Why Not Just Buy the Cheapest Health Insurance Plan?

Why the Cheapest Health Insurance Doesn't Mean the Lowest Cost to You

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The monthly premium isn't the only cost associated with your health insurance. Image © Stephan Zabel/Getty Images

Choosing a health insurance plan is a daunting chore even for me, and I make my living educating consumers about health insurance. I can totally understand why people who don’t have a lot of experience with health insurance might just give up and buy the cheapest health insurance plan they can find. However, if your goal is to pay as little as possible in overall health care expenses each year, choosing the cheapest health insurance plan could be a mistake.

Why not just buy the cheapest health insurance plan? After all, lower monthly premiums mean less money coming out of your pocket each month. That should mean it’s the cheapest way to go, right? Wrong!

For most people, the total cost of health care expenses includes the cost-sharing expenses associated with using their health insurance as well as the monthly premiums for buying the health insurance. In many health plans, cost-sharing expenses like the deductible, copayments, and coinsurance can add over $6,000 to your annual health care expenses depending on how much health care you need.

In addition, most people have some health care expenses that aren’t covered by their current health insurance. These are known as exclusions. For example, if your health insurance doesn’t cover acupuncture and you see an acupuncturist, your health plan won’t pay for your acupuncture treatments. You would have to pay for those treatments out of your own pocket.

The money you spend on exclusions won't even count toward your deductible.

However, if you find a health plan that does offer this benefit, you might save money with that plan even though it’s not the cheapest. You would come out ahead because the more expensive plan would pay for your acupuncture treatments.

 

Total Health Care Expenses = Premiums + Cost-Sharing + Non-Covered Expenses.

When trying to decide which health insurance plan is the cheapest, look at the whole picture of your health care expenses, not just at the monthly premium cost for the health plan.

If you buy the cheapest health insurance plan, you’re only looking at part of the equation. By ignoring your cost-sharing expenses and your non-covered health care expenses, you’re ignoring two-thirds of the equation. Instead, aim for the lowest overall health care expenses. Along with premiums, take cost-sharing and non-covered expenses into account when you choose a health insurance plan.

Seen in that light, the health plan with the lowest premium is probably not the cheapest overall plan for most people. Unless you’re totally healthy and don’t expect to use anything other than preventive health care services* for the entire year, you’ll do better to include all three parts of the equation when you’re deciding which health insurance plan is the cheapest option.

Having trouble including your cost-sharing expenses in the equation because you don’t know how to estimate them? Learn how in, “How To Estimate Your Health Insurance Cost-Sharing Expenses.”

 

*Thanks to the Affordable Care Act, ACA-compliant health insurance plans like those sold on government health insurance exchanges must pay for preventive services without requiring cost-sharing like deductibles, copays, or coinsurance from you as long as you stay in-network.

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