Since I left my full-time job in April, my wife and I get our health insurance from the ACA healthcare exchange (called Covered CA in California). We have an HSA-eligible Bronze PPO plan from Blue Shield of California. We pay the unsubsidized premium of $1,200/month to cover the two of us. We received a notice last month from the insurance company that the premium for the same plan would increase 16% to $1,400/month next year. Meanwhile our deductible will also increase by 25%, from $4,800/person, $9,600/family to $6,000/person, $12,000/family. We are far from meeting the deductible currently. Now the goal post will move even farther.
We are not sure whether we will be able to receive a subsidy next year. So we need to consider both possibilities. Blue Shield PPO is the most expensive plan offered on Covered CA in our area because it has the widest provider network. Among all Covered CA plans in our area, only Blue Shield PPO includes Sutter Health in the network. Sutter Health is a dominant health system in our area, with more than 5,500 primary care doctors and specialists across Northern California. Our primary care and specialist doctors work for Sutter Health. If you are getting insurance on Covered CA, and you’d like to cover Sutter Health doctors as in-network, you have to pay the higher premium to Blue Shield. Coincidentally just this morning I received an email from Sutter Health with this subject:
Make sure your health plan includes your Sutter network doctor.
I don’t blame either Sutter Health or Blue Shield for exercising their powers in the market. Other than their higher prices, we don’t have any problem with either company. We like our Sutter Health doctors. Their clinics are new, bright, clean, and very well staffed. Blue Shield processes claims very fast. When I had to use their customer service, the representatives were professional and helpful. In a way it’s like Whole Foods, 5-star hotels, luxury cars, or any other premium products. The products themselves are great. They are just more expensive.
However, with a deductible as high as $6,000 per person, $12,000 for the two of us, which we don’t expect to meet, the only benefit we are getting from the more expensive insurance is the negotiated price discount off the billed prices. With its exclusivity, Blue Shield didn’t get much discount from Sutter Health. I pulled all the Explanation of Benefits we received so far this year. Here are the results when I added them up:
- Total Billed: $1,018
- Network Savings: $100
- Applied to Deductible: $918
The network savings were only 10% off bills from Sutter Health. Basically when we don’t meet the deductible, staying with Blue Shield for having Sutter Health in-network isn’t much different than just paying cash directly to Sutter Health, even at the full billed prices.
With this insight, we are going to change our strategy for next year. We are going with a less expensive insurance plan from Kaiser HMO. Until we find doctors we like at Kaiser, we will still go to our doctors at Sutter Health, but we will go in as cash payers. Sutter Health offers a 30% discount to cash payers if their bills are paid within 20 days. That’s a larger discount than we are getting from insurance!
Here are our premiums for an HSA-eligible Bronze plan from Blue Shield PPO and Kaiser HMO:
| Without Subsidy | With Subsidy | |
|---|---|---|
| Blue Shield PPO | $1,410/month | $600/month |
| Kaiser HMO | $940/month | $130/month |
| Difference | $470/month | $470/month |
ACA plans of the same metal tier are standardized. Both plans have the same $6,000/person, $12,000/family deductible. Whether we end up receiving a subsidy or not, by choosing the less expensive Kaiser HMO, we will have extra $5,600/year to pay for any services from any doctors we like. That will more than cover our expected expenses.
In our case the high deductible has a silver lining. When we have to pay 100% before the deductible no matter which insurance plan we choose, we might as well choose a less expensive plan and use the difference in premiums to just pay cash, especially when there isn’t much discount for having the doctor in-network anyway. We will save money and keep our doctors.
Sometimes I hear insurance plans on ACA have a “narrow networks” problem, in that many plans offered are HMOs that limit the providers covered. To the extent a plan with narrow networks is less expensive, coupled with a high deductible, the premium savings can be used to turn yourself into a cash payer. As a cash payer you have the largest network because you can go to any provider. Insurance isn’t going to pay anyway.
When health insurance really behaves like a tax, for the vast majority who are are healthy, choosing a less expensive insurance plan makes you pay less such tax. It makes health insurance behave more like other insurance. Think how often you filed a homeowner’s insurance claim.
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Insurance Broker says
I like that you have put some thought into this decision from a financial standpoint. I am in the business so engagement is good. My only caveat is that your assumption is that your health care needs remain the same.
If you remain healthy, your analysis is spot on. But what if you have a serious health condition? Now you can’t use Sutter as you can’t self-insure the big stuff. We have a lot of Kaiser clients and those under Kaiser for a long time love it. The biggest downside though is that for the most part you MUST use their providers.
I have a high-deductible HSA eligible health plan for my family. My situation is different because I have a group plan with a full network versus a Covered California plan in the individual market place. The small group market is somewhat healthy as a pool whereas the individual market is somewhat in chaos due to the removal of the individual penalty in 2019.
For me, I want the full network in case I need it.
Harry Sit says
A serious health condition can be treated at Kaiser until I’m able to switch at the next open enrollment. Premium savings year after year until such serious health condition shows up can also be used to bridge the gap.
Alan Drake says
I just turned 65 in July. I am quite healthy with minimal medical bills #.
After delaying Medicare Part B & D till January 1, 2019 (the maximum delay without incurring lifelong premium penalties), I plan to just pay 20% of my Medicare bills in cash. I have a large balance in my HSA (no withdrawals, invested in stock market).
I am a very knowledgeable and selective medical consumer (example: I get the most effective flu vaccine with fewest side effects flu vaccine – FluBlok). As such, if something major happens – say cancer – I want the freedom to select who and where I want to be treated.
Hopefully, if/when I have a major health issue, I will switch to a Medicare Part C & D plan in a new year that covers whatever ails me with my preferred treatment. But that depends on when in the calendar year I am diagnosed.
# I do have an FDA trial artificial iris in one eye. I see an ophthalmologist every 5 months to check it. I get my eye drops to control glaucoma in that eye from Canada at 30% of US price.
It is cheaper to buy drugs from Canada with cash & pay 20% of opthamilogist visits than any other option.
DB says
How do you buy prescriptions in Canada? Do Canadian pharmacies accept US doctor prescribed rx or do you see a Canadian opthalmologist?
Alan Drake says
My New Orleans opthamoligist calls in my prescription to Northwest Pharmacies.
My before age 65 insurance company would periodically email coupons ($10 off $100+ usually) to Northwest Pharmacies. That is when I would order a multi-bottle refill.
I saw these coupons as an endorsement by my insurance company. It also reduced their costs.
I have gotten bottles meant for the Irish, Turkish & French speaking EU markets. Same hologram on bottle, Same effect. Only difference is the expiration date is a month to three months closer than eyedrops I bought here in the USA.
GH says
If I understand your interesting post correctly….
In the event you have a serious health condition arise, and you have been paying cash for out-of-network services (ie not paying through your insurance), won’t all of the cash services then NOT be applied to your deductible through your insurance?
Harry Sit says
That’s correct, but I will still pay less in total. Suppose I paid $3,000 cash before I have a serious health condition that ends up costing $30,000:
a) If I choose the PPO plan, I pay $5,600 in extra premium, plus $3,000 that counts toward the deductible, plus another $3,650 out of the $30k to hit the $6,650 out-of-pocket maximum. Total cost $12,250.
b) If I choose the HMO plan, I pay $3,000 in cash that doesn’t count toward the deductible, plus $6,650 out of the $30k to hit the out-of-pocket maximum. Total cost $9,650.
John says
Harry, how would this work if you have a condition that requires frequent monitoring Eg: MRIs every 6 months. Would you go to Kaiser with the Sutter dr recommendation for MRIs and would Kaiser cover the MRIs and then use Sutter for consultation?
Harry Sit says
It depends on how much those MRIs cost when I pay cash. If it’s $1,000 every six months it’s still well within the $5,600 cash budget. If I go to Kaiser it will still be under the deductible anyway. Kaiser’s employer-sponsored plans often have $0 deductible $0 co-pay. Kaiser’s Bronze ACA plan (at least in our area) has the same $6,000/person deductible.
Vic says
Did you determine how much the Kaiser increased this year? At 16% increases annually – when does it break the Early Retirement budget?
We are trying to determine how we will work health insurance in early retirement. I’m not sure how to budget for an item that can double every 5 years.
Harry Sit says
The unsubsidized premium for the Kaiser Bronze HSA plan also increased about 15%, with the same increase in the deductible and the out-of-pocket maximum. That includes the normal increase for simply being older by one year. It’s more manageable if you are able to receive the premium tax credit.
Walt says
Harry, I thought that if you have insurance, you cannot pay medical providers in cash, as a cash payer. They must go through your insurance. Is this correct?
Harry Sit says
Providers have the option to accept or not accept insurance. I don’t see how they can force you to use insurance when you’re willing to pay cash.
KD says
I am thrilled that cost transparency (sadly gained via using the network) has yielded engaged patient choice resulting in total cost (premiums + out of pocket expenses) optimization. Imagine if lawmakers forced insurance companies and providers to release pricing data to public and a few app makers build on that data to inform patients of alternatives. Of course, this whole charade can be done away with a single payer system.
Tweedle says
What about regular checkups and other preventative well-visits? Those are generally covered at zero fee, if the doctor is in-network. But if you go to a doctor not in plan, I would expect you would have to pay for the well-visits out of pocket. With labs, etc, those well visits could be a few hundred bucks a person.
Harry Sit says
Those a few hundred bucks a person in a year can be very well absorbed by the difference of $470/month in the premiums. We will still choose a primary care doctor from the HMO. We may very well go to that doctor for the annual physical and get the orders for glucose and cholesterol tests and what not. I doubt we will find much to dislike just for that type of routine service. Knowing that we can still use our current doctor and still come out ahead makes it easier for us to choose the less expensive insurance plan.