What I mean by the question is, in the long run, does it really make a difference which plan one picks? (Just considering plans from a single company.) Are they all just different ways to spread out the very same amount of profit over time? Or are some of a company’s plans genuinely likely to tend to profit the company less (and the customer more) over time?
Of course, the answer could be different for different companies.
If there really do tend to be genuinely better and worse plans out there, how does one determine which they are?
Some plans are much, much more profitable for health insurance carriers than others. Some are more profitable in the short run than the long, some are more profitable in the long but lose money upfront, some are losers across the board and get axed, and some are profitable for an extended period with no serious fiscal downside to the insurer.
As a general rule:
The more moving parts a plan has (multiple copays, different coinsurance percentages) the less profitable it will be in the short run due to administrative costs but themore profitable it will be in the long run (these plans tend to have higher limits before 100% insurance payment kicks in).
The fewer moving parts a plan has (simple HSA plans for example), the more profitable it will be in the short run (very low admin costs). These plans tend to stay profitable for the life of the policy, but don’t consistently make as much as the above noted type.
Extremely gimmicky plans (with stupid extra benefits like “we pay 80% of your physical exams twice on Tuesdays except when Pluto is in the House of Saturn, and for any acupuncturist whose last name begins with ‘Warf’”) are very profitable in the extremely short run but usually bust out and lose money in the mid-run.
Catastrophic plans (for example, a $10,000 deductible with no benefits before meeting that limit but 100% coverage afterwards) are almost pure profit.
As far as determining “good” and “bad” health insurance plans, there’s no simple answer. The best rule of thumb is to make sure there’s a cap on how much YOU can pay in a year, but not how much the INSURANCE COMPANY can pay. For instance, a plan that says your maximum out-of-pocket is $3000 for the year and has a lifetime maximum benefit of five million dollars is good. A plan that says your maximum out-of-pocket is $10,000 and the insurance company’s maximum payout is $100k per year is very bad. Also keep an eye on prescription drug coverage - make sure that all types of drugs are covered and that there’s no maximum benefit cap on that.
I don’t know whether some plans are better for the insurance company than others. Perhaps they have worked such things out statistically.
But I know for sure that, of the choices offered at my company, some plans were DEFINITELY better for us as a family than others. I made the equivalent of a spreadsheet inputting the amounts for premiums coming out of my paycheck, deductibles, co pays, etc., based on how much we expected to see doctors this year. To come up with an approximated total medical expenditure for the year for all the plans. And they came out very different.
This doesn’t seem sufficient to me. Wouldn’t you need to include calculations based on the chances of various medical contingencies, expected payouts for those contingencies, and so on? (As a simple example to illustrate, I mean for example including the probability that you’ll be diagnosed with toe cancer this year, together with the expected costs attendant on that diagnosis over subsequent years and so on.)
Which, of course, almost no one actually has the knowledge and resources to calculate. That’s how the insurance companies can make a profit…
But just adding up expected medical expenses and comparing the treatment of these expenses between various plans, it seems to me, won’t get you the right answer. You might find that a plan looks very very good by that criterion–but does very very poorly once unexpected things start happening.
The key would be, I guess, making nothing “unexpected” by knowing in advance all the relevant probabilities and costs. Which is impossible.
When you say “profitable” you mean for the insurance company, right?
Seems like sound advice. I’ve never seen a plan that puts a yearly cap on benefits though! :eek:
It’s frustrating. I can say how much I can afford in premiums. But that doesn’t determine a particular plan. I’m tempted to go for the simplest one–basically the catastrophic type, where nothing’s covered before the deductible is met, then everything is covered–just because simple things are easier to think about. But of course that’s hardly a good way to think about finances, usually–and as I suspected and as you seem to confirm, the simplest plan is actually the worst plan for the customer in terms of profit/loss.
So I was hoping for some way to actually be moved by rationality and math here, rather than be moved by concerns like “simplicity” and “fear” etc. I’m starting to convince myself this can’t be had without getting a PhD in statistics, though. :(
Yes, I mean profit for the insurance company. But they cost almost nothing, which is why for lower-income families they’re still an excellent strategy - yeah, a $7500 deductible is high. Heck of a lot easier to pay $7500 on a $500,000 open heart surgery and CCU stay than the full nut, though.
Don’t get me wrong - just because an insurance company profits on a plan, that doesn’t mean it’s a bad plan for a consumer by definition. Some of the most profitable plans for insurance carriers provide excellent coverage. I read your OP as a question about business practices, not plan selection and I apologize if I muddied the waters.
Are you selecting a plan from a set of options presented by an employer, or are you shopping in the individual market? I have also assumed you’re in the US, as that’s where my experience lies.
It’s sufficient for us because, as the parents of a newborn baby, we already KNOW that we will reach the maximum out-of-pocket cost for the medical plan, whatever that is. (Actually, it’s about $4000 under our plan.) Any additional medical service we need, even if we are diagnosed with cancer, would be completely covered.
Sorry, I can’t remember exactly why I phrased the question the way I did (something about avoiding some kind of awkward wording) but you’re right that what I was really interested in is long term cost/benefit ratios for the consumer. I was assuming that less profit for the company means better benefits in the long run for the consumer, but I wasn’t thinking about things like varying administrative costs etc.
Looking around in the individual market. I do live in the US–Indiana to be specific.
Would you mind telling me who you’re insured by? I ask because we’re looking at maternity options as well, and the two plans I’ve already examined sort of “magically” end up costing just about as much (when you add together additional premiums, costs befor deductible, and so on) as it would cost just having a baby uninsured. (“Magically” in quotes because I assumed this was just the result of careful calculations on the insurance companies’ parts…)
The two plans I’ve looked at with maternity coverage don’t allow the maternity coverage to actually kick in until a year or so down the road. Was your plan like this as well?
It is indeed the result of careful calculations on the insurance company’s part, and here’s why: nobody buys maternity insurance just for the heck of it. That stuff is expensive, so if you’re buying it it’s because you are hell bent on having a baby. That means that there will be a cost down the line for medical services, and that’s one of the very few times an insurance carrier can know with a high degree of accuracy when and where the cost will come from.
So one of four things happens:
You get pregnant, deliver the child, and all is normal. Your premiums, as you stated, just about equaled the cost of paying out-of-pocket for a delivery. You break even.
You get pregnant, but due to some circumstance you have a planned c-section. The cost of this is usually 3-5x the cost of a normal delivery and is covered by your maternity insurance. You come out way ahead.
You get pregnant and have to have an emergency c-section. Tricky beast, that - depending on who’s doing the billing, it can either all go to medical insurance or mostly to medical and partly to maternity. You lose money by having maternity insurance in this case, but such an event cannot accurately be foreseen.
You never get pregnant, or miscarry, or whatever. You never use the benefits for which you’ve paid. You lose money.
Most people will simply break even, and that’s okay. You were going to pay that money anyway, at least in this case it gave you an extra safety net for a planned c-section.
Additionally, as you stated, most plans will not provide full maternity benefits for the first twelve months (conception included). This is a near-universal practice. Some plans kick in after 90 days, but since I’m not in your state I don’t really know what’s available there.
My insurance is a Cigna PPO, one of the choices offered through my work. I think it’s called “Open Access Plus”. They’re OK, though I certainly have had some minor issues with their claims processing department. But the plan covers maternity, which we obviously needed. Considering the scenarios listed by Soul, we had a planned c-section, so the insurance was a great thing for us.
ETA: I’m not sure about any aspect of coverage requiring a waiting period. That may be because this insurance is through employment, not through me as an individual.
Insurance is always profitable, because they will simply shift the costs at renewal.
For instance on a group plan if one heart attack is costing an extra $100,000 a year, when the plan comes up for renewal, that $100,000 is applied to all the members of the plan the next year.
This is a little bit oversimplified. Most groups are placed on a tiered rating scale; depending on the carrier, you may have anywhere from nine to twelve tiers. You can start off in Tier One (a “supergroup” with no adverse medical conditions, everyone’s young, etc) and move to a higher tier on renewal if you have some serious medical stuff happen within the group.
Each tier represents a 5-6% rate increase and carriers will almost never move a group up more than 3-4 tiers at a time. Renewals always go up as the average age of the group generally increases and small, ongoing claims begin to add up, but carriers only very rarely penalize a group for one-time “shock claims.”
Nitpicky, I know, but it’s not just a flat “let’s recoup what we paid out with a rate hike” formula.
