As the cost of health insurance continues to increase, most people have had to come up with ways to curb these increases. The process should begin with giving some thought to the real purpose of health insurance. When premium costs were not the major issue, everyone focused on benefits. For many years, we became accustomed to very low or no deductibles and minimal co-pays for doctor office visits and prescription drugs.
Is insurance supposed to cover these small expenses on a first dollar basis? Would we expect our auto insurance policy to cover oil changes or new tires? Certainly not, but we were all okay with it when premium costs on health insurance were much lower many years ago. Now that cost is the major factor, we must consider the real purpose of insurance being the transfer of a large potential loss to the insurance company. Health insurance was never designed to cover doctor office visits or any other non-catastrophic medical expenses. Our desire for plans that are rich in benefits caused our fall into the mindset of thinking that these plans are the way it's supposed to be. Getting out of this mindset has been painful since no one likes to pay more and get less.
Increasing a deductible on your health insurance policy triggers a question in everyone's mind. Will I ever meet such a high deductible and am I wasting my money? Let's look at an example for a family in Virginia and make some comparisions:
Husband - age 49
Wife - age 49
Child - age 20
Plan Option 1:
$500 deductible per person
Co-pays for doctor visits and prescription drugs
$644 monthly premium
Plan Option 2:
$5000 family deductible
No co-pays
$210 monthly premium
In this actual example using premium rates from Anthem Blue Cross Blue Shield, there is a monthly cost difference of $434 or an annual cost difference of $5208. Common sense tells us that no matter how many doctor visits or prescription drugs are needed, the entire family deductible of $5000 could be fully funded by the annual premium savings of $5208. Since it is not likely that the deductible will be met every year, part of the $5208 would belong to the customer rather than being given to the insurance company in high premiums.
Although we like the thought that our insurance is paying for our expenses, it becomes evident that the customer is actually the one that is paying through higher premium costs. A premium is a "guaranteed loss". The insurance company does not refund any portion of the premium if catastrophic health care is not needed in a particular year. Using the strategy of a high deductible guarantees the customer a profit every year that medical expenses do not exceed the premium savings. The dramatic premium savings between the two plans make it a safe bet for almost everyone.
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