Thursday, June 19, 2008

But I Want to Pay More . . .

[Welcome Industry Radar readers!]

An odd thing happened a few days ago. A new client asked if they could pay more than the quoted premium.

"Well, sure . . . but why would you want to?"

First a little background information.

My client is actually a parent looking for coverage for his son. Currently his son has half a policy and is paying an outrageous amount.

The policy only covers hospitalization, no outpatient coverage at all. While many believe the hospital bill will kill your finances, it is what happens outside the hospital, and after you are discharged that usually is an amount equal to what you paid the hospital.

The dad asked for a high deductible, "bare bones" kind of plan. I ran the numbers and suggested a plan for $48 per month.

A very simple plan, true "bare bones" that is more than adequate for the large claim. In network claims up to $5,000 are discounted up to 70% and apply toward the deductible. Claims over the deductible are also discounted but paid in full by the carrier.

The most the insured will pay in any one year is $5,000.

All this for less than $600 per year.

That's pretty amazing if you ask me.

I sent the proposal over for review and added my comments and suggestions. A few days later his dad asked if he could pay more and get a lower deductible.

Dad figured if the big claim were to hit he would be the bank for the amount up to the deductible.

"Well, yes, you can pay more but you don't really get more."

This always throws people off. They think if you pay more you get more.

With most items this is true.

For $6 you get a salad. For another $8 you get an appetizer. Add another $20 and you get an entree.

Not so with health insurance.

For $62 (instead of $48) he can get the same plan as originally quoted but with a $3,000 deductible.

That is the point of diminishing returns. Anything over that is throwing your money away.

He can buy a plan with a $2500 deductible and $35 office copays for $101. But when a big claim hit's his OOP (out of pocket) is $4500 plus copays.

He can also buy a plan with a $1000 deductible and copays for $166 and his OOP on a big claim is $3000 + copays.

Or he can buy a $0 deductible plan for $236 and limit his out of pocket on a major claim to $500 + copays.

So in reality the $62 plan is the best buy.

But consumers don't want to believe that, so they end up paying more than is necessary and then complain about the high cost of health insurance.

At my suggestion he bought the $62 plan and pocketed the $100 in extra premium he would have paid if he had never contacted me.

To my way of thinking, an extra $100 per month will almost cover the increased cost of gas and groceries.

Paying more is just silly.
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