Analyzing Health Care Plans

I've spent way more time than I wanted to the past couple of weeks trying to find an answer to what you would think is a simple question.

What is the cheapest private health care plan available from Anthem given various risk tolerances (i.e. I want to guarantee that my expenses are on average the lowest no matter what happens vs. I'm willing to bet that I won't have a medical problem and if I'm wrong I'm willing to pay more in that case, etc.)?

In the name of "flexibility" or "choice" Anthem provides at least four different plans (as of 7/31/2013) Premier, SmartSense, CoreShare, and LHSAPlus (that is assuming you ignore temporary insurance plans).  Those plans come in dozens of different configurations for the amount of your premium, deductible, co-insurance percentage, and maximum out of pocket amounts.  Furthermore they don't give you any tools to help visualize the end result in various scenarios.  For example, if you're completely healthy in a given year which plan is better the $500 deductible plan or the $2500 deductible plan?  The answer to that question is the $2500 deductible plan.  Why?  Because the difference in premium is almost $300/mo. cheaper so you would save $3600 for the year.  Furthermore there are various gotchas that aren't obvious such as the fact that there are actually two deductibles (the deductible for anyone one individual and overall deductible for the whole family usually 2x individual) or the fact that prescription drugs may not contribute to your deductible/out-of-pocket limits and have pretty out separate out of pocket limits which seem to only apply to specialty drugs.

With those things in mind let me first give you a few tips and things to watch out for.  Then let me walk you through a model that I built for our family to make my decision.  NOTE the model and the examples below assume a 5 person family with 4 males and one female, 3 children, and no maternity coverage.

Here's what you need to be aware of.

1. Premium is always listed monthly whereas deductible is listed annually.  The effect of this is that it's much easier to favor the higher premium lower deductible when often times that isn't optimal.  Consider the difference between $500 deductible vs. $2500 deductible given $815 premium and $561 premium.  It's hard to compare the two.  If instead premium were shown as an annual amount compare these two $500/$9792 vs. $2500/$6732.  Notice in the case of the $500 deductible you are guaranteed to pay $9792 (in exchange for having a limited $500 deductible).  In the case of the $2500 deductible you are only guaranteed to pay $6732.  The difference in premium amounts is $3060 where the difference in deductible is only $2000.  So in both the best case AND the worst case you're better off with the higher deductible option.
2. Both deductible and co-insurance are typically shown as individual amounts but there is actually a family deductible which is usually 2x the individual amount.  Taking the example from that last point...  If you're a family your deductible is $500 per person up to a maximum of $1000 for the family (or $2500/$5000) meaning in a four person family you could have four people use $250 of their $500 deductible OR two people use $500 of theirs.  Doing the comparison from the last example again except for a family, you get $1000/$9792 vs. $5000/$6732.  This slightly changes the conclusion you might make because in the worst case where you use up the entire family deductible the cheaper deductible plan will have you spending $10792 vs. $11732 for the higher deductible plan (note in these examples I ignore co-insurance).
3. Beware the trade-off between premium and co-insurance.  In the model below you'll see a plan option where the deductible is the same, the premiums are only slightly different and one has co-insurance/out-of-pocket maximums where the other does not.  In that case you've got a $34 difference in premium for a total of $408 more premium for the plan without co-insurance.  In exchange for the benefit of saving $408 dollars (in the plan with co-insurance) you run the risk of paying as much as $4000 additional out of pocket (assuming you hit the family out-of-pocket maximum).
4. The listed plan options typically include a prescription drug benefit but it is often the case that prescription drugs do NOT contribute to meeting your deductible or co-insurance amounts.  For the Premier plan you have to pay the greater of $15 or 40% co-insurance with no out-of-pocket maximum for generic drugs.  There is an out-of-pocket maximum for specialty drugs of $10k.
5. Make sure that you understand the prescription drug coverage.  In the case of the Anthem CoreShare plan (not modeled below) the medical coverage can have quite favorable best case and worst case scenarios because the premium is really cheap.  HOWEVER there are some drugs for which you have to pay 100% out of pocket with no out-of-pocket maximum.  So, I think, that if you're on the CoreShare plan and your treatment calls for a really expensive or special drug you may be 100% responsible for it and hence you will blow up your worst case scenario.
6. Understand health savings accounts.  I haven't done my research here yet, but some of the plans (e.g. LHSAPlus from Anthem) are "HSA compatible".  An "HSA" is a tax-privileged "health savings account" that works similar to an "FSA" ("flexible spending account") without the restriction that you lose it if you don't use it (HSA's rollover from year to year).  If you combined an HSA compatible plan along with an HSA you may further be able to save on your total health care spending because of the tax benefits.

With that in mind embedded below is a model (link to google doc) that I built to help me internalize the lessons above and hopefully make a decision.  The assumptions that the model makes are noted in a text box in the bottom right-hand corner.  There are two sheets in the model; one for different premium/deductible/co-insurance configurations for the Premier plan and one for the different premium/deductible configurations for the LHSAPlus plan.  Each configuration considers what the TOTAL money spent on health care (premium+deductible+co-insurance+prescriptions) would be given three scenarios; one where you spend about $200 total on medical care (that's $200 to cover drugs, deductibles, etc.), one where you spend $800, and one where you spend $1600.

Here are my take aways:

1. All of the plans have you spending something greater than $7000.
2. The configuration with the best case is also the plan with the worst case (you might spend only $9072 but it could be as bad as $25872)
3. I can't think of any reason why someone should buy the low deductible+co-insurance+out-of-pocket maximum options.
4. If you're going to stick with the Premier plan a middle  of the road plan with no co-insurance and moderate deductible (>= $2500) gives you a pretty good optimization of risk vs. out of pocket spending.
5. Prescription drugs are a bit of a wild card from a risk stand point.  When I transitioned health insurance I had to pay out of pocket for some prescriptions and they were $400...  If you have to pay 40% of $400 even just on two prescriptions a month you're going to get dinged on the Premier plan.
6. As such I'm leaning towards the $10k deductible LHSAPlus plan.  Given that we're a generally healthy family the best case is both more likely AND the lowest of all other options ($6708).  Furthermore since the LHSAPlus plan deductibles include prescription drugs the absolute worst case ($14308) where we have a really bad medical year is WAY better than the absolute worst case of all the other plans (which start to tack on $10k out-of-pocket maximums per family member for drugs).

Getting to this point has been a real chore so hopefully these thoughts are helpful to someone.

If you want to run quotes for yourself you can do so with the Anthem rate quote tool.

UPDATE: I added the Anthem SmartSense plan to the model spreadsheet above.  I believe the analysis still holds.  The SmartSense plans have the weakness of having drugs potentially not be covered.  The one interesting things about the SmartSense plan is that you only have to pay 3 co-pays per person.  NOTE I did not model co-pays.  This disadvantages LHSAPlus (which still looks favorable) because it's costs are comprehensive (there are no copays... you pay everything up to the Max-OOP)...  When comparing Premier to SmartSense and ignoring co-pays it probably makes Premier look slightly better.  But I don't believe changes the conclusion.

NOTE: There are coming changes with Obamacare and the health exchanges that might require modifications to the above analysis, but at this point it's not clear what they will be.