lasix.

Another example close to our heart is speech therapy.  That’s an optional piece of healthcare which is also fairly predictable, so it doesn’t fall under the traditional definition of “insurance”.

Under our employer plan (and Obamacare as well), we could sign up with an approved provider.  The list price was $200 per 45-minute session, and the negotiated price came down to $150.  Our copay was $50.

I ended up talking to a guy who used to give us speech therapy (so he’s licensed and the same high quality).  He left his company that was covered by insurance and went out on his own.  He and I came up with an awesome deal.

His previous company would charge insurance $150 of which I paid $50.  He actually got about $30 per session.  He and I agreed to cut the middleman out.  We bypass insurance, and I pay him directly $40 per session.  He comes to our house to do the speech therapy which is a ton more convenient, plus he does it for 60 minutes because he’s hustling and wants the business.  Everyone wins.

He makes more money, I pay less, and we get a better-quality product.  This only happens because I go outside the health insurance paradigm and used that awesome thing in capitalism called competition.

 

There you have it.  After 4,300 words in three parts, you now have a sense for how we are handling our health insurance.

Having to do it on our own, away from the protection of an employee-sponsored plan was a bit unnerving at first, but after I went through it all, I’m actually fairly optimistic.  I’m still going to get great healthcare (and the speech therapy and vasectomy examples show that maybe even better quality), all the while saving a ton of money.

Remember, that each month we’ll save about $1,700 in premiums.  Maybe we’ll pay an extra $200 per month in copays, but still that’s $1,500 to the good each month.  That is HUGE, coming to about $5 million over a typical healthcare consumer’s investing lifetime.