Carol is a 45 year old writer and artist in Cleveland, Ohio who recently left her job to strike out on her own doing freelance work.  Now a small business owner, she was also responsible for her own health insurance.  In general good health overall, Carol does have a diagnosis of anxiety and depression but it is well controlled by medication and a monthly visit to a counselor.  When shopping for health insurance Carol realized that the best health insurance plan for her was a high deductible HSA qualified plan because after she had met her deductible then her prescriptions and doctor visits would be covered in full, unlike a more expensive copay plan where these didn't accumulate towards the deductible.

The plan she selected was a $1,500 deductible with Anthem Blue Cross for $469/month.   This was a rated policy because of her condition, but with her maximum out of pocket capped at the deductible she could budget her annual health care costs at $7,128 (premium plus deductible), comfortable in the knowledge that anything else she needed would be covered in full.   This expense was also 100% tax deductible since as a business owner she is able to write off her health insurance premiums and the $1,500 is run through a Health Savings Account.

Thinking herself a savvy consumer, Carol was shocked to learn that she could have slashed her annual budget by over $1,400 if she had taken a higher deductible and taken on more out of pocket risk.   Her prescriptions were $200/month and her counselor visit cost $150, surely the difference in premium couldn't possibly offset the additional months of $350 out of pocket she would have to spend.   The fact is, the most money savings came by actually paying the entire year costs, $4,200, out of pocket.   The key to the math behind this counterintuitive approach is knowing that as she increases her deductible she becomes more attractive to the underwriters at Anthem.   At a $1,500 deductible, the insurance company knows they will be paying $2,700 so they account for this in the rated premium.  With a $5,500 deductible, Anthem will have no known costs for the year and would therefore rate Carol as preferred, giving her an insurance premium of only $125, or $1,500 per year.  Adding the known costs of $4,200 to that, her total annual costs would now be $5,700, a savings of $1,428.

What about other potential expenses?  Carol would pay for them out of pocket since she still has $1,300 left on her deductible, but even in the worst case scenario she comes out $128 ahead.

Ronald Haines
ronald@hciohio.com
www.hcibenefits.com