Is 0% coinsurance better than a lower deductible?

Question

I have two options for my healthcare provided through work. My employer covers 100% of the monthly premiums for both, and the premiums would be essentially identical anyway (within $2/month), so that is not a determining factor. The out-of-pocket maximum is also identical between the two.

• Option A, which I have been using thus far, has a lower deductible (per person $1000, whole family $3000), with a small copay ($45) on some services (primary care, urgent care, ~$15 on Rx) and 30%-50% coinsurance on all other services.
• Option B has a much higher deductible (per person $2400, family $4800) but 0% coinsurance and $0 copay (after deductible) on most services (but no cost to me at all for preventative expenses).

I have read that a 0% coinsurance is essentially always the better option. However, for a family of 4, having never reached even our $3000 family deductible in previous years, it seems like the 0% coinsurance isn't worth the higher deductible. Let's assume that I won't suddenly have unexpected huge medical bills (I know, I know, that's the point of insurance, but I'm ignoring the unknown for simplicity).

Question: Is the 0% coinsurance unequivocally a better option? If not, under what circumstances would it be a better option?

(Not to muddy the waters, but there are also HSA versions of these options, but I don't want to look into these options at this time; to answer a question: my employer does not contribute to the HSA)

Answer 1

Is a 0% coinsurance always the better option? Not always. It depends on the cost of the insurance, the size of the copays, the amount of the deductible, and your incidence of claims.

I don't know your details so I'm going to describe Medicare supplement and hope that you can do such an analysis with your circumstances.

The traditional Medicare copay is 20%. My choice was that I could could pay $325 a month for a standard "F" plan with zero copay ($3,900 cost per year) or take a high deductible "F" plan ($2,370 a year deductible) for $64 a month ($768 cost per year). The annual deductible for the HD "F" plan was lower in the early years but it's still a good deal.

Why should I pay $3,900 per year to avoid copays when if it hits the fan with the high deductible plan, my maximum cost per year is $3,138 ($2,370 + $768)? My worst case scenario is that I save $762 a year. And given that my average out of pocket has been under $500 a year, my annual cost is under $1,300 a year, a far cry from $3,900 a year.

In my case, the high deductible plan was the obvious choice.

Answer 2

I am going to make the assumption that 1) the copays for A only apply after the deductible is met and 2) preventative care is covered 100% before deductible for A.

Simple answer: unless you think a medical expense greater than $4,800 is likely, or you want an HSA, Plan A is better.

Question: Is the 0% coinsurance unequivocally a better option? If not, under what circumstances would it be a better option?

No, not with your assumptions. The only reason that 0% copay would be better is if you have met your deductible and then have a large expense (say, $10,000 hospital stay). Obviously paying $0 (0%) is better than paying $3k - $5k (30%-50%). But from your question, you don't even meet the lower deductible of $3,000 in a typical year. Do you have a job or hobby with greater than average physical risk? Are you planning to have another child soon? Does anyone in your family have a chronic health condition? Some large medical expenses can be anticipated in advance.

Answer 3

When trying to evaluate the costs of two plans you need to calculate three numbers.

• Absolute minimum cost. That is the cost of the premiums you are responsible for even if you have zero medical events. In your case the company pays the full cost of the premium so both plans have a $0 minimum cost.

• Maximum costs. That is the cost of premiums, deductibles, and co-insurance. In other words the out-of-pocket maximum plus the premiums. This a worst case scenario either many things happen, or one very large one. Can you afford to absorb this level of costs?

• Your typical annual medical events or your best guess for the upcoming year. Some of these events are 100% predictable, in other cases the typical has a wide variation.

A couple of notes:

• In this analysis I assume that all your visits will be in-network. If that is not true the calculations become much more complex.
• With 20% co-insurance, and a $3,000 delta between deductible and the maximum out-of-pocket, it takes $15,000 of medical bills to close the gap.
• All costs you will see are for negotiated rates which can be significantly smaller than the billed rates.
• Picking an HSA eligible plan does add a twist because that changes all or most of your expenses to being tax deductible if you use the HSA. Also sometimes the company puts some funds for you into the HSA.