Tuesday, January 16, 2007

Deciding which health insurance to use

My company offers two options for health insurance: a low deductible, high premium plan (BCBS Plan L) and a high deductible HSA plan. Fiance uses Plan L, and I use the HSA. (Obviously, we work together.) Wouldn't you know it that I'm the one with biopsies and ambulance rides this year? Shucks.

So just for giggles, I calculated the point at which the HSA saves money versus the low deductible plan. We are allowed to switch plans only once per year, in January, and I did this a few weeks ago, to see if it would be more cost-effective for me to switch.

Executive summary: If you have either very few healthcare costs, or ruinously expensive ones, the HSA is the plan for you. If your costs range from about $1-6K, stick with your low-deductible plan.

First, the parameters:
The deductible for the Plan L (called L hereafter) is $500, and the premium is $71.63 per week (paid before taxes from a cafeteria plan our employer has set up). This plan pays 80% of all costs above the deductible. All of your payments, the deductible and the 20% match, are paid in post-tax money.

Out-of-pocket payments for L, therefore: $3,725* + $500 + 20% of all costs above $500 + income tax on deductible & matching.

*yearly premium: $71.63*52.

The deductible for the HSA is $2,250, and the premium is $55.15 per week (also from pretax monies). Once the deductible has been reached, BCBS pays 100% of costs. You can also set aside, pre-tax, up to $2,250 (some plans allow you to contribute more than your deductible; ours doesn't). Unlike flex spending plans, this money is always yours. If you don't have any healthcare costs, just invest the money and let it sit there until you're old and infirm. You can also spend this money on almost any health-related expense: over-the-counter medicine, dental work, LASIK...pretty much anything but plastic surgery.

Out-of-pocket payment for HSA: $2,867.80 + up to but not over $2,250.

Here, have a graph:

The first crossover point is as healthcare costs pass about $1,250 (with data points at every $250). Until that point, the HSA is the better choice. From then until healthcare costs pass $6K for the year, L is the more economical vehicle.

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