How to Rate a Health Plan: What Does a Dollar Cost?

How to Rate a Health Plan

The fundamental equation when rating a health plan is: What do I get for my money?

If you do not have medical claims, then the answer is simple. Nothing.

Buying Dollars

When you have medical claims, you can consider how much you received in medical services and how much you paid.

- $4,000 in Premium and Out of Pocket (you paid)
+ $1,000 in Medical Services
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4000 / 1000 = $4 spent for every dollar gained

The above example demonstrates a fairly poor deal for the insured. You have spent $4 for every $1 worth of health care gained. If you had not been insured, your medical costs would still be $1,000 and you could have saved yourself the extra $3,000 by paying it yourself.

- $1,000 in Out of Pocket (you)
+ $1,000 in Medical Services
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1000 / 1000 = $1 spent for every dollar gained

High Claims

This equation starts working in your favor when you have hefty medical expenses, or in insurance parlance, high claims.

- $4,000 in Premium and Out of Pocket (you paid)
+ $16,000 in Medical Services
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4000 / 16000 = $0.25 spent for every dollar gained

In the above example with high medical expenses, you are getting a $1 of health care for 25 cents. You are effectively using health insurance to lower your costs by 75%.

High Claims Are the Exception, Not the Rule

High medical expenses are not common and so generally people pay for coverage which they will not use. When selecting a health plan, think about the current state of your health, and look at lower premium costs to help reduce the amount you pay for $1 of health care.