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How do I find the best health care plan?

June 20, 2014
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By Sharon Hollander

Learn more about Sharon on NerdWallet’s Ask an Advisor

I love questions about shopping. I am an expert. Shopping for health insurance is similar to shopping for shoes or a car. In fact, it is more like shopping for a car than you think in the following ways. No two people who purchase health insurance on their own seem to pay the same amount, and each person has to select different options. The choices of health insurance are as diverse as the different models of cars on the market. Looking for bucket seats or a leather interior? Do you need a policy with just for catastrophic care, or the Cadillac with unlimited out-of-network benefits?

What is most interesting is how many people are confused about buying health insurance, yet they are less confused about buying car insurance or homeowner’s insurance, earthquake insurance or flood insurance. Why is that? The concept of insurance is the same.

Insurance is money you pay to a company that is set aside in case anything bad ever happens to your car, your house, your life or your health. Just like your car will get repaired after you pay your deductible, so your doctor will be paid once your deductible is met.

In figuring out what to get, you first have to identify what you need, what you may possibly need in the future and then – drumroll, please – the all-important question: How much does it cost?

25-year-old males generally pay more than 25-year-old females for car insurance rates. Why? Because the premiums are based in actuarial statistical facts based on years of research done by those bean counters relied upon by the insurance companies. They do risk assessments. Health insurance is done the exact same way. Typically, a 50-year-old male will pay more than a 40-year-old one, with all other health measures being equal.

So, here is a secret: Health insurance costs what it costs. To really find out how much that is, you would have to read actuarial tables, cost analysis reports, 900+ pages of the Affordable Care Act and many other equally time consuming, boring statistics to understand the full answer.

The question then becomes: How much does it cost you? Well, that depends on what you want your insurance to do for you. Do you want to see any doctor you want, or is it more important to you to just have insurance just in case of a disaster or catastrophic coverage? For example, earthquake insurance will not cover your property until your $50,000 to $100,000 deductible is met. Do you want to pay more every month or only when you use the insurance?

I spend much of my day explaining this to providers and patients, and the simplest analogy I can come up with is a pie. The entire pie is the cost of your insurance. Everyone favors a different flavor, so for the sake of this argument, we will just call it pie.

If you slice it evenly in half, you will pay half of the cost in premiums and the other half in out-of-pocket expenses. Or if you want to save the outlay and reduce your expenses each month, you could opt for a lower premium. In doing so, you leave a greater portion of the money expenditure in deductibles and higher expenses when you use the insurance (i.e., when you are sick and go to doctors and hospitals). Just like with adding features on your new car, so adding benefits increases the cost of health insurance.

That’s it. No magic. Insurance agents and brokers have the breakdowns of premium costs by age, geographic area, benefits for health insurance, just as they do for other insurance you can buy.

And so shopping is shopping. It is really done in the same way as shoes and cars. Except maybe no one is going to tell you how hot you look in that Blue Cross policy.