In one week, we release our book The End of Employer-Provided Health Insurance, which discusses the obvious solution to our nation’s employer health insurance woes - employer-funded individual health insurance. The book is available for pre-order on Amazon.com and BarnesandNoble.com.
This article is part of an on-going series of articles on The 10 Reasons Group Health Insurance is Bad for You, Your Family, and Your Company.
The fifth reason group health insurance is bad for you, your family, and your company is because it is one-size-fits-all -- you don’t get to pick your deductible, copays, or coinsurance.
Group Health Insurance Is One-Size-Fits-All
When it comes to health insurance, employees have very different needs. However, your group health insurance plan takes a one-size-fits-all approach. With group health insurance, most employees do not get to choose from a wide range of deductibles or copays.
As result, most employees are paired with coverage that does not fit their family’s needs.
A Quick Primer on Key Health Insurance Terms
Here’s a quick primer on the three key health insurance terms:
Annual deductible: This is the annual amount of your medical expenses that you must pay before your health insurance company begins paying providers or reimbursing you for claims. Traditional plans have deductibles of up to $1,500, as well as copays for doctor visits and prescriptions. High deductible plans have deductibles from $1,000 to $10,000, but much lower premiums.
Copay: This is the amount that you pay each time you visit the doctor, pharmacy or other medical provider. If you have children and visit the doctor often, you are typically better off with a higher premium plan that charges you a fixed amount (copay) for each doctor visit regardless of what is done during the visit.
Coinsurance: This is the amount, typically about 20 to 30 percent, that most insurance companies expect you to pay on your annual medical expenses after you have met your deductible. Fortunately, most coinsurance clauses have an upper limit of about $4,000 to $10,000. Your maximum coinsurance obligation plus your annual deductible is called your out-of-pocket maximums—referring to the maximum out-of-pocket annual expense you could incur under the policy. Some newer high-deductible plans, including many HSA plans, do not charge you coinsurance; they pay 100 percent of your medical expenses once you have met the deductible
Why One-Size-Fits-All Group Health Insurance is Bad
A mismatch of coverage with your needs can cost you thousands of dollars per year unnecessarily. How? Health insurance plans that cover more of your medical expenses (i.e., health plans with lower deductibles) usually have a higher monthly payment. As a result, you pay more upfront in the form of higher premiums in exchange for getting to pay less when you receive medical care.
For example, a plan with a low deductible would probably work best for a family expecting to visit the doctor and pharmacy regularly. However, the same plan might be a poor choice for a young, single adult male who only expects to go the doctor once per year for his annual physical. Since the young, single employee will not use the coverage he is paying up front for, he is being charged up to 100 percent more than he actually needs. By contrast, if he were able to select a high deductible HSA plan, he could be saving thousands of dollars in an account for future medical expenses.
What’s the Solution?
You should switch to individual health insurance because it’s not one-size-fits-all. With an individual plan, you get to customize your deductible, coinsurance, and copays.
I will be going through reason number six (group health insurance is unfair) tomorrow.