Thursday, January 07, 2010

Totaling up the cost of healthcare for one family

So, demographically speaking, we're a "typical American family". We live in the suburbs, have two kids, etc...

I'm doing some beginning of year/end of year calculations at the moment, and there's a particular number that struck me.

We have the lowest cost comprehensive health plan my company offers. It's a high deductible plan with a healthcare savings account; and we contribute the maximum amount to that account (about $6k).

That saves us about $4,000 a year on premiums (which is also the amount of our deductible), reduces our taxes significantly (HSA contributions are pretax), and overall reduces our out of pocket costs, as well as being cheaper for the company. I think anybody who doesn't have a chronic illness requiring constant treatment should at least investigate the HSA/HDHP option.

Our total out of pocket cost for healthcare this year, including our insurance premiums (medical, dental, and vision), and everything that was covered from our healthcare savings account, was about $7650.

Of course, if you include the portion of our healthcare costs that the company pays (80% of the insurance premium, and $750 into the HSA), that number is much larger: the company pays about $7200 a year for our health plan premiums, plus the $750 HSA contribution; $585 for our vision premium; and about $3200 a year for our dental plan premiums.

Oh and that doesnt include the $2158 the government sticks me for medicare/medicaid; and the same amount paid by my employer.

So... about $24k out of my paychecks and employer went towards healthcare last year, accounting for all sources and destinations; $19k or so of which was theoretically just for my family.

The thing is, our actual cost for healthcare last year was about $12,500.

About $4000 of that was fixing my wifes teeth (and she's got another $15,000 to go, of which we'll pay about half. She had two teeth extracted including an oral surgeons visit, a root canal, a crown repaired, 3 fillings, two abcesses, and two cleanings). My wifes other direct medical care costs were about $1200.

My direct personal medical costs were about $3600, mostly relating to my knees, and the hormone issue. My dental costs were about $1500.

The rest was prescription drugs, over the counter medical items (HSA covered stuff like sudafed), and a couple of doctors visits for the kids.

And, of all that, only about $4800 was actual medical care that would have been covered by health insurance; and only $3000 of that was actually covered because we didn't go over our deductible. The rest came from the HSA, or was dental care.

The dental care was the big "win" for us this year, since I had about $1500 worth and my wife had about $4000 worth; of which we paid for about half, all out of the HSA. For all that, our dental plan cost us $700 out of pocket, and cost my employer about $3200.

I say "big win" only on a relative scale, because for $3900, we got about $2750 worth of services. As insurance deals go, that's actually pretty good.

Health care on the other hand, was something of a bust for us this year.

Our total was $4800, but our insurance only paid $3000 of that with a remainder to us of $1800, plus the $9,000 or so in combined personal and company premiums.

Of course, if you just look at my personal out of pocket plus premiums, that looks like a good deal. After all, I only paid about $1600 in healthcare premiums for about $3,000 in total covered services; and about $700 in dental premiums for about $2750 in covered services.

The difference between those two value propositions, that $13,000 that the company pays; is what we call a "hidden externality". There is a cost that most people dont account for when thinking about their healthcare, and its what their employer pays.

Oh and then theres that $4300 in medicare/medicaid I and the company combined pay...

Have these numbers been a bit confusing? Because believe me it was confusing compiling them.

Now that's just for me, and my family of four. Imagine how difficult thats going to be for the other 100 million or so families in America, combined...

What ISN'T confusing to me though, is that if instead of providing me with health insurance, my paycheck were instead $15,300 higher... Well my family could buy our own copper bottomed gold plated health insurance for a fair bit less than that, and have a good chunk left over...

Or we could use a healthcare savings account for our regular expenses, and have a $4000 a year $4000 deductible catastrophic care plan and have another $5,000 in our pockets.

Or we could do none of that and just pay cash, and still be $3000 ahead on the deal.

And hell, the government would have more tax revenue, and my employer wouldn't have to have several thousand insurance specialists on staff...

I just don't see how that wouldn't be a win for everyone.

It doesn't matter who you are, or how much money you make; if your employer provides your insurance, and pays for most of the cost (and most do); that overhead and inefficiency are hurting you, and your company, and the country.

And the democrats want us to hand all that over to a government run bureaucracy, with not only no incentive to be efficient, but all the perverse incentives that government creates to ensure inefficiency; and with the inherent rentseeking of government?

No thanks. I'd like to go the other way please.