PostHeaderIcon It’s Not All About the Premiums

The below article was published by The New York Times.  It was written by Paul Downs, who kindly gave me permission to re-post his article in my blog.

There is a lot to learn and understand about insurance selection and medical claim payments.


This is the second in a series of posts about Paul Downs’s efforts to buy health insurance for his small business.

The Affordable Care Act’s metallic levels — platinum, gold, silver, bronze — offer buyers four different ways to pay for health coverage. One can choose to commit to paying higher premiums (platinum and gold) or to minimizing premiums (silver and bronze) and taking a chance on having to pay higher out-of-pocket costs when medical care is needed.

A year ago, when my company’s policy was up for renewal, I was surprised to learn that the policy I had bought in 2012 offered gold-level coverage. My perception was that the coverage that I had been buying for myself and my employees had been of low quality, as I had been changing plans every year for a decade, accepting enrollment in an HMO and an annual increase in co-pays, in a failed attempt to keep premiums down. (From 2001 to 2013, my premium costs tripled.)

As an experiment last year, I decided to enroll my family in a cheap plan: Independence Blue Cross’s PPO Bronze with HSA. This is a plan with a high deductible ($3,000 individual and $6,000 family in network – and triple that for out-of-network care), significant co-insurance after the deductible is met (50 percent for most procedures) and a high out-of-pocket maximum ($6,350 individual and $12,750 family in network, triple that out of network). In other words, a skimpy policy.

But the premiums to cover my family (I’m 52, my wife is 51, I have 19-year-old twins and a 17-year-old) were the lowest I could find for a policy with a health savings account: $1,073.28 a month, or $12,879.36 for the year. Premiums for a platinum plan of the same type and with the same network were much higher: $1,641.09 a month or $19,693.08 a year. The gold level plan, with some co-pays but no deductible, cost $1,513.22 a month or $18,158.64 a year. If these premiums seem high (or low) to you, keep in mind that they are determined by adding up the premium for each family member. They would have been much lower if we were all younger (and higher if we were older).

The difference in premium cost between the bronze and gold plans was $5,279.28, which was less than the deductible for the bronze plan. But if my family didn’t go to the doctor very much, we could end up thousands of dollars ahead. And if we did? Before I made my final decision to go with the bronze plan, I labored mightily to get some idea of what routine visits to the doctor might cost — without much success. In the end, I decided to roll the dice and see what happened. And now we’re 11 months into the year, and I can report what my “cheap” plan has cost me.

I decided early in the year to pay attention to my out-of-pocket costs, and started keeping all of the Explanation of Benefit forms that Independence Blue Cross mailed to me. I also kept all of the many bills I received from health care providers. Recently, I organized all of this information into a spreadsheet. It took me about six hours, over two evenings, to enter all of the transactions, covering the first 10 months of the year. It was not possible to simply download this information from my insurer’s website — I had to examine each E.O.B. carefully and then enter the details manually. When I finished, I had a financial portrait of a moderately eventful year in my family’s health history.

My wife and I are both what you would call healthy — no chronic conditions, neither of us smoke, we get regular exercise, we each have one drink a day, and neither of us is obese. My sons are active, healthy teenagers. Two of them are runners, and the other (who has severe autism) lives on a farm and works outdoors much of the day. My wife cooks for us most evenings, and we eat a balanced diet. So there’s no obvious reason we should be going to the doctor any more than an average person.

And yet, so far this year we have ended up in a doctor’s office 25 times. Most of those visits were centered around three events: My wife had a colonoscopy in January, my youngest son hurt his knee playing Ultimate Frisbee in April, and I decided to see why I was suddenly having heartburn and had an upper gastrointestinal endoscopy in October. The colonoscopy and endoscopy were simple, three-hour procedures performed in a non-hospital setting, but they did involve anesthesia.

The knee problem was much more involved. It started with a visit to our regular doctor, then an orthopedist, then an MRI, then back to the orthopedist, then a morning in surgery (with anesthesia) that didn’t fix the problem. So my son went back to the specialist in the fall, with another trip to the MRI. Twelve visits in all. Other than those things, my wife went to the gynecologist and I got a flu shot. We also used various prescription drugs.

Laying all of this out on a spreadsheet, some things jumped out at me. First of all, the list price, or the sum of what the health care providers billed to Independence Blue Cross, is a very large number: $63,878.42. Presumably, if I had had no insurance, this would have been my responsibility. Maybe I could have negotiated it down a bit, maybe not. Twenty-three of our 25 doctor visits were with providers who are part of the Penn Medicine network, but I still received bills from 14 different entities, and without insurance, I presumably would have had to dicker with each one. I have no idea how that would have gone, and I never want to find out.

The fees negotiated by Independence Blue Cross for all of the services I received amounted to a substantial discount. They managed to knock $38,685.38 off the list price, for a resulting cost of $25,193.04. The insurance company split that cost with me per the provisions in my bronze plan. My portion, not including the premiums I paid, currently totals $9,648.65, or 38.3 percent of the $25,193.04 that Independence Blue Cross has paid out.

Were the out-of-pocket costs a problem for me? No. I’m a prudent person with above average income, and I keep cash on hand to cover unexpected expenses, even of this magnitude. I do wonder, though, how easy it will be for people like my employees to manage out-of-pocket expenses. How many people in the median American household, with an income of $53,891, have an extra $10,000 lying around?

What if I had chosen another policy: gold or platinum coverage? If you add my premium costs to my out-of-pocket expenses, my total expenditures under a bronze plan so far this year have been $23,160.49. Would the sum of my premiums and out-of-pocket costs been higher or lower with a gold or platinum plan? Unfortunately, I can’t answer that question. I have the plan descriptions from last year, but I have no way of knowing whether the negotiated price for the procedures is the same for all metallic levels.

What does all of this mean? As boss, I’m supposed to make decisions about what policies to offer to my employees. Some have families and some don’t. Some are younger, some are older. Some make more money, some make less. Conventional wisdom is that bronze level policies are good for people who don’t go to the doctor. My experience suggests that this is true — if we had required no care, my choice of a bronze policy would have saved me a lot of money. But even though we’re all healthy, that’s not how things turned out.

Which leaves me asking: Should I recommend bronze policies to my younger, healthier workers? Only if I can be sure they won’t injure themselves doing the things that young people do. The largest portion of my out-of-pocket expenses came from my son’s knee injury. That incident, and all of its associated care, had a list price of $36,060.96, a discounted price of $9,931.85, and a cost to me of $6,874.24. I was able to pick up that cost. Would my younger employees have that money on hand?

My take away: Even though the premium costs are much higher, there’s something to be said for the gold and platinum plans. I’ll probably switch to one for next year — and recommend that my younger employees who buy bronze think about where they might find a pile of cash if they have bad luck.


Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.


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