When last we met, I promised an example of how Consumer Driven Health Care (CDHC) plans work “in real life.” Seems to me that the best way to do this is by example; in this case, a real client with whom I’ve recently been working, and whose situation is not uncommon.
Mr and Mrs Smythe (well, “Smith” is a bit overdone, no?), a happily married couple with three lovely and active children, are shopping for health insurance. Mr Smythe has left his previous employer, and needs health insurance for himself and his family. In this case, everyone’s healthy (although, in future episodes, we’ll look at what happens when they’re not).
There are two routes we could take (okay, there are hundreds, but I only have so much space here):
First, a “traditional” PPO (co-pay plan), with $25 office visits, an rx card, and a $1,000 (per person) deductible, followed by everyone’s favorite: 80/20 co-insurance. That is, the first grand is on the insured, then the insurance company pays for 80% of the next $10,000 of medicine committed, and then kicks in 100% after that. The family’s monthly premium for this plan is $450.
In this corner, the High Deductible Plan (HDHP), with no special co-payments for office visits or rx; everything goes towards a $5,000 family deductible (hang on, it does get better). First thing to notice, though, is that there’s zero co-insurance. None, nada, zip, does not apply. That is, once the deductible is met, everything’s paid at 100% (well, okay, not everything, but all covered expenses). And the monthly premium is $220. For the whole family. Not too shabby.
Well, let’s see what happens when the Smythe’s have a claim or three:
Scenario 1 – PPO in a “good” year: This year, the Smythe’s were pretty healthy, with a total of 5 office visits (at $25 a pop) and 4 rx’s (some generic, some not). Bottom line: the Smythe’s paid out $125 for office visits and $150 for rx’s. Grand total: $275.
Plus the $5,400 premium. Mustn’t forget that. Real total: $5,675.
HDHP, by contrast: same 5 visits, totaling $500 ($100 each, although that’s probably on the high side; I just want to be fair). And another $500 for med’s (okay, obviously that’s high, but there’s a larger point here):
Grand total: $1,000 out of pocket. Plus the $2,640 premium. Real total: $3,640.
Oh, wait….that’s still $2,000 less than the PPO plan. Money that could be saved, by the way, in a tax advantaged Health Savings Account (HSA), which could come in mighty handy…
Next week: Scenario 2 – Catastrophe. Until then…
Henry Stern, LUTCF is an independent insurance agent in Dayton, OH. A licensed Continuing Education instructor for Ohio and Kentucky, he has well over 20 years of experience "in the biz.” You can read more of Henry’s work at InsureBlog.