How to Choose a Health Insurance Plan Deductibles in NC

The basic rule for comparing health insurance plans is to compare premium paid per
benefit period as a percentage of the difference in benefit period exposure between
plans, with the likelihood of using the benefit.

In plain English, what are the chances of using a benefit versus what you are
paying for that benefit. An example will be usefull in explaining this concept.
Suppose, for the purpose of simplicity, there are two health insurance plans, identical
in every respect, except for the difference in deductible. The first plan we'll use is the
Blue Cross Blue Shield NC, Blue Advantage, Plan A. The 2010 premium for a male in
the Charlotte area with a preferred rating for the Plan A with a $250 deductible and
100% coinsurance is $392.11 per month. The 2010 premium for a male in the
Charlotte area with a preferred rating for the Plan A with a $500 deductible and 100%
coinsurance is $350.10 per month. (By the way, both of these plans are very
expensive, high benefit plans and are beyond what I recommend paying for health
insurance each month.) Both of these plans are identical in every respect, except for
the deductible and monthly premium. What we need to compare then, is the
difference in monthly premium to the difference in exposure (deductible). We
know that the deductible resets every year in January, so we multiply the premiums by
12 months and look at the difference.

Plan A $250 deductible: $392.11 x 12 months = $4,705.32
Plan A $500 deductible: $350.10 x 12 months = $4,201.20

So the difference in annual premium is $504.12. This means that you would pay
over $500 a year to reduce your exposure by $250 per year. I never
recommend paying more in premium than you reduce in exposure. In this case,
I would recommend choosing the less expensive plan, and saving the premium. That
way if you need to pay for medical claims you have the money. If you don't need to pay
medical bills, you get to keep the money at the end of the year instead of spending it
on premium.

The previous example was very simple and straight forward, but what do you
do when the premium disparity isn't so pronounced? Lets consider another plan
choice, the Blue Cross Blue Shield NC, Blue Advantage, Plan B. The 2010 premium for
a female in the Raleigh area with a preferred rating for the Plan B with a $500
deductible and 70% coinsurance is $208.69 per month. The 2010 premium for a
female in the Raleigh area with a preferred rating for the Plan B with a $3,500
deductible and 70% coinsurance is $112.09 per month. These plans are identical in
every respect, except for the annual deductible and monthly premium. Again, we will
multiply the monthly premium by 12 months and compare the difference in premium
and annual exposure.

Plan B $500 deductible: $208.69 x 12 months = $2,504.28
Plan B $3,500 deductible: $112.09 per month x 12 months = $1,345.08

The difference in annual premium is $1,159.02 and the difference in annual exposure
is $3,000. In other words, you would pay $1,159.02 per year to reduce your
annual exposure by $3,000 per year. This seems like a difficult decision until we
look at it as a decision of statistics. We divide $1,159.02 by $3,000 and we get 0.3864
or 38.64%. So, if we consider this decision over a period of years, we would say, if you
meet the $3,500 deductible in 4 out of 10 years (40% of the time) then we should pay
for the more expensive policy. In other words, if the chance of meeting a $3,500
deductible each year is more than 38.64%, then it makes sense to choose the
more expensive policy. If the chance of meeting the $3,500 deductible is less
than 38.64%, then it makes more financial sense to choose the less expensive
policy.

For some people, the decision ends here. The numbers are the deciding factor.
However, others may be in a financial position where they would not be able to come
up with the extra $3,000 out of pocket. Or others would be distressed to have a $3,500
deductible instead of a $500 deductible. In my years as an insurance agent, I've
learned that there are two components to deciding between health insurance
policies. There is it's use as a financial instrument, strictly from a numbers
perspective, and there is the peace of mind it provides. For some, it's worth the
extra premium to lower the deductible so they are comfortable with their
policy choice. In cases like these, I recommend spending the extra premium to
provide peace of mind.

Some other important factors in choosing a health insurance policy.
Maximum Annual Benefit
Maximum Lifetime Benefit
Copay Plans Versus HSAs
Prescription Plans

Copyright 2010, David Goebelt, Goebelt Insurance Services, Inc.

How to Compare Health Insurance Plan Deductibles

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