Neighborly Advice: How to Decrease Monthly Insurance Payments

I talked to my neighbor today about how he can reduce his monthly health insurance costs. He runs his own small business and has himself, his wife, and two young children to insure.  They are currently on a $10 copay health insurance plan from the largest insurer in our area. He wanted to know how to get his monthly down to improve his cash-flow for himself and his business.

My first thought was to encourage him to increase his deductible. Increasing the deductible means that for significant medical needs he would need to pay more up-front before the health insurance benefits kick in. So moving a deductible from $1,000 or $2,500 per year for his family to $10,000 would probably reduce his monthly payment significantly. But he'd have to balance that with access to money necessary for a medical "surprise".

I forgot to mention coinsurance to him, possibly the most confusing health insurance term, since he was about to cut his lawn. Coinsurance is a way for the insurer to increase your out of pocket expense while keeping the deductible, which most people do understand, to a lower number, making the policy more appealing. Financially speaking, coinsurance is a split between what you pay and what the insurer pays that essentially increases your deductible. For example it might be a 50% split on the next $5000, meaning you pay $2,500 more (after your deductible) and the insurer pays the other half.

We also spoke about the need to ensure that if there were any major medical events that happened on his policy, that re-underwriting might mean that they'd pay more for insurance due to the insurance company's guidelines that might include higher rates for anything major. Medical underwriting is the process that evaluates the financial costs based on medical information about the insured. It occurs in most states for individual policies, although it generally doesn't occur for employer or small business health insurance, and in a handful of states is not legal.

Since he didn't have any major medical conditions, we spoke about the possibility of an HSA qualified plan - a High Deductible Health Plan that has been approved for a Health Savings Account (HSA). This is the type of plan that my family has. While we didn't touch on the HSA - the savings account, we did talk about the High Deductible Health Plan and how moving from a copay plan to one like this makes financial sense if you don't visit the doctor frequently. For example, when my family eliminated our copayment, our doctor visit cost went from our $10 copayment to around $55 per visit, which is the amount our insurer pays for an in-network visit to our doctor. Overall we save money since we had to pay a lot more every month to have a copay, essentially paying for doctor visits that we were not making every month. With the wellness visit for each year included in our particular HSA, we get much of our annual health expense paid for wellness. I pointed out that we had a few things on those visits that were not covered, but with the network discount we paid only a few dollars for these additional items and we felt that it is a good value.