I’ve been thinking about cancelling my employer-provided health insurance because it seems to be ridiculously expensive. I pay about $9500 before taxes for my portion of a family health insurance plan. I’m done having kids and the only predictable expense we have right now is the cost of my son’s allergy treatments (a six-month check up and monthly shots).
How can I accurately calculate what my insurance plan is costing me in after-tax dollars? Do I multiply the pre-tax amount by my effective tax bracket? I want to see if getting insurance on my own is going to save me any money.
I’d be willing to bet that your tactic is futile. I’m in the health insurance shopping mode and for a family plan the costs for insurance with a decent company seem to be between 20K and 40K a year.
If you want to lock yourself into a very restrictive HMO you might find a lower cost but if anything doesn’t comply with their restrictions you are going to get socked.
If anyone has a strategy please chime in. I’m frustrated and listening.
20K and 40K? Where are you looking? I have found a few plans with a max OOP of 10K or 12K with premiums in the $300 per month range. If I hardly ever go to the doctor, I would think this plan would be economical for me.
If you can join a professional group some of them have group rates that are pretty good. One example would the American Society of Mechanical Engineers. (ASME) Those groups are worth looking into for health insurance. They cover people who work on their own and they can still get group rates.
Don’t forget that your contributions to an employer provided health plan are pre tax and if you buy your own insurance they are not. That makes a huge difference.
If it helps any, the last time we had to buy our own family insurance it was nearly $1000/ per month in premiums, did not cover any preexisting conditions, did not cover prescription drugs, and had a deductable of $2000/ person with a $6000 maximum for the family.
In after tax dollars you’re health plan is costing you less. Just take your last year’s taxes and add that amount to your bottom line and look at the new amount on the tax chart because when you get your own insurance the premiums can’t be paid pretax and you get no deduction for them. You can’t even include them in in your healthcare payments to see if you qualify for the over 8% of your income deduction.
I understand that these are pre-tax dollars hence the question in the first place. I want to know what my after-tax equivalent is so that when I shop for another plan, I can make a fair comparison. Also, I pay little to nothing in actual medical expenses (i.e., we rarely go to the doctor) so even a high-decutible plan won’t make much difference to me.
I’m not sure I understand what you mean about last year’s taxes. Are you saying what I paid for my taxes or what my initial tax bill was before any deductions?
Again, I’m just looking for a basic formula to determine what my after-tax equivalent of my pre-tax payments is. I am not looking for opinions on whether or not I should get my own health insurance. The point here is to make that decision myself by doing some shopping but I need to be able to do an accurate comparison.
(Disclaimer: I don’t work in health insurance directly, but one of my clients is a major health insurer.)
It’s going to be a difficult comparison to make, but, it’s very likely that you won’t be able to get a comparable policy as an individual for anything close to what you pay for your policy through your employer.
The policy you get through work is a group policy, and thus, because the actuarial risks are spread out among you and your fellow employees, insurance companies are willing to charge a lower per-person rate. In addition, odds are that your employer foots a portion of the premium themselves; what you are paying is likely not the entire premium amount.
When you buy health insurance as an individual, you don’t benefit from the “group” concept, and you don’t have the employer paying in. You’ll find different rates if you shop around, but many of the lower-cost (relatively speaking) individual policies are from less-reputable companies, have a lot of exclusions, and / or are accepted by relatively few providers.
I do work in the health insurance business so I already know all of this. I am prepared to do all the research and run the numbers, I just need to be confident that my numbers are accurate. I want to compare my expected out-of-pocket expenses (premiums, copays, deductibles and expenses) for various plans including the one I have through my employer.
The other thing to know about me is that I work for a very small company. It’s not like working at some large corporation where there is a large enough risk pool that my premiums are considered “cheap”. There are only about 50 of us in my company. Plus I work remotely so I am forced to get the more expensive PPO option because there are no in-network providers in my area. I cannot believe that I am getting the best deal in insurance so I need to do some shopping to be sure.
Can you afford to pay for any medical care without health insurance?
If you buy a $300/month plan, & then suddenly really do need insurance, you may find your co-pays are so much higher that it’s like not having insurance at all.
I will take this into consideration when shopping for a plan because I can try to find a plan with an out-of-pocket max that I can afford. For example, I’m looking at one that has a $300/month premium and a $5000 deductible. I need to determine if that is going to save me money in the long run. Of course, there is always the possibility that one of us needs surgery or hospitalization but on average, I’m sure we would spend less than $5000 a year on health care expenses. So if I know that my current plan costs me X dollars (after taxes) and this new plan will cost me $300 per month plus the cost of my son’s allergy shots plus one check up per year per family member, I can determine if there is any savings to be had and, given the possibility of a large medical expense, I can actually afford it.
Another thing to take into consideration (and, since you work in the industry, you may already recognize this)…
In most cases, insurance companies have negotiated discounted rates with their provider networks (doctors and hospitals). You may find yourself paying far more for the same procedure, from the same provider, simply because you’re not under an insurer. And, some providers may not be willing to even see you without an insurance policy.
Given your circumstances, you may want to look into a limited-benefit plan from a major insurer, just to make sure you’ve got access to good providers and the negotiated rates.
IANAMedical Insurance expert, but the HR director at my office told me that the pre-existing condition situation is waived after you’ve been with an insurance company for more than one year.
Also, if you sign up with an insurance company during “open enrollment” at your company or school, the pre-existing condition clause is waived.
I don’t think the OP is talking about going without insurance, just buying an individual policy, so this would not have an impact.
I believe that, due to HIPAA requirements, group policies cannot deny coverage based on preexisting conditions as long as you’ve had “creditable coverage” for at least the 18(12?) months, with no more than a 63 day gap. However, individual policies have no such restriction, and can deny coverage or charge higher premiums for preexisting conditions regardless of how long you’ve had a group policy. This does vary from state to state, as some state’s do not allow rating or denial based on preexisting conditions, and there is also an exception if you are purchasing an individual policy due to exhaustion of your COBRA coverage, but this latter point does not impact your situation.
Another point to consider is that your company may be subsidizing a large portion of your insurance premium. This is far more common with larger companies, as most insurers won’t offer coverage to a company without the employer paying at least ~70% of the premium. As you say you work for a small company, this may not be an impact, but it’s something you should look into.
If that doesn’t apply, then all you need to do is take your annual premium contribution and multiply by your marginal tax rate. So if you currently pay $10,000 per year in premium, and you are in the 30% tax bracket, then you would expect to pay an addition $3,000/year in taxes if you drop group coverage, and a $7,000/year individual policy would bring you back to a comparable position. However, your son’s allergies may have an adverse impact on the price of an individual policy, but this is something you can find out before purchasing such a policy.
(Post-tax cost) = (pre-tax cost) / (1- tax rate)
At 25% like many middle-income folk, that’s about $12,600 in after-tax dollars for your $9,500 plan.
Health care paid with after-tax dollars may be partly deductible on your taxes, but only after you exceed a floor of 7.5% of your income and the standard deduction. So if you make $60,000 then the first $4,500 is not deductible. If you already itemize, then that’s the only limitation, but if you don’t already itemize, then you are only helped by deductions over the $4,500 floor and over the 10,900 standard deduction for married couples. (In other words, it could be that the whole $12,600 in after-tax dollars gives no tax benefit).
If you’re looking for savings both in tax and real savings, ask if your employer offers HSA plans. They have a high deductible, which means they’re cheaper per month but you pay up front for services. If you really do use few services per year, that could save you a bundle. Even better, they have a tax-deductible HSA savings plan - put money in pre-tax (or deducted before gross income) and then take it out tax-free when you need it for expenses. It even earns interest tax-free. A family can typically put about $6,000 per year into an HSA.
Looking at health care issues:
Are you estimating your predictable needs correctly? Don’t you have mammograms and Pap smears? Are some of the unpredictable expense more predictable if you average them out? (For example, if you’ve had 24 unplanned doctor visits over 6 years, then you should plan on about 4 each year).
When my wife retired, we went from the usual employer-paid coverage to retiree-paid coverage. It was exactly the same coverage, mind you, except that we now paid 100% to stay on her former employer’s insurance.
For the family package it now costs us $1,200 a month. Based on our experience, $9,500 sounds like a good deal.
Look at it this way, without insurance, let’s say your son misses a shot and winds up in the ER due to a reaction to something. You’ll be out a couple hundred dollars. I assume you can live with that. But what do you do if something serious happens and you wind up with a hospital bill for a $100,000? That’s what insurance is really for. Most people could make ends meet if they had to cover their own doctor appointments and shots. It’s the big stuff you have to worry about.
Also, if you do decide to go without insurnace, you should really consider going to the doctor more often. Consider THAT to be your insurance. Figure skipping doctor visits might save a hundred or so dollars a year, but in the end it’ll save you more money if your GP diagnoses your high blood pressure or cholesterol or whatever instead of the ER doc doing it (and paying the ambulance guy to get you there).
Actually, my employer does offer an HSA. I looked into it last year but decided it didn’t save me all that much because don’t I lose the money in my HSA if I don’t spend it? I didn’t really see the benefit as compared to the regular PPO. But I’ll take another look.
I need to go through all my expenses from last year. I do have an annual check up and my son’s visits to the allergist could add up (although I did find a few plans where she is a participating doctor so I could at least get the preferred rate). Your formula above is helpful so I need to figure out my after-tax payments plus estimated out-of-pocket and see where I end up.
Actually, I think I misspoke about the HSA. It’s not that I lose the money, it’s that I have to use any money in my HSA for a qualified medical expense. The money can roll over and accumulate over the years. And I am recalling a discussion I had with my boss about this and I remember him saying “Imagine, you could have $25,000 saved to pay for medical expenses in your retirement years.” I think that’s what did it for me - saving to pay for medical care related to my old lady diseases isn’t nearly as exciting as saving for a vacation.
Also, I was expecting my after-tax dollars to be less than my pre-tax. In the example above, wouldn’t the answer be $9500 * (1 - tax rate)? Assuming a 25% tax bracket, had I brought home those premium dollars rather than contribute to my employer plan, I would have had an additional $7125 in my pocket, right?
It’s true that you can deduct health care expenses over and including 8% of your income but you cannot include the actual health care premiums in that number.