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  • Writer's pictureAlternative Health Plan Reviews

Do The Math When Choosing Health Coverage

Updated: Jul 5, 2023

It can be intimidating to compare health coverage that is not traditional insurance when we do it for the first time. We are conditioned to think about our healthcare with a health insurance plan. This health insurance company will usually have a familiar name. For those that do not get financial assistance, it comes with a price tag that rivals a mortgage payment. Suppose you are an individual or small business owner going through this experience. In that case, we are here to help you see if a better alternative is available. We will wrap up this blog by using the universal language of math to make a practical comparison.

We want to start by defining what we mean when we say "alternative health plan" since there is a variety to compare. We will only have time to dive into some types and focus on the ones we feel are most viable if people just knew they existed and how to compare them.

Manage Healthcare Spending

We will start by covering the commonalities for almost all alternative health plans, which will have advantages and disadvantages depending on your needs and preferences. The most apparent advantage everyone appreciates is that, on average, they will be about half the cost of traditional insurance coverage. That is where we will want to start our math equation later on. The next one is that most plans do not require provider networks. Most people appreciate this aspect, although it can be new for us not to have our coverage tell us where we can and cannot seek healthcare.

The most significant difference with most alternative plans is that they will have limitations around pre-existing conditions. Somebody could quickly look at this limitation incorrectly, and we should understand that all have something pre-existing. The question we should ask ourselves about this limitation is if my pre-existing condition could lead to significant medical expenses that would be more than what I am saving. We always want to thoroughly read the definitions as they are not all created equal. This limitation means that healthier people do not have to pay a higher premium to offset those with known costly ailments. For many of our pre-existing conditions, like asthma, allergies, and pain, that do not require surgery or maintenance medication will not be a significant limitation. These healthcare conditions are inexpensive to treat and, if not severe, do not result in substantial expenses.

Short Term Plans
Healthcare Consulting

One variety of an insurance type alternative plan is short-term medical insurance. The plan rules vary by state, but for the most part, they renew every 12 months, so the term is not all that short. The rules around these plans and the duration of coverage have gone back and forth over the past ten years but are more stable. If you were to develop a condition, you may not be able to or want to renew your plan after 12 months. These plans resemble traditional insurance with copay, coinsurance, and out-of-pocket maximums. They may or may not have networks, and they are more affordable due to the pre-existing limitations. Research the company you choose carefully, as many do not have strong reputations for customer service.

Fixed Benefit Plans

Next is another type of insurance plan that is not traditional, called a defined benefit or fixed indemnity plan. As the name indicates, these plans pay a fixed amount for medical bills. They come in many shapes and sizes, and since they are very profitable to insurance companies, there are many different companies to choose from. The downside to these plans is that the fixed amount may not be sufficient for larger medical expenses. On the contrary, if you purchase a top-dollar plan with larger amounts, it may exceed the billed medical costs, and you could end up with a net positive. This result is not all that common but is possible if medical bills are well discounted and the plans pay high reimbursement amounts.

These types of plans will often be sold in conjunction with other alternative or traditional health plans. Those sold in conjunction are usually cheaper with lower benefit amounts and may be called accident, critical illness, cancer, or hospital indemnity plans. For our purposes, we are talking about the higher coverage plans. It should also be noted that the patient will handle the administration and negotiations, and gathering the necessary paperwork from a provider can be tricky if you have never done it.

Save Together
Medical Cost Sharing

Insurance companies do not offer the last type of coverage; instead are self-reliant on a community. They are referred to as medical cost sharing, healthcare, Christian ministry, or a combination of these terms. The critical take, away can be a good or bad thing, depending on your point of view, is that no insurance is involved.

These types of plans, on the surface, can be confusing at first. To my earlier point, this is likely due to the conditioning we have received from insurance companies over the past 40 years. These plans have removed the verbiage we have become accustomed to, like deductibles, coinsurance, copays, and out-of-pocket maximums. Once you can get through the terminology differences, the next place to explore is a document known as the "Member Guidelines." These communities have this governing document to show how they will help members with their medical costs. They have parameters around joining that are either religious or principle-based that all members must agree to. You must consider this and make sure you fit their community standards.

At first glance, some may describe these plans as catastrophic, but that is not usually the case. Depending on the organization, they will use a variety of terminology for the term we usually know as the deductible. We want to understand clearly that most communities do not have the mechanism of coinsurance, which is the amount we pay after the deductible. Again they are not all created equal, and some of these organizations will have something similar. Still, generally, there are no out-of-pocket costs once the initial responsibility amount is met. One way that will often describe these plans is that they are not intended to manage small expenses as frequently as a traditional health insurance plan. Working in the manner of being more effective for larger medical events and less involved with manageable medical expenses is the opposite of traditional insurance, but it can be what many of us prefer.

Do the math

Now that we know some key points for alternative medical plans, it's time to put the math to the test. We understand the most significant limitation with almost all alternative medical methods is the limitations surrounding pre-existing conditions. With this in mind, we want to factor in some common conditions. Hence, we understand to the full extent how our finances will be impacted. We will use a savings of 50% on the monthly compared to traditional insurance plans as we have found that is a good average. The type of alternative plan, your household dynamic, and the coverage level will be all factors, and our comparison will be an accurate guide to making your comparison. Remember, this will not include any financial assistance one may receive from their employer or the government (usually through a subsidy).

Example: A family of 4 will pay about $1,000 monthly for a $5,000 deductible. Dad suffers from back pain and sees a chiropractor every two weeks. Otherwise, they are healthy and need something just in case. The alternative plans will be $500 per month or $6,000 in annual savings. We like to do our math annually to make a more concise evaluation.

All three approaches will have limitations around care related to Dad's back. He wants to carefully consider if he may need surgery in the upcoming year or if he will continue to manage it with occasional doctor visits and chiropractic care. Dad paid a $50 copay for his chiropractic visits and asked his provider about self-pay discounts if he no longer has traditional health insurance. His provider tells him that if he pays for a month in advance, the cost will be $250. Self-pay discounting is extremely common and essential to understanding in healthcare. He realizes his insurance plans only save him $600 yearly in chiropractic care costs.

Short-term medical plan

Our family will have a plan with a $2,500 deductible and will not cover anything related to dads back. His plan does not cover preventive services at 100% like his traditional plan but does have $50 copays for doctor visits. They realize that their plan has coinsurance and an out-of-pocket maximum of $7,500, similar to their traditional health coverage. They will experience about $5,400 in savings if they do not use it but may end up close to the same in out-of-pocket expenses if they have significant medical expenses.

Fixed Indemnity plan

This plan is more unpredictable since the most crucial variable is how much the provider charges. Our family will want to be mindful and proactive in asking for pricing and take advantage of prompt pay discounts. If they were to have major surgery, they could pay more for this approach since it only has a $5,000 surgical benefit. If the surgery were due to an accident, the amount the benefit plan pays would be higher. Still, something like appendicitis could cost them tens of thousands of dollars out of pocket. Like the other alternative approaches, if they do not use healthcare or only use it for minor expenses, they will save thousands from a lower monthly premium.

Medical Cost Sharing

As with the other alternative plans, this will not help with the chiropractic care or any care related to Dad's back in the first year. For any other unexpected medical events, the family will have lower out-of-pocket expenses of only $1,500. This family will manage their medical billing to submit those to their medical cost-sharing organization. This process may be new, but their community has a concierge service that helps answer questions about navigating healthcare as a self-pay patient. They may have to manage the cost of certain preventive services, such as birth control, covered 100% by traditional insurance and likely not by medical cost sharing. If they do not use any healthcare, they will save $5,400. If they have an unexpected medical event, they will save even more since they do not have to pay a larger insurance deductible.

Each approach has pros and cons and clear savings for those that are a good fit for an alternative approach. An alternative plan is only for some, and if you have a high likelihood of significant medical expenses, then you may need traditional insurance despite the high cost. Do your research and do the math; do more than just what we have become accustomed to doing. Saving $5,000 a year for ten years could help us all plan our finances more effectively.

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