A Case Study: Should Your Medical Insurance Premium be Higher than Your Mortgage Payment?
A 2018 Case Study About Medical Insurance
In 2018, our medical insurance provider, HMSA, informed us that the family High Deductible Health Plan we have carried since 2009 is being discontinued at year-end because it fails to conform to the Affordable Care Act (ACA). As a result of this plan termination, our monthly premium will rise from $609/month ($7,308 per year) to $2,420 per month ($29,040 per year) if we elect to enroll in the comparable HMSA Gold PPO Plan offered through the Hawaii healthcare exchange marketplace. This represents a whopping premium increase of $21,732 per year!
To put this into perspective, according to the 2018 Oahu Real Estate Market Insights Report, the average mortgage payment on a two-bedroom condo on Oahu is $2,253 per month. I suspect most working families on Oahu would have a difficult time saving $29,040 per year from their after-tax pay to purchase the HMSA Gold Plan. Under the Affordable Care Act, consumers are required to purchase insurance in-state, which is a problem in small populations states (e.g., Hawaii) with few/expensive coverage options.
Hawaii Medical Insurance and Laws
With a price tag of $21,188 per year, even the no-frills, higher deductible Bronze plan is beyond the reach of most families. Hawaii families with incomes above the MedQuest limit and who do not have access to employer group coverage, seem likely to go without medical insurance. Even with access to group medical insurance, the cost of family coverage may still be prohibitive, since Hawaii employers are only required to pay for healthcare insurance for employees who work more than 20 hours per week. Laws did not require employers to offer family coverage.
From the employer’s perspective, the cost of providing insurance to employees is only modestly less than the individual exchange plans. For small businesses, such as Financial Planning Hawaii, the annual medical insurance cost per employee is approximately $625-$650/month ($7,500-$7,800 per year).
Additionally, small business owners are precluded from seeking lower cost options by purchasing medical insurance through association groups as they can for group life and disability insurance. To circumvent this restriction, many small businesses have moved to exploit a loophole that permits them to take their employees, including the business owners, off payroll and hire them back from employee leasing agencies.
The leading employee leasing agencies in Hawaii are now among the state’s largest private employers and the largest bargaining groups for employee benefits. For companies with more than 100 employees individual medical insurance premiums may be as low as $500 per employee per month.
The Numbers Behind Insurance Family Plans
For the Robinson family, the small business group equivalent of the HMSA Gold family plan costs $1,913 per month ($22,956/year). This is considerably better than the afore-referenced $2,420 month ($29,040/year) individual family plan rate. The net cost will be further reduced by virtue of the fact that the premium will now be a business expense of FPH, instead being paid from our family’s after-tax savings.
Still, one cannot help but conclude that there is something wrong with a healthcare insurance system that costs more than $20,000 per year per family. As a simple example of the economic inefficiencies in the current system, under our soon-to-be terminated high deductible plan, we had a clear financial incentive to take care of health and to be judicious in our use of the health care system, since the out-of-pocket expenses are high. In contrast, our new group plan feature low co-pays and low deductibles, which offers no disincentive to use the healthcare system. In fact, we have an incentive to use it more, just to try to get our money’s worth!
John Robinson is the founder of Financial Planning Hawaii and a co-founder of software maker Nest Egg Guru.
Disclosures: Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities.
Fee-Only Financial planning services are provided through Financial Planning Hawaii, Inc, a separate Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.
The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications.