Two big mistakes people make when choosing a health insurance plan at open enrollment

Mistake #1:
Focusing on just the deductible amount of your traditional copay health plan without seeing the whole picture
 
First, what is a deductible?  It is the amount of out of pocket costs you pay before the insurance company begins helping with your bills. The key word is “helping”.  Oftentimes, just because you have met your deductible, does not mean that the insurance company is going to pick up the tab for the rest of your bills.
 
After the deductible is paid, there is often what is called a coinsurance.  Coinsurance is a shared cost between you and the insurance carrier. The coinsurance is typically somewhere between 60-80%.  If the coinsurance is 80% (like in the example below), you would pay 20% of a medical bill, and the insurance company would pay 80%. 
 
In addition to deductible and coinsurance, there are often copays.  A copay is a fixed amount that you will pay throughout the plan year for specific services.  Often, there are copays for specific types of prescriptions.  For example, if you buy a generic drug, you will pay $10.  If you buy a brand name drug, you will pay $30, etc.  There is also a copay for office visits.  An office visit copay is usually around $50.  
 
Lastly, and most importantly; each health plan will have what is called an out-of-pocket maximum.  The OOP Maximum is the most you will pay out of your own pocket before the insurance company will pay for everything 100%.  This is the worst-case amount for the plan year and is the number you need to focus in on.  
 
As you can see in the example below, if we just focus on the deductible without looking at the whole picture you may end up choosing the incorrect plan.  While the deductible in the example is $1,200, the out-of-pocket maximum is actually $3,600! 
 
See below for an example
 
Single Deductible: $1,200
Coinsurance: 80%
Prescription Drug Copay: $10 generic, $40 non-generic, $80 specialty
Office Visit Copay: $50
Single Out of Pocket Maximum: $3,600

 
Mistake #2:

Not understanding how to calculate your best-case costs and worst-case costs for the plan you are choosing.
 
Insurance is all about risk management, so it’s crucial to know how to calculate your risk with the health insurance plan you elect. 
 
As mentioned in mistake #1, people often focus on the deductible when reviewing plans.  I am going to suggest that you focus on only two things: Out-of-Pocket Maximum and the Premium that you will pay for the plan throughout the year.
 
Premium: the amount of money you pay just to have the insurance, whether you use it or not.  When working for an employer, they will be paying anywhere from 50% to 100% of the premium.  In your benefit summary at open enrollment, it will be clear what your portion of the premium cost is.  That is the amount I want you to focus on.
 
Out-of-Pocket Maximum: This is the amount of money you will pay out of your pocket before the insurance company will pay 100% of your bills. 
 
Using the example from point #1, let’s take a look at how this works:
 
Single Deductible: $1,200
Coinsurance: 80%
Prescription Drug Copay: $10 generic, $40 non-generic, $80 specialty
Office Visit Copay: $50
Single Out of Pocket Maximum: $3,600
 
As mentioned, we are going to just focus on the out-of-pocket maximum.  In this case, it is $3,600. Next, we need to look at what the premium we will be paying every month is.
 
Let’s say that the monthly premium that we will be responsible for is $100/mo.  Now take $100 and multiply is by 12 to determine the annual premium cost. 
 
$100x12 = $1,200
 
We are now left with two figures:
 
Annual Premium: $1,200
Annual Max-Of-Pocket: $3,600
 
Now that we know to look for these two things, it is easy to now determine what our best-case scenario and worst-case scenario is.
 
If we don’t use our insurance at all throughout the year, our cost will be $1,200.  This is the premium that we will pay whether we use the insurance or not.
 
To determine our worst-case scenario, we simply take the premium ($1,200) and add it to the max-out-of-pocket ($3,600).  In the example, our worst-case costs would be $4,800.
 
In summary, our financial situation with this particular health plan is as following:
 
Minimum Risk (Best Case): $1,200
Maximum Risk (Worst Case): $4,800