Catastrophic Plans May Save Even When Catastrophy Happens

For years our family has elected to have a high deductible, catastrophic coverage health insurance plan with a Health Savings Account contribution.  As a partner in my medical business I essentially pay the premium for belonging to the company group insurance plan, and the premium for my wife, myself and my college age son for 2011 is expected to be about 1800./ month.  It’s a pretty good plan, with a modest $750./ year deductible per member and 80% coverage for preferred providers and a maximum out of pocket expense annually of $2250/ member after the deductible is exhausted.  Crunching the numbers on this the minimum this plan could cost is $21,600./ year even if we have zero medical expenses.   Up until last year our family had been blessed with good health, and so getting a catastrophic plan with premiums of about $600./ month or $ 7200./ year saved us $14,172./ year in premiums, and even after contributing the maximum to the HSA of $6100/ year, this left us with $8072./ year more cash.  Essentially a safe bet and solid logic.

Last year my wife was diagnosed with advanced stage ovarian cancer, and with a major surgery, a few hospitalizations, lots of diagnostic testing, and chemotherapy, we easily reached the maximum out of pocket expenses of our catastrophic plan.  I was thankful for a good income and having been a good saver and investor for many years, so we were able to bear these costs.  At first glance I thought, boy I wish I could change back to the company plan, but with preexisting condition clauses making the cancer treatment not covered for months, I knew this was not an option.  Then I found out as a consequence of  the new health care reform I might be able to switch to a comprehensive plan within the company I have my coverage with now.  Maybe I could even get on the company plan. Then I crunched the numbers.

Plan Premium Deductible + Copay Minimum Expense MaximumTotal Cost
HSA Catastrophic $7428 $5000 + $10,000. $7428. $22,478
Comprehensive plan $18,742. $1000. + $5,500 $18,742. $25,232.

Looking at the plan most similar to our current plan we would pay the first $4,000 to get to the deductible, and 50% of the rest up to the maximum of $10000 for the family.  This adds up to the $7428 premium plus the $14000 in out of pocket expenses, for a hefty $22428 total.   On the Comprehensive plan offered by our insurer we’d have to pay $18,742 in premiums, the $1000 deductible, and the $5500 out of pocket maximum after the deductible, for a total of $25232. Amazingly even in the worst case scenario having the catastrophic coverage is likely to save us over $2700. (not counting any possible tax savings by spending the pre-tax dollars in the HSA) over having the “better insurance”.  In total costs the HSA plan comes out ahead at every level of health care costs in our case.  This helps me understand how health care expenses lead to over half of personal bankruptcy cases even in insured, working, middle-class families.

HSA plans do offer incentive for patients to keep health care costs down.  When spending your own dollars from your own Health Savings Account, it is more likely that as a patient you will question whether some health care spending is really needed.  You are more likely to choose less expensive generic meds, consider delaying an MRI to see if your knee pain improves with time and therapy, etc.  As you see above even in the worst case scenario where the insured reaches the maximum out of pocket expenses, the HSA option looks good if the health care insurance premiums are as high as the best premiums I can find for my family.

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