Why the cheapest premium is rarely the cheapest plan
Open enrollment screens sort plans by monthly premium, but the premium is only one of three costs. The others are what you pay when you use care (deductible, coinsurance and copays) and what the plan caps your risk at (the out-of-pocket maximum). A low-premium, high-deductible plan can cost far less in a healthy year and far more in a bad one. This calculator puts the three costs together so you can compare plans in dollars, for the same level of medical spending.
The formula
For each plan and each spending scenario, the calculator computes: (12 × monthly premium) + your share of care − employer HSA/HRA money. Your share of care is the lesser of two numbers: the plan’s out-of-pocket maximum, and the deductible (or total spending, if smaller) plus the coinsurance percentage times spending above the deductible, plus any flat copays you expect. The “worst case” row assumes you reach the out-of-pocket maximum.
“Total allowed charges” means the negotiated rates your plan recognizes for in-network care, not the amounts hospitals first bill. A hospital stay that is billed at $60,000 might have an allowed amount of $25,000. If you are unsure, start with a quiet year of around $1,000, a typical year of $4,000 to $8,000 if you take regular medication or have a few specialist visits, and a bad year at or above the largest out-of-pocket maximum you are comparing.
How to read the results
- The fixed cost row is your minimum for the year: premiums minus employer money. If a plan with a higher premium has a larger employer contribution, this row can favor it.
- The scenarios show which plan wins in each kind of year. If one plan wins in all three, the decision is easy. If different plans win in different years, you are making a bet about your health, and the break-even figure shows where it flips.
- The worst case matters more than most people think. A plan that saves $600 in a quiet year but exposes you to an extra $3,000 in a bad year is a poor deal if you could not afford the larger bill.
Things the calculator does not capture
- Provider networks. If your doctor or hospital is out of network, costs can be much higher or not covered at all. Check the network on the insurer’s own directory, and call the doctor’s office to confirm.
- Drug costs. Look up your medicines on the plan formulary. A drug in the highest tier can push you quickly toward the maximum. Enter your expected annual drug copays in the copay field.
- Tax savings from an HSA. Contributions to an HSA reduce your taxes; see the HSA calculator and add that savings to the high-deductible plan’s side in your head.
- Subsidies. If you are buying on the Marketplace, enter your net premium after the premium tax credit; the ACA subsidy calculator shows it. Also consider cost-sharing reductions on silver plans (see our CSR guide), which lower the deductible and maximum and are not shown here.
Example
Plan A (a PPO) costs $380 a month with a $1,000 deductible, 20% coinsurance, a $5,000 maximum and about $400 of copays: $4,560 in premiums. Plan B (a high-deductible plan) costs $300 a month with a $3,500 deductible, 20% coinsurance, a $7,000 maximum and $750 from the employer, so $3,600 in premiums minus $750. With $1,000 of charges, Plan A costs $4,560 + $1,400 = $5,960 and Plan B costs $3,600 + $1,000 − $750 = $3,850. With $6,000 of charges it is $6,960 against $6,850, nearly a tie. With $30,000 of charges, both plans are at their maximum: Plan A costs $9,560 and Plan B costs $9,850. So Plan B wins in light years and Plan A wins once total charges pass roughly $19,600, because its out-of-pocket maximum is $2,000 lower. If you could not comfortably pay the larger maximum on Plan B, that might tip the decision. This is exactly why the comparison is worth doing with your own numbers.