Is a lower deductible always better?
I’ve created a pair of dummy Silver plans. Let’s assume they are from the same insurer with the same network and they both have Exclusive Provider Organization (EPO) structures.
Plan A: $3,800 deductible and no other cost sharing
Plan B: $1,000 deductible, $7,000 out of pocket maximum, 50% Coinsurance for everything above deductible.
Which plan has a higher actuarial value?
Is it the low deductible plan or the plan with a higher deductible?
Plan A has a 71% actuarial value for the 2018 CMS AV calculator. Plan B has a 68% actuarial value.
Which plan is better for you?
Well that depends…..
How much do you expect your claims to be? That is the key question.
If you are pretty sure that you’ll have less than $1,000 in payable claims next year, these plans are functionally similar to each other. The choice is about the premium. If you think that you’ll have under $6,600 in claims next year, Plan B is better as your cost sharing is $1,000 in deductible plus half of the next $5,600 which will be $3,800 in cost sharing. If you think that you’ll have a big claim because of cancer or scheduled surgery or anything else that will keep you in the hospital for more than a night or two or using specialty drugs, than Plan A will be better.
These are rough rules of thumb as the premium differential will make the trade-off region a bit fuzzier. In reality, the trade-off after including premiums for the middle case might be closer to $7,000 in paid claims rather than $6,600. It will depend on the person’s age and the insurer’s pricing model.
I am not a huge fan of the dedicated push to focus communication on low deductibles. I understand it is a simple heuristic for people but since it is a known heuristic, it will be gamed. Insurers may want most of their sicker patients to make a mistake and take the lower actuarial value plan because what they lose in premiums is made up by the $3,200 that the insurer does not have to pay out because the patient is paying higher out of pocket costs.
So as you start looking around, be careful when you see a $0 deductible Silver plan. They will get their cost sharing in somewhere else and given your circumstances, you might be better off with a higher deductible because everything else is lower.
West of the Cascades
This is … awesome. I was windowshopping last night and was confused precisely by the differences highlighted here, and now I (think I) have a better idea of which of the options may be best for me. Lots of shopping left to do, though, probably with a couple of spreadsheets.
David Anderson
@West of the Cascades: Take your time and ask for help!
James
We always blow though our OOP max for one of us in 4 months thanks to prescription medicine costs, so we always start there, then look at premiums. There has been very little difference with the OOP $ amounts in our county’s plan selection, unfortunately.
workworkwork
I got an email from our state exchange (Colorado) which told me that my premium will be going up almost $200 for my current plan.
I want to stay with Kaiser so I guess I go shopping tomorrow.