Health insurance in the United States is expensive. That, by now, is a cliché. This truism leaves most folks in a situation where they have to decide between crazy expensive plans that are ‘Platinum’ or ‘Gold’ and just plain ‘ol expensive plans that are ‘Silver’ or ‘Bronze.’
What is it, exactly, that you’re buying when you offer up your hard-earned money for the "better" insurance?
(For reference: Doctor’s (and hospitals) can charge anything they want. They then can negotiate with an insurance company for the privilege of being ‘in-network’ and thus are able to more easily see patients with that particular insurance coverage. So, a doctor may have a ‘charge’ for a visit of $400, but have a ‘contracted rate’ with "Happy Rhino Insurance Company" for $250. Uninsured patients would pay $400.)
Here’s the answer:
1. First-Dollar Coverage
This is the benefit most people see most glaringly day-to-day. When you pay a higher premium, you’ve bought the right, for example, to only pay $25 for a doctor visit (a 'co-pay'), instead of the contracted rate of $250 (or so). Maybe you pay only a $500 co-pay for a hospital stay, instead of the $2,000 "Happy Rhino" contracted rate, and instead of $15,000 in charges.
Now, using the examples above, in all cases, the doctor will get $250 from "Happy Rhino" and the hospital $2,000. If you’re only paying $25 (or, $500), then "Happy Rhino" is giving the provider that other $225 (or $1,500)…out of your higher premium payments.
So somebody bragging about only paying $25 when you’ve just shelled out $250 for a doctor’s visit? Ask them how much higher premium they paid that month.
2. Lower Deductible
High-deductibles have become a proxy lay identifier of "bad insurance." And, they are the easiest target for insurance companies to modify to make an insurance product seem more attractive. Pay a higher premium (or: Pay more ‘in advance’) and the deductible is lower.
The purpose of a deductible is, ostensibly, to have patients with skin-in-the-game. Stated another way: It’s a cushion for the insurance company, protection for them against high-cost interventions early in a benefit year.
3. Broader Provider Access
The acronym-soup of managed care has evolved considerably over the past couple decades, but the basics are this: Insurance companies find providers who will accept the lowest contracted rate, and those become ‘preferred,’ in-network providers. Patients staying within this preferred network of providers is, thus, highly beneficial to the insurance company.
Want to go outside the network? To do that the easiest, you have to plan in advance and pay higher premiums for that privilege.
What happens when insurance companies and providers can’t agree on contracted rates? Consequently from this dispute, providers will often no longer consider insurance companies as in-network and will not accept their coverage.
4. (Does Not Necessarily) Lower Out-of-Pocket Exposure
Here’s the kicker: Paying higher premiums doesn’t necessarily lower your total out-of-pocket risk. In a confusing use of semantics, insurance companies have adopted a term ‘Max Out of Pocket’ which includes deductibles, co-pays and coinsurances…but DOES NOT include the original premium payments. So, do yourself a favor and…do the math. You may find that the less-expensive insurance offerings become more attractive when you look at total exposure, your personal wellness and your financial situation.
About the Expert
About the ExpertPediatrician Dr. Bryan Fine has been a physician for more than 15 years, and is the founder of Percentric, an innovative, physician-led health benefits optimizer. Visit Percentric.com to learn more.
