Thinking About Health: Cheap insurance premiums may lead to high health care costs
December 5, 2014
Here's your assignment for the coming weeks: Predict what health calamities you are going to face during 2015. Impossible, right?
Yet, in the next few weeks most people will have to choose insurance coverage for next year. Whether they get a health plan from an employer or from a federal or state shopping exchange, one big thing they have to consider is how much insurance coverage they are likely to need.
You may tell yourself, "I'm healthy and will have few expenses so why not pick the cheapest plan with a high deductible?" only to learn a few months later you need chemotherapy to treat a melanoma.
Most people can't assess risk very well, and that's why the task of selecting new insurance is like throwing darts on a board.
So far most of the advice for Obamacare policies has focused on the premiums themselves. Are they higher or lower than last year? Are the average "benchmark" plans on which Obamacare subsidies are based higher or lower? As I've noted, average premiums don't mean a lot to people faced with estimating their health risks for next year. They buy higher or lower premiums usually based on a guess of what their medical needs might be.
According to data released by the federal government a few weeks ago, many Americans could face premium increases of as much as 20 percent if they keep the same plan they had this year.
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In about one-fifth of the counties in states using the federal exchange, premiums for the lowest-priced silver plans — the ones designed to cover only 70 percent of your medical expenses — will increase by 10 percent or more. That includes large parts of Nebraska and some counties in Indiana. In most parts of South Dakota, rates for the cheapest silver plans are going down. Insurance companies make those decisions based on their marketing strategies.
No matter where you live, the premium tells only half of the "what-you-pay story." The cost sharing the carrier requires is the other half. Most of the cost sharing comes in the form of high deductibles, the amount a person pays before insurance kicks in. That can be as much as $4,000, $5,000, even $6,000 per year for an individual; more for a family plan. Copays and coinsurance for particular services like diagnostic tests, outpatient surgery and urgent care centers also figure into the mix.
This all gets tricky. I looked at two gold policies from different insurers considered by a friend in New York City. Gold policies pay 80 percent of your expenses. She wanted to know how much her husband would pay for rehabilitation services he's likely to need after having knee surgery.
With one plan, he'd have to pay 20 percent of the rehab bills after he pays his deductible. From another he'd have a $30 copay for each visit also after satisfying the deductible. Which plan is better? To answer that, he'd have to consider these kinds of trade-offs for many other services he's likely to need in 2015. So you see how complicated choosing a policy becomes.
It comes down to how much risk you're willing to assume and how much you can pay. In general, the more risk you take on, the cheaper the policy, but the price tag could be steep if you get sick.
This fall The Commonwealth Fund, which funds the Rural Health News Service, released results of a study that showed what happens when consumers have high out-of-pocket costs. About 20 percent of people in the 19-to-64-year-old age group who were insured all year spent 5 percent or more of their income on out-of-pocket costs. That's in addition to their premiums.
What were the health consequences? The Fund reported that 60 percent of those with low incomes and half with moderate incomes had trouble affording their deductibles. And nearly half of those with incomes under 200 percent of the poverty line, or about $23,300 for a single person, delayed or avoided getting needed care because of coinsurance and copays.
My bottom line advice: Keep all this in mind when you select a new plan this year whether it's from an employer, from an exchange, or simply from some friendly agent down the street. Cost sharing adds up. The old adage that you get what you pay for applies to health insurance, too.
The Rural Health News Service is funded by a grant from The Commonwealth Fund and distributed through the Nebraska Press Association Foundation, the Colorado Press Association, the South Dakota Newspaper Association and the Hoosier (IN) State Press Association.