The True Cost of Health Insurance


Health insurance can be loaded with terminology that leaves some of the most seasoned buyers intimidated. As a result, I routinely need to help the applicant become more confident by helping him or her understand the terminology. The terms I will review in this and successive articles are Deductible, Family Deductible, Co-insurance, co-insurance limit, out of pocket limit, family out of pocket limit, and stop loss.

Deductible is the amount that the insured pays out of pocket before becoming eligible to receive benefits from the insurance company. In the absence of a co-pay program, this amount begins with the first eligible medical claim. That is the key word, eligible, since ineligible expenses do not contribute to the deductible. When considering a policy be sure to review what claims would be covered subject to co-insurance and deductible. Also, when a doctor office copay plan is in place, many services become part of the copay plan, and thus are ineligible to contribute to the deductible.

Deductibles are commonly in two forms:

  • Annual total deductibles for each insured are the more common form. The family maximum deductible can be one, two or even three times the individual deductible.
  • Per-claim deductibles can cut premium, yet often increase out of pocket expense when there are multiple smaller claims by one person.

Deductibles can also be a one-deductible plan, where the family has a single deductible that all family claims contribute toward. The deductible might then reached by one single large claim, or many small claims, and is more commonly called a High Deductible Health Plan, and often attached to a Health Savings Account (HSA). There will be more on them in successive articles.

More buyers want lower deductibles to lower out of pocket costs. This can result in premium increases greater than the lowering of the out of pocket cost. In short, a pre-paid claim can be the result. An effective way to analyze your best deductible is to calculate this total for each possible deductible. The below example is for a 30 year old female whose claims have reached the maximum out of pocket cost:

Annual Deductible 500 1,000 1,500
+ Annual Coinsurance Limit 1,000 1,000 1,000
+ Annual Premium 1,378 975 839
Real Cost (Worst Case) 2,878 2,975 3,339


Now consider the same scenario for a 58 year old female:


Annual Deductible 500 1,000 1,500
+ Annual Coinsurance Limit 1,000 1,000 1,000
+ Annual Premium 4,276 3,485 2,973
Real Cost (Worst Case) 6,776 5,485 5,473


  • The 30 year old female should adopt a $1,000 deductible or higher, since the cost of large claims would differ by only $97. The premium increases $403 to lower the deductible from $1,000 to $500.
  • The 58 year old female should adopt a $1,500 or higher deductible. Again, going from a $1,500 to $1,000 increases the premium by $512. So why would she pay $512 to get back $500 in increased benefits >if there are claims that large?>

The trend in health insurance is toward higher and higher deductibles in an effort to hold premiums to a more acceptable level. Analysis of appropriate deductible is one of the keys to getting efficiency in the premium dollars you spend.

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