Tips on managing premiums and healthcare costs

Premiums and healthcare costs are rising faster than inflation. Making informed decisions involving the cost of health insurance, access to care and understanding the best strategies for each life stage is essential.

Costs of Healthcare

One must understand the two primary components contributing to the cost of healthcare—fixed and variable costs. Insurance premiums represent fixed costs. Access to medical care is a variable cost.

Premiums—the regular payments policyholders make to their insurance carriers vary depending on age, coverage level and location. Selecting the right coverage at the most competitive premium becomes vital. Cost of care—AKA “out-of-pocket costs,” encompasses services received during medical treatment. These costs include deductibles, coinsurance and copays. The cost of care doesn’t include the insurance premium, which is a fixed amount for the plan year.

Of the four “metal tiers” of most health insurance plans—Bronze, Silver, Gold and Platinum—Bronze is the lowest fixed cost with high variable cost, while Platinum is the highest fixed cost with low variable costs.

Time is not on our side: We get older, costs get higher
Most health plans use a member’s age to determine the premium. Therefore, even if insurance rates don’t increase annually, becoming a year older will increase the cost of coverage.

Here’s an example of a person getting older with a 9.6% rate increase:
In 2023, a 51-year-old pays $960.43 premium per month and a 52-year-old pays $1,005.23 premium per month. In this example, the carrier announces a 9.6% rate increase. This results in the following rates for 2024:

51-year-old = $1,052.53 per month
52-year-old = $1,101.73 per month

For the member turning 52 in 2024, the cost increase is $141.30, which is actually a 14.7% increase, not the 9.6% increase expected.

The time of your life: options depend on life stage

Are you a dependent, working or retired? Your stage of life requires different considerations when selecting your health plan. Dependent coverage is for children included in their parent or guardian’s plan. At age 26, dependent coverage ends, and adult coverage options should be considered. Many employers offer health insurance to their full-time eligible employees. Coverage for family members may be available with financial assistance, also called employer contribution. If the employer does not cover dependents, individual coverage options should be considered as they may cost less.

Do the math: Sometimes the “worst” plan is really the “best” plan!

Most people focus on premiums and deductibles when shopping for health insurance. They often overlook the plan’s out-of-pocket maximum (OOPM), which determines the total amount the member pays when facing major medical claims. When deciding the optimum balance of fixed and variable costs, the Silver or Gold plan is frequently the “safe” choice. However, if the member is aware of an upcoming major expense, such as scheduled surgery or hospitalization, it’s no longer a “variable cost,” it’s now a “fixed cost” determined by the plan’s OOPM.

Here’s an example of a Bronze Plan vs. Gold Plan comparison with scheduled surgery:

Gold rate
Employer contribution: $6,157 per year
Employee cost: $5,578 per year
OOPM: $8,500

Bronze rate
Employer contribution: $6,157 per year
Employee cost: $685 per year
OOPM: $8,200

Cost of surgery: $80,000

Let’s compare the total cost for these two plans:

Gold Plan: $5,578 + $8,550 = $14,128 for premium and surgery
Bronze Plan: $685 + $8,200 = $8,885 for premium and surgery

The Bronze plan has a lower premium in addition to having a lower OOPM. By selecting the Bronze plan, the “worst plan” is the “best plan” in this case!

If the member knows that a major treatment is coming up, they should consider the OOPM and the premium when selecting a health plan.

With multiple factors to consider, health insurance planning can be complicated. A knowledgeable advisor will help navigate the best options for you and your employees.

Matthew Sohn is a senior benefits advisor at Arrow Benefits with over 21 years of experience specializing in Medicare. Contact him at matthews@arrowbenefitsgroup.com or 408-384-8150.