Question

Week 2 – Health Insurance Choice

Erica just started a new job and one of her first tasks is to sign up for health insurance. It’s your job to help Erica choose the best policy for her.

Option 1: HDHP w/ HSA (High Deductible Health Plan) w/ Health Savings Account

Monthly Cost: $68.00

Company Contribution to HSA (annually): $500.00

Deductible: $1,350 (until deductible is met out of pocket = 100%. After deductible 80/20 split) {80% insurance/20% employee}

Out of Pocket Max (per year): $3,000 (once Out of Pocket max is met all claims are paid 100% by insurance)

Rx Plan: payments made for prescriptions count towards the deductible and Out of Pocket Max

Option 2: PPO

Monthly Cost: $137.50

Company Contribution to HSA (annually): 0 (no HSA offered)

Deductible: $600.00 {80% insurance/20% employee}

Out of Pocket Max (per year): $2,200 (once Out of Pocket max is met all claims are paid 100% by insurance)

Rx Plan: payments made for prescriptions do NOT count towards the deductible and Out of Pocket Max

• Well woman and annual physicals are paid 100% by both plans.

• Now you do not know if Erica has any medical conditions that will help her make an informed decision. So, look at this decision from your personal point of view. Which plan would you choose. DO NOT discuss any personal medical conditions in this assignment.

  Explain your choice. Show the math in your decision. (show the costs of each decision and indicate, using numbers, which decision is the best financial decision)

Answer 1

Before Going to the case discussion I just want to through Light on basic Health insurance jargon like Deductables

Deductables :

Health insurance deductables are the amount of money you have to pay towards health care before your insurance starts covering costs

once you met your deductable for the year your insurance require you to pay Co-insurance or co pay

Insurance plans are a balancing act between deductibles and premiums. The more you are willing to pay each month on your premium, usually the lower your deductible.

Case Study

Erica is just started a new job and if we assume there is no pre existing disease as she is young it is better to choose option 1

Explanation:

• In option 1 is high Deductable hence it is pocket friendly that means less premium of 68$ of monthly cost compared to option 2 where she need to pay 137.50$ monthy which is heavy as fresher in the job
• High Deductable Health plans are eligible for Health savings account (HSA), which allow you to set aside limited amount of Pre Tax Dollars for Medical Expenses
• HSA is linked to a debit card that you can use on out-of-pocket costs, including that high deductible. Because the money in your HSA isn’t taxed like the rest of your income, it serves a dual purpose: helping you set aside money to cover health care costs and reducing your tax burden
• Company contribution is there of 500$ will also help ful to meet out of pocket cost
• option 2 is ppo plan where there is no contribution from the employer and also it is very expensive

• HSA Advantages over PPO Plans:

  Reduced health insurance premium

• Reduced rate of increase in health insurance premium

• Taxable income reduced by HSA deposits

  Out-of-pocket health care expenses paid with pre-tax funds

  Preventive care benefits included at no cost

  A new source of long-term savings.

• Conclusion:

High-deductible plans make sense for people who are generally healthy, and for those without young children.As Erica is Fresher and Young Lady ,preventive care is free under the Affordable Care Act, and many policies allow you to see your primary care doctor with a copay rather than paying toward the deductible, a few visits to the doctor per year won’t be a financial setback for an otherwise healthy person.