When you enroll in a benefit that requires you to pay for it—like medical, dental or vision—your premium comes out of each paycheck to spread the cost of coverage out over the year. This dollar amount you pay to be covered under the plan depends on:
- the plan you choose, and
- how many people you cover
Trade-off: out-of-pocket costs
Premium vs. Deductible
Much like car insurance, there is usually a trade-off: you can pay more each month to have coverage and pay less when you need care (higher premium, lower deductible); or you can pay less each month to have coverage, but pay a higher price when you need care (lower premium, higher deductible). As an example, say you have two medical plans to choose from: a traditional HMO plan and a high deductible health plan (HDHP). HMOs are known to offer great financial protection when you are sick and need to see a doctor. (There are potential drawbacks—you have to use doctors from a limited network and have your primary physician coordinate all care—but that’s neither here nor there.) The point is, these plans usually come with a higher price tag because your costs are so limited when you seek care. In an HDHP, it’s just the opposite: you pay a smaller, steady amount to have the coverage, and when you need to see a doctor you’ll pay more out of your pocket. (In an HDHP, you pay the full cost of most services until you’ve reached the deductible, which, as the name implies, is high.)
The insurance companies know that the overall cost for the plan (premiums and all out-of-pocket costs) for two people who have similar health care needs will eventually even out. So, you should decide what works better and is more comfortable for you. If you’re ok paying a hefty premium because you don’t want to worry about spending as much money at the point of care, you should consider a plan with a higher premium and lower deductible. Would you rather preserve as much of your paycheck as possible and maybe have bigger bills when you seek care? Look for a plan with a lower premium.
Keep these things in mind:
- Your premium is the steady, predictable cost for coverage. You pay the same premium whether you visit the doctor once for an annual physical or you get inpatient hospital treatment for cancer.
- It’s not only about the premium and deductible. When reviewing your options, take all potential out-of-pocket costs into consideration.
- It’s important to look at the out-of-pocket maximum. Are they similar between your plan options? (This is the cap—the most you’ll pay for services. It gives you true financial protection because if you reach it, the plan pays 100% of your eligible expenses for the rest of the year.)
Questions to ask yourself:
- Does your spouse have the option to enroll in a health care plan (medical, dental or vision) through his or her employer, or as a retiree? If you have kids, would it cost you less to cover them under your plan or your spouse’s plan?
- Do you have a condition that requires special or frequent care? (For example, have you been diagnosed with diabetes?) If so, to what extent are those services covered?
- If you have more than one option, what will your out-of-pocket costs be under each option?
- Are you more comfortable paying a higher steady, predictable amount (your premium) to ensure you don’t have large out-of-pocket expenses when you need care?
- How often do you use your benefits? If it’s not often, you may want to consider going for plans with a lower premium, then paying a potentially higher amount when and if you do need care.
- Are you willing to use in-network providers to save money? Is your primary doctor in the network?
- How much money could you save by contributing before-tax money to a Health Care Flexible Spending Account (FSA) or Health Savings Account (HSA)? These accounts don’t affect your premium, but they can help you spend less out of your pocket when you need care or prescriptions.