Calculating the value of a health insurance plan’s maximum out-of-pocket amount.
All individual and family health insurance plans include a maximum out-of-pocket amount that is the most an individual will pay on in-network health care services for a calendar year. This is particularly important for sole proprietors and self-employed people as one emergency room visit can easily top $20,000, and without health insurance, can imperil the person’s business. The value of the maximum out-of-pocket benefit can be measured and compared between different metal level health plan tiers and carriers as one guide in selecting a health plan.
Maximum Out-of-Pocket Amount Backstop
Health insurance is similar to life insurance in that it has a defined benefit. For life insurance the defined benefit is the death benefit or the amount the life insurance will pay in the event of your death. You could call this a mortality benefit. Health insurance provides morbidity or sickness benefits. Health insurance guarantees that you won’t have to pay more than a certain dollar amount for care when you get sick.
Standard benefit designs
The California standard benefit design plans are nice because you know that regardless of where you live in the state a Silver 70 health plan will have the exact same benefits in San Diego as it does in Crescent City. The only difference will be the premium amount. Because we know the maximum out-of-pocket amount of each health plan and its annual cost when can calculate similar “cost per benefit” measurements for a variety of carriers and metal tier levels.
Calendar Year Maximum Out-of-Pocket Amount: The sum of any applicable deductibles, copayments, and coinsurance for in-network services. When the respective maximum amount is reached the health plan pays 100% of the covered benefits at the contracted rates for the remainder of the year. PPO plans will a separate maximums for in- and out-of-network services.
How much does a medical expense backstop cost?
Since many people are only looking at health insurance as a cap or backstop for expensive emergency department expenses I’ve often been asked the question of whether the Platinum plans were worth the price over a Bronze health plan. The genesis of the question comes from the relatively high premiums for the Platinum plan but the maximum out-of-pocket (MOOP) amount is only $2,500 less than a Bronze plan. The Platinum plan MOOP is $4,000 and $6,500 for Bronze for 2016.
| California 2016 Standard Benefit Design Plans | |
| Metal Tier | Maximum Out-of-Pocket Amount |
| In-Network | |
| Bronze | $6,500 |
| Silver | $6,250 |
| Gold | $6,200 |
| Platinum | $4,000 |
Will a Platinum plan save money?
One of the misconceptions is that a higher benefit plan will necessarily give you more protection against health care costs. Many people believe that the Platinum plan with lower coinsurance and maximum out-of-pocket amount is better than a Silver plan. When you look at the cost of the MOOP and difference in annual premium between the two plans, the Platinum plan is not always the better value. And when it comes strictly to buying a backstop or limit to your annual health care costs, the Silver and Bronze plans are always less expensive than a Gold or Platinum.
Calculating the cost of the Maximum Out-of-Pocket benefit
If we take the annual premium (AP) amount for the health plan and divide it by the maximum out-of-pocket (MOOP) amount we get the cost of each dollar of maximum out-of-pocket benefit. In other words, if a health plan guarantees that you would be on the hook for the MOOP of the plan, how much does it cost per MOOP dollar for that insurance? We can then use AP/MOOP number as one measurement of comparing health plans and metal tier levels.
Comparing MOOP costs by health plan
Let’s look at the cost per dollar of MOOP for a forty-five year old individual in Santa Clara County. (I’ve also included the figures for a forty-five year in Los Angeles County at the end of the post.) The least expensive MOOP is the Valley Health Plan Bronze plan at $0.58. The Valley Health Plan Platinum plan with a $4,000 MOOP costs $1.62 per MOOP benefit dollar. The total amount of the premiums exceeds the maximum out-of-pocket amount of the plan. If you are only interested in restricting your MOOP health care costs, does it make sense to purchase a Platinum plan where the AP/MOOP is over two and half times greater, but the actual MOOP is only 38% lower?
| Bronze $6,500* | Valley Health Plan | Anthem Blue Cross | Kaiser | Blue Shield | |
| Annual Premium | $3,744 | $3,756 | $3,972 | $4,920 | |
| AP/MOOP | $0.58 | $0.58 | $0.61 | $0.76 | |
| Silver $6,250 | Valley Health Plan | Anthem Blue Cross PPO | Kaiser | Anthem Blue Cross HMO | Blue Shield |
| Annual Premium | $4,956 | $5,016 | $5,208 | $5,676 | $5,748 |
| AP/MOOP | $0.79 | $0.80 | $0.83 | $0.91 | $0.92 |
| Gold $6,200 | Valley Health Plan | Kaiser | Anthem Blue Cross PPO | Anthem Blue Cross HMO | Blue Shield |
| Annual Premium | $5,760 | $6,192 | $6,324 | $7,164 | $7,272 |
| AP/MOOP | $0.93 | $1.00 | $1.02 | $1.16 | $1.17 |
| Platinum $4,000 | Valley Health Plan | Kaiser | Anthem Blue Cross PPO | Anthem Blue Cross HMO | Blue Shield |
| Annual Premium | $6,468 | $6,708 | $7,392 | $8,316 | $9,276 |
| AP/MOOP | $1.62 | $1.68 | $1.85 | $2.08 | $2.32 |
*Excludes HSA plans
Premium spread
Another measurement of value between the different metal levels is the annual premium spread between the plans. For some health insurance companies the difference of premium between the Silver and Platinum plans is greater than the MOOP difference of $2,250. In Santa Clara County for a forty-five year old individual the increase in annual premiums between the Silver and Platinum plans of Anthem Blue Cross HMO and the Blue Shield PPO are greater $2,250.
| Valley Health Plan | Anthem Blue Cross PPO | Kaiser | Anthem Blue Cross HMO | Blue Shield | |
| Silver | $4,956 | $5,016 | $5,208 | $5,676 | $5,748 |
| Platinum | $6,468 | $7,392 | $6,708 | $8,316 | $9,276 |
| Difference | $1,512 | $2,376 | $1,500 | $2,640 | $3,528 |
The annual premium to MOOP difference is even worse when you compare Silver to Gold plans. All the health plans cost hundreds of dollars more for the Gold over the Silver and yet the MOOP for the Gold plan is only $50 less than the Silver. Once you have hit your MOOP you are done for the year paying for covered health expenses, but you must still continue making your premium payments. With a Platinum plan you may be making premium payment in excess of the MOOP that you received.
| Valley Health Plan | Anthem Blue Cross PPO | Kaiser | Anthem Blue Cross HMO | Blue Shield | |
| Silver | $4,956 | $5,016 | $5,208 | $5,676 | $5,748 |
| Gold | $5,760 | $6,192 | $6,324 | $7,164 | $7,272 |
| Difference | $804 | $1,176 | $1,116 | $1,488 | $1,524 |
When do you want to reach your MOOP?
In some medical situations all a higher benefit plan does is to slow down when you reach your MOOP. With the Bronze plan, if you have a serious medical emergency where you are hospitalized you are almost guaranteed to hit your MOOP within a day. With a health plan where you go into coinsurance and you pay a percentage of the hospital bill and copayments for other services, it might take weeks or months to reach the MOOP of the plan. The health insurance companies prefer to share the cost of medical expenses with you verses having to cover all health care costs after you’ve hit your MOOP.
Other health plan considerations
I’m not saying that you should only select a health plan based on the cost of the MOOP or the difference in premiums between metal tiers. There are provider networks and prescription drug coverage to consider as well. For some sole proprietors and the self-employed who are relatively healthy and only want health insurance as backstop to expensive medical care, it is worth considering the cost of the MOOP which is the backstop.
Los Angeles County 45 year old rates by health plan
| Bronze $6,500 | Molina | Oscar | L.A. Care | Kaiser |
| Annual Premium | $2,592 | $3,084 | $3,144 | $3,228 |
| AP/MOOP | $0.40 | $0.47 | $0.48 | $0.50 |
| Silver $6,250 | Molina | Health Net | L.A. Care | Anthem Blue Cross HMO |
| Annual Premium | $3,204 | $3,456 | $3,564 | $3,780 |
| AP/MOOP | $0.51 | $0.55 | $0.57 | $0.60 |
| Gold $6,200 | Molina | Health Net | L.A. Care | Oscar |
| Annual Premium | $3,588 | $3,984 | $4,236 | $4,524 |
| AP/MOOP | $0.58 | $0.64 | $0.68 | $0.73 |
| Platinum $4000 | Molina | Health Net | L.A. Care | Oscar |
| Annual Premium | $4,320 | $4,404 | $4,908 | $5,076 |
| AP/MOOP | $1.08 | $1.10 | $1.23 | $1.27 |
| Bronze $6,500 | Anthem Blue Cross PPO | Health Net | Blue Shield | |
| Annual Premium | $3,336 | $3,480 | $3,696 | |
| AP/MOOP | $0.51 | $0.54 | $0.57 | |
| Silver $6,250 | Oscar | Kaiser | Blue Shield | Anthem Blue Cross PPO |
| Annual Premium | $4,056 | $4,236 | $4,308 | $4,440 |
| AP/MOOP | $0.65 | $0.68 | $0.69 | $0.71 |
| Gold $6,200 | Anthem Blue Cross HMO | Kaiser | Blue Shield | Anthem Blue Cross PPO |
| Annual Premium | $4,776 | $5,040 | $5,460 | $5,592 |
| AP/MOOP | $0.77 | $0.81 | $0.88 | $0.90 |
| Platinum $4000 | Kaiser | Anthem Blue Cross HMO | Anthem Blue Cross PPO | Blue Shield |
| Annual Premium | $5,460 | $5,544 | $6,552 | $6,948 |
| AP/MOOP | $1.37 | $1.39 | $1.64 | $1.74 |
Platinum verses Silver premium spread, Los Angeles County, 45 year old
| Molina | Health Net | L.A. Care | Anthem Blue Cross HMO | |
| Silver | $3,204 | $3,456 | $3,564 | $3,780 |
| Platinum | $4,320 | $4,404 | $4,908 | $5,544 |
| Difference | $1,116 | $948 | $1,344 | $1,764 |
| Oscar | Kaiser | Blue Shield | Anthem Blue Cross PPO | |
| Silver | $4,056 | $4,236 | $4,308 | $4,440 |
| Platinum | $5,076 | $5,460 | $6,948 | $6,552 |
| Difference | $1,020 | $1,224 | $2,640 | $2,112 |