Insurance Premiums – My $21,564 Medical Plan

So how much does Max OOP pay in health insurance premiums?  

Talk about a loaded question – but we are willing to try and field just about anything here at Max Out of Pocket. Pricing on insurance can vary widely from product to product. Like most other purchases, the product itself could be a Cadillac or a Pinto. Unlike most other purchases, the pricing is complex and most people don’t ever see the full price tag. Luckily, Max is here to set the record straight on what we really pay for health insurance.

Competitive mouth wash market. Insurance premiums are not this competitive.
As I like to say, I wish the health insurance industry looked more like this.

Insurance Premiums

We actually haven’t covered insurance premiums here on the blog yet.

We pay for medical insurance through something called an insurance premium. Think of this as the fee to turn on your medical insurance coverage. You might recall, Max OOP likes the bucket analogy. The premium payment is paid to an insurance company that puts all the money into a giant bucket. This money is then used to help cover the cost of medical services of everyone paying into the bucket. By design, some people paying into the bucket will use more of the money than others. Some of them might not use any of the money if they have a particularly healthy year. 

Insurance companies use actuaries to try and determine the risk level of everyone dumping money into the bucket. This helps project spending and makes sure the bucket doesn’t run out of money in any given calendar year. There are some other moving parts to this, but let’s leave it at that for now. 

How Much Do You Pay, Max?

To provide medical for Mr. and Mrs. Max OOP in 2019, it will cost $21,564 in insurance premiums.

In other words, by the end of 2019, $21,564 will be dumped into our insurance company’s bucket to pay for healthcare services. I am going to continue to bold and italicize that number for effect. We are relatively healthy people in our mid-30s. 

I am not going to get too much into the specs of the plan in this post, but this is a High Deductible Health Plan (HDHP) providing family coverage for the two of us. The deductible is $3,300 and the max out-of-pocket is $6,600.  

Let me say that again, over TWENTY THOUSAND DOLLARS will be paid through 2019 to provide medical insurance for the two of us. I threw in a few capitalized letters there to drive the point home.

Comparing To Other Expenses

I am no actuary, but hopefully, I am not the only one that thinks that is an absurd and unsustainable number. It’s even worse when you compare it to some other line items in our budget. Let’s start with the big 3. These are projected expenses for the Max Out of Pocket household through the rest of 2019. We are a relatively high-income family living in a low COLA area.

  • Housing: $12,000 in rent
  • Auto: (gas, insurance, repairs for two paid off cars): $3,300
  • Groceries: (including things like food, toothpaste, toilet paper, and a bottle of wine here and there): $6,800

Total = $22,100

So we could cover 97% of our basic annual living expenses for what it costs to insure the two of us for one year. This includes the occasional bottle of wine.

If I had this money in my own pocket, I could pay cash to buy this brand new 2019 Nissan Rogue Sport for $21,127 and still have several hundred dollars to go out and celebrate.

So are you telling me I could buy a new car every year with what we pay for health insurance?
Kind of like healthcare prices, the retail price is $25,000 but they will give it to me for $21,000 (allowable).

This is well over TWO HUNDRED THOUSAND per decade funneling into a broken system we barely use. And we haven’t even gotten to patient cost shares yet like deductibles, coinsurances, copayments and the max out-of-pocket. This doesn’t even include my dental or vision insurance; only medical health insurance. 

If I wanted to get Mrs. Max OOP a car as well, we could buy two used cars and still come in over $3,600 under budget.

We could buy a couple of these PER YEAR for what is paid for our health insurance.

So How Can I Afford $21,564 Per Year?

If I was paying $21,564 in an open market, I would be doing pain-staking research on plan options to lower my price and buy a plan that would fit my minimal needs. Who knows, maybe I would forgo insurance altogether (cut out the middle man) and buy some medical services directly off the open market or internationally through medical tourism. It seems to me that most people who make larger purchases (like maybe a car) put a decent amount of time into making sure they are getting a good price and understand what they are buying. 

Unfortunately, those pricing pressures just aren’t as strong in the medical insurance market. Part of the reason for that is most people don’t ever see the full price tag for health insurance. Like we do, they pick it up through their employer’s cafeteria plan at a discount. In other words, the full $21,564 doesn’t come out of my own pocket.

How Much Does It Really Cost Me?

In 2019, I will only pay $4,793 to the insurance company through my employer-subsidized insurance product.  

This is something I agreed to pay when I evaluated my compensation package. You might remember our stroll through the cafeteria? If I didn’t like it, I could always leave the company and see what else is on the market through other compensation packages. That said, most people don’t dig into this number too much when considering job opportunities. Salary and geography drive almost everything in the job offer decision tree. Health insurance usually isn’t a negotiable item for larger employers.

My employer will pay the remaining $16,771 to the insurance company on my behalf as an ‘employee benefit’. Not all employers will share this number with their employees. I happen to review these numbers annually.

Here is how the breakdown looks over 26 pay periods.  

If my employer would allow me to forgo insurance and take the $16,771 ‘benefit’ as salary compensation instead of the ‘benefit’, trust me, I would take it. I would take half that and figure something else out for insurance. Unfortunately, my company doesn’t allow that. I do know some employers allow a nominal cash payment in exchange for electing NOT to use the insurance benefit. It usually doesn’t come close to the annual cost they would actually pay in insurance premiums on your behalf.  

Let’s see. Assuming Max OOP works 2080 hours this year, I would get about $8.06 in additional hourly compensation tacked onto my hourly rate if I were to take these premiums as regular compensation. 

$16,771 / 2080 hours = $8.06 per hour

The Minimum Wage Worker Comparison

My employer could technically hire a minimum wage worker for $7.25 per hour, put them to work for an entire year, and their salary would come in less than it costs to provide family medical insurance to them for the entire year. If I was that minimum wage worker, I would find it insulting that a year of my efforts was not even worth what it cost to insure my family. 

$7.25 (minimum wage) X 40 hours X 52 weeks = $15,080

So it costs $6,500 more to insure me and Mrs. Max OOP than it does to pay a minimum wage worker to complete a task for an entire year. Maybe I should hire some help for the Max Out of Pocket blog?

Ungrateful For This Benefit?

Some people might call me out here. “Max, you seem a little ungrateful for the fact that your employer is picking up 78% of your insurance costs. What gives?”

I don’t really care who is paying for it.  These numbers seem to be reaching a breaking point. If I am at a business meeting in my corporate cube with five colleagues on the family insurance plan, that’s $100,000 sitting in the meeting. I have actually been to meetings with more than 50 professionals in the room – that’s a million dollars.   

Since Max considers this $16,771 as part of my compensation package, I feel like that money is coming out of my pocket. It then goes right to the insurance company for a product that faces no real pricing pressure from competition.  

Tip Of The $20,000 Iceberg

I heard Dave Chase refer to insurance premiums using an iceberg metaphor on the Creating A New Healthcare podcast (Dr. Zaav Neuwirth) several months ago. We are starting to see some of the problems above the surface like higher copayments and deductibles, but the real problem is below the surface and hidden in these premiums. They are causing wage stagnation across the board and devastating budgets in the education system. This is generally the second or third biggest cost to employers and these premiums are not sustainable. I will touch on this analogy in more depth in another post, but Dave Chase’s theory is that Millennials will fix this problem.

Perhaps this little blog will help. After all, I am technically a Millennial.

I do need to reiterate though, price comparison can quickly get complex on these insurance plans. We are just a sample size of one. For example, although it is currently just me and Mrs. Max OOP with no kids, we are still paying the same rate as if we had a full family with 2.5 kids. A lot of company insurance plans would have a slightly lower rate when it is just a spouse on the plan compared to a 4.5 person family (with a white picket fence).

Also, we haven’t even looked under the hood at the specs of this $20,000 high deductible insurance plan. I am saving that for another day. 

Final Thoughts On Health Insurance Premiums

Apparently, my free preventive annual exam really wasn’t free. Hopefully, my $20,000 in premiums helped cover the cost of this visit with my doctor.

I want to be clear here that I am not blaming my insurance company for these prices. The entire system is off balance. It used to be food, water, shelter. Now medical insurance costs more than all three of those put together for the Max Out of Pocket crew.

The result is inflated pricing and excessive costs to the employer and small businesses.  It has also turned into yet another Golden Handcuff and just another reason people think they can’t retire early or go on sabbatical. If you haven’t noticed it yet, Max finds these numbers outrageous, egregious, preposterous.

Max is speculating, but $20,000 seems like a breaking point for family coverage. People like me are going to look at this iceberg for what it’s worth and start asking questions. Meanwhile, cost shares like coinsurance, deductibles, copayments, and our overall max out-of-pocket are continuing to rise higher above the surface. 

If we are pumping this kind of money into the Healthcare system, perhaps you understand a little more about why I am interested in medical office buildings.

Max Out of Pocket for our 2019 Medical Insurance Premiums = $4,793

How much is your medical insurance?


5 Responses

  1. I have blogged before about how our medical insurance premium is more than our housing cost and car cost combined. It is the single largest line-item in our budget at just under $3,200 per month (family of 4). We bought thru my husband’s COBRA coverage, now that we are both consultants. By next year, we’ll go on the exchange and we’re looking at $1300-1900 per month for the 2 of us, with our adult children buying separately b/c the numbers work out better that way. In addition to the high cost, the rapid inflation makes it hard to budget year over year. Our COBRA coverage went up over 10% over the 36 months we held it, which is higher than the average rate of inflation. The healthcare conundrum is a big reason why we bought enough property in Costa Rica to establish residency out there. It’s not that we’re going to use their universal healthcare (which would be a very cheap option) but if you live outside the US for the majority of the year, you can get private global medical insurance (different from travel medical insurance, it is more expensive but more comprehensive). Private global is much cheaper — I have seen plans in the low hundreds per month depending on what you need covered and where you would be spending majority time. We’re not relocating yet, but if premiums continue to rise and already are in the thousands per month…who knows?

    • Max OOP says:

      Hi Caroline! Our medical insurance premiums are the largest line item (hidden) from our budget as well. Your $3,200 premium is a big number ($38,000 annually?), it sounds like we are getting a deal. How does your max out-of-pocket and deductible look on that Cobra plan?

      We just got back from Ecuador and someone was saying you can buy property or put $25,000 in the bank and claim residency. How much property do you need in Costa Rica to claim residency?

      Mrs. Max OOP is applying for US citizenship (she is Canadian) and once that is established, we will have some built-in protection via healthcare geographic arbitrage. Her health insurance in Canada kicks back in after 90-days in the country. I wanted US citizenship finalized before we opened up Canada as a possible landing spot for us.


      • I can’t even remember the deductible or max out-of-pocket on the cadillac plan b/c we never used it enough! It was a great plan in the sense that we could see anyone we wanted, and copay was low ($20). Still, i don’t feel I got my $38,000 worth!

  2. I’m on Medicare, since I have a disability I still qualify even though I don’t qualify for medical payments. As a result, my insurance premiums are $375.50. That’s a far sight better than the $600ish I was paying on the marketplace plan for a plan with a decent deductible and standard copays for things like doctor visits (rather than having to pay the full price before the deductible was hit).

    It’ll go up a little in 2020 because I’m adding dental on as a supplemental package.

    My aunt actually had a deal with her (small business) employer for a while that the company would put the amount that the company WOULD have paid for her insurance into her paycheck, since she and her husband got a much better deal on premiums through his government employee plan. Alas, he later quit that, so now they’re both on her work plan I assume. Still, it was a pretty sweet setup while it lasted.

    • Max OOP says:

      Hi Abigail! That was definitely a great setup for your aunt! I would totally take that deal in my case. Does the $375.50 cover Part A and Part B?


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