How To Pick The Best Health Plan, Also Easy On The Pocket

Making a meticulous comparison between different health care plans could be difficult, to say the least.

But thankfully, 2017 Economics Nobel Prize winner Richard H. Thaler has a few ideas about how to go about it.

As per Thaler, a professor of economics at the University of Chicago, first of all, you should find out the amount of money you require to pay as total annual premiums for both low and high-deductible plans.

To do this, you need to multiply the plan’s cost per paycheck with the number of paychecks that you get in an year — 12 if you get paid monthly, 26 if the pay comes biweekly and 52 if it’s weekly.

After that, you should focus on the high-deductible plan.

Provided your employer makes a contribution to a Health Savings Account on your behalf, you should subtract that amount from the cost of the premiums that you pay annually.

Compare the results for both the plans; the high-deductible plan should be cheaper.

The difference between the two plans is how much the savings would be, if your health care expenses are zero.

After this, you could do a more difficult test for high-deductible plans: You should consider the scenario by which your expenses and the deductible for each plan are exactly the same.

For instance, assume that the annual premium of the low-deductible plan is $3,650 and that it has a deductible of $1,000. In this case, $4,650 would be the amount you would pay if your bills and the deductible are the same.

Contrast this with the high-deductible plan.

Here, the annual premium is $2,000 while the deductible is $3,250. If you hit the deductible, $5, 250 is the amount you would pay. But then, there’s another thing to consider: your Health Savings Account gets a contribution of $1,000 from your employer; this means that your total costs would only be $4,250.

You could see that this is actually $400 lesser than the amount you would have to pay with the low-deductible plan.

Once you have reached this far in your calculations, Thaler exhorts you to repeat all the steps, this time using for each plan the maximum out-of-pocket limit instead of the deductible.

If the high-deductible plan remains the cheaper here as well, that’s the one you should go with.

Thaler’s plan comes with a caveat though.

By his own admission, the calculations he provide aren’t perfect since there could be complicating factors involved in such calculations — for instance, the way prescription drugs are covered in both the plans.

However, he says that the calculations he provide are a great place to start with your comparisons.

Meanwhile, you should check the plan comparison tool on your employer’s website if one is provided there. Also, he urges you to consider all the options available to you instead of adopting a version of the plan you had last year.

Thaler was awarded the 2017 Nobel Prize in Economic Sciences for his contributions towards linking the economic and psychological analysis of individual decision-making. Thaler’s ideas on figuring out the cheaper health plan originally appeared in the New York Times.