HIPAA

Anthem Blue Cross revised the PPO Share (HIPAA) 2009 rates earlier this year, so I am redoing my previous financial analysis of the low deductible vs. high deductible PPO Share (HIPAA) plans with the new prices here.

In the new pricing scheme, the difference in premium between the low deductible and high deductible plans is smaller and also decreases with the person’s age, reaching no difference at ages 60-64. Previously, the difference in premium increased with the person’s age. Both of these changes make it more likely than before that the low deductible plan would be the better choice. However, as before, the pricing scheme is entirely subject to change every year.

The plans have 30% co-insurance for the majority of in-network services. This graph and analysis only takes into account in-network services.

On the x-axis is the cumulative in-network medical bill per year. On the y-axis is the total patient cost per year including monthly premiums and out-of-pocket costs for covered health care. The two lower plots are for a younger person aged 30-34 and the two higher plots are for an older person aged 60-64.

Premium

The y-intersect value at x = 0 is the cost of the health insurance premium for one year (12 months). This is what it costs per year if you have zero medical bills and your only cost is the health insurance premium. In this example, for a person aged 30-34, the yearly premium for the low deductible plan is $411/mo. * 12 mo. = $4932, and the yearly premium for the high deductible plan is $360/mo. * 12 mo. = $4320. For a person aged 60-64, the yearly premium for both the low deductible plan and high deductible plan is $756/mo. * 12 mo. = $9072.

The relatively high prices of the monthly premiums used in my example are for the HIPAA plans in “Area 3″ (Alameda, Contra Costa, Marin, San Francisco, San Mateo, and Santa Clara counties) in California. As described in my previous article, HIPAA plans are one of the guaranteed-issue health insurance plans for individuals and families who would otherwise be uninsurable after losing employer-sponsored group health insurance coverage and exhausting COBRA.

Deductible

The first section of the plots where the slope = 1 corresponds to the deductible. Until the deductible limit is reached, the patient pays the full cost (at the network rate) of any medical bills. In this example, we are comparing a plan with a $1500 deductible and a plan with a $5000 deductible.

Co-insurance

The second section of the plots where the slope = 0.3 corresponds to the 30% co-insurance for in-network medical services. Mathematically-speaking, the plot of the low deductible plan changes slope from 1 to 0.3 at $1500 in medical bills for covered services, and the plot of the high deductible plan changes slope from 1 to 0.3 at $5000 in medical bills for covered services.

Out-of-pocket maximum

The last section of the plots where the slope = 0 corresponds to the out-of-pocket maximum. After the out-of-pocket maximum has been reached for the year, the patient no longer has to pay any more for covered medical services. In this example, the low deductible plan has an out-of-pocket maximum of $6000 and the high deductible plan has an out-of-pocket maximum of $7500.

Although the out-of-pocket maximum is $1500 less for the low deductible plan than for the high deductible plan, in this example, for a person aged 30-34, since the premium for the low deductible plan costs $602 more per year than the high deductible plan, the remaining difference after the out-of-pocket maximums have been reached is only $898 per year. The difference becomes larger as a person ages since the difference in price between the low deductible and high deductible plans decreases with age. For a person aged 60-64, the premium for the low deductible plan costs the same as for the high deductible plan so the difference after the out-of-pocket maximums have been reached is $1500 per year.

Low deductible vs. high deductible

We can see from this graph that an individual aged 30-34 on the low deductible plan starts with a higher premium than the high deductible plan, and pays the full cost of medical services for a shorter amount of time before paying the reduced 30% co-insurance.

Where the plots intersect corresponds to the break-even point between the low deductible and high deductible plans. In this example, for a person aged 30-34, the break-even point occurs at $2360 in in-network medical bills per year. For a person aged 60-64, the low deductible plan is always less than or equal to the cost of the high deductible plan.

People who expect to have lower medical bills on average per year than the break-even point should expect to save money with the high deductible plan, and people who expect to have higher medical bills on average per year than the break-even point should expect to save money with the low deductible plan.

Imagining a vertical line at each x-value, the difference in y-value between the point on the plot for the low deductible plan and the point on the plot for the high deductible plan is the difference in total cost for x amount of cumulative in-network medical bills per year.

One thing to note is that a $1500 deductible plan does not ever save you $3500 over a $5000 deductible plan when there is co-insurance. In this graph, the maximum amount saved corresponds to the maximum difference between the plots of the low deductible plan and the high deductible plan, which occurs during the parallel section of the middle (co-insurance) section of the plots where the slope = 0.3. For a person aged 30-34, the most the low deductible plan would ever save over the high deductible plan in any year is $1838. For a person aged 60-64, the most the low deductible plan would ever save in over the high deductible plan in any year is $2450.

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To help me decide whether to purchase the low deductible ($1500) or high deductible ($5000) version of the Anthem Blue Cross PPO Share (HIPAA) health insurance plan, I graphed the comparison.

The following graphical comparison of a low deductible plan versus a high deductible plan is based on the Anthem Blue Cross PPO Share HIPAA plans before they revised their pricing scheme in the first quarter of 2009. The plans have 30% co-insurance for the majority of in-network services. This graph and analysis only takes into account in-network services.

On the x-axis is the cumulative in-network medical bill per year. On the y-axis is the total patient cost per year including monthly premiums and out-of-pocket costs for covered health care. The two lower plots are for a younger person aged 30-34 and the two higher plots are for an older person aged 60-64.

Premium

The y-intersect value at x = 0 is the cost of the health insurance premium for one year (12 months). This is what it costs per year if you have zero medical bills and your only cost is the health insurance premium. In this example, for a person aged 30-34, the yearly premium for the low deductible plan is $437/mo. * 12 mo. = $5244, and the yearly premium for the high deductible plan is $360/mo. * 12 mo. = $4320. For a person aged 60-64, the yearly premium for the low deductible plan is $919/mo. * 12 mo. = $11,028, and the yearly premium for the high deductible plan is $807/mo. * 12 mo. = $9684.

The relatively high prices of the monthly premiums used in my example are for the HIPAA plans in “Area 3” (Alameda, Contra Costa, Marin, San Francisco, San Mateo, and Santa Clara counties) in California. As described in my previous article, HIPAA plans are one of the guaranteed-issue health insurance plans for individuals and families who would otherwise be uninsurable after losing employer-sponsored group health insurance coverage and exhausting COBRA.

Deductible

The first section of the plots where the slope = 1 corresponds to the deductible. Until the deductible limit is reached, the patient pays the full cost (at the network rate) of any medical bills. In this example, we are comparing a plan with a $1500 deductible and a plan with a $5000 deductible.

Co-insurance

The second section of the plots where the slope = 0.3 corresponds to the 30% co-insurance for in-network medical services. Mathematically-speaking, the plot of the low deductible plan changes slope from 1 to 0.3 at $1500 in medical bills for covered services, and the plot of the high deductible plan changes slope from 1 to 0.3 at $5000 in medical bills for covered services.

Out-of-pocket maximum

The last section of the plots where the slope = 0 corresponds to the out-of-pocket maximum. After the out-of-pocket maximum has been reached for the year, the patient no longer has to pay any more for covered medical services. In this example, the low deductible plan has an out-of-pocket maximum of $6000 and the high deductible plan has an out-of-pocket maximum of $7500.

Although the out-of-pocket maximum is $1500 less for the low deductible plan than for the high deductible plan, in this example, for a person aged 30-34, since the premium for the low deductible plan costs $924 more per year than the high deductible plan, the remaining difference after the out-of-pocket maximums have been reached is only $576 per year. The difference becomes even smaller as a person ages since the difference in price between the low deductible and high deductible plans increases with age. For a person aged 60-64, the premium for the low deductible plan costs $1344 more per year than for the high deductible plan so the remaining difference after the out-of-pocket maximums have been reached is only $156 per year.

Low deductible vs. high deductible

We can see from this graph that an individual on the low deductible plan starts with a higher premium than the high deductible plan, and pays the full cost of medical services for a shorter amount of time before paying the reduced 30% co-insurance.

Where the plots intersect corresponds to the break-even point between the low deductible and high deductible plans. In this example, for a person aged 30-34, the break-even point occurs at $2820 in in-network medical bills per year. For a person aged 60-64, the break-even point occurs at $3420 in in-network medical bills per year.

People who expect to have lower medical bills on average per year than the break-even point should expect to save money with the high deductible plan, and people who expect to have higher medical bills on average per year than the break-even point should expect to save money with the low deductible plan.

Imagining a vertical line at each x-value, the difference in y-value between the point on the plot for the low deductible plan and the point on the plot for the high deductible plan is the difference in total cost for x amount of cumulative in-network medical bills per year.

One thing to note is that a $1500 deductible plan does not ever save you $3500 over a $5000 deductible plan when there is co-insurance. In this graph, the maximum amount saved corresponds to the maximum difference between the plots of the low deductible plan and the high deductible plan, which occurs during the parallel section of the middle (co-insurance) section of the plots where the slope = 0.3. For a person aged 30-34, the most the low deductible plan would ever save over the high deductible plan in any year is $1628. For a person aged 60-64, the most the low deductible plan would ever save in over the high deductible plan in any year is $1206.

With this analysis, I decided for myself to purchase the high deductible plan, Anthem Blue Cross PPO Share 5000 (HIPAA). The reasons include the following. The low deductible plan would guarantee my paying at least $924 more per year every year, and this would increase with age. The amount potentially saved with the low deductible plan in years when medical bills are higher is fairly small.

One last thing to note is that Anthem used to charge the same premium for both the low deductible and high deductible HIPAA plan. In that case, the low deductible plan is obviously better. In 2009, the high deductible plan has a lower premium. In the event that they return to the same premium for low and high deductible plans, locking in to the high deductible plan now and then having to pay the same premium as the low deductible plan later would become relatively worse off.

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Guaranteed-Issue Individual Health Insurance for the Uninsurable in California

January 13, 2009

If you lose employer-sponsored group health insurance and have a medical history that makes you uninsurable in the individual health insurance market, there are several options available that may guarantee access to individual health insurance. To be eligible for these guaranteed access plans, first you have to use all of the COBRA continuation health coverage […]

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