Health Care Plan Elections

As much as possible I intend to have the advice I provide here be based on my own personal real-world experience. I think this is in most cases the only way for me to know for certain how things work, and it also goes a long way toward "backing up the talk". Not coincidentally, this is one of my largest issues with using a financial planner -- but I'll save that discussion for another time.

While working on my yearly health care plan elections this past week, I realized health care elections are a place where a large amount of yearly expense dollars are decided with much less than the appropriate amount of thought or calculation.

A fundamental problem with managing money is when people use anything other than pure mathematical and logical analysis. Letting emotions or "feelings" guide your money is almost certainly a recipe for disaster. However, health care plans are sufficiently large and convoluted enough that most people, myself included in the past, just take them at face value. In my personal case I have the choice of 2 plans. One is a PPO (preferred provider organization) and the other is a major medical plan.

Most would assume that the major medical has bare bones coverage, and that you should only choose it if you are single and healthy, and don't expect to be at the doctor for small things. Essentially, treat it as the liability-only coverage on an automobile. You (and by "you" I mean me before I started by analysis) would absolutely assume that if you were going to have known, large expenses such as having a new baby that PPO is the only way to go. The numbers don't lie though, and in this case they tell me that most of the time major medical is the way to go.

The main kicker here is the drastically different premiums for the 2 policies. You might have slightly better coverage and lower deductibles on the PPO plan, but you get socked with a more than doubled premium. That is money you are out no matter what. The other subtle point that is easy to miss is when calculating how bad your out-of-pocket (OOP) could be, it should be noted, at least with my plan, that out of pocket calculations don't start until after you have met your deductible. Thus, a true OOP maximum is the sum of your premiums + plan OOP maximum + deductible.

I created a spreadsheet to calculate the break-even point, where it made sense to switch to PPO. It turned out for my plan to be at around 55,000 in medical bills. I'll take the gamble that I won't hit that, and I filled out my plan to be major medical.

You can see my spreadsheet here (you'll need a Google account). It should be quite simple to tailor it to your specific plan as well. If you have a Google account, you'll be able to either directly edit the spreadsheet from within Google Documents, or save a copy (in a format such as Excel), and work on it off line. Unless I find something different, this will be my preferred method of including spreadsheets and other documents on this blog.

UPDATE:
Another truth about finance -- double-check all of your figures. I had started with a hard-coded value in my spreadsheet for co-pay percentage, and later changed it to reference a cell...or so I thought. My original co-pay numbers were far too low, skewing my results.

All of my above thoughts are still valid. However, it now does make sense for me to use the PPO plan, given that I know that I have substantial hospital bills coming this year. The break-even point for me now is around $8,500 in bills.

I have updated the spreadsheet for those interested.