The Healthcare Coverage Hierarchy of Needs
A savvy consumer of healthcare has a paradox facing them: How should they best spend their time and money when it comes to healthcare. We believe that the best answer comes in two parts - how to you allocate your precious resources on staying healthy, and how do you allocate your precious resources on health coverage. They are actually two different things.
From a health maintenance standpoint, the best value always comes in the form of prevention. If you have one minute or one dollar to devote to your health, the best return will be had when you devote it to prevention. A few examples to illustrate:
- Flossing daily is much cheaper and more pleasant than getting fillings and a root canal
- Taking blood pressure medication, which may only cost $4 per month at Target, is much cheaper and more pleasant than being treated for a stroke
- Exercising and keeping weight off is much cheaper and more pleasant than dealing with the long-term effects of diabetes
- Stopping smoking, or not starting, is much cheaper and more pleasant than being treated for emphysema or lung cancer
The reality, however, is that we cannot only focus on prevention, we must also think about our health coverage. To that end, we have developed a Healthcare Buyer's Hierarchy of Needs. This is one way of looking at how best to use your hard-earned dollars on wise health coverage. The Hierarchy of Needs assumes that you are a consumer of the U.S. healthcare system.
Need #1: High-dollar medical coverage. Imagine that you are in a car accident or have a freak emergency medical condition and are hospitalized for two months. It is easier than you think to incur $250,000 of medical bills, leaving you and your family facing a mountain of debt. At a minimum, ensure you have coverage for these catastrophic events, even if through a no-frills, high-deductible plan. Preventing this kind of financial loss is exactly what risk pools and insurance were meant for. Do whatever you can to ensure you have this safety net in place.
Need #2: Preventative medical. For the reasons outlined above, it is important that you are able to access the preventative care you need. Much preventative care can be delivered in a very cost-effective way - flu shots are $20, generic drugs are as cheap as $4 per month, so much of this cost can simply be paid out of your household budget, ideally with pre-tax dollars through an FSA or HSA. It is reasonable to pay some out-of-pocket dollars for our health -- after all, we pay out-of-pocket dollars for our food, gas, and utilities, and our health is at least as important as those items. But ensure that money doesn't become the issue between you and good preventative care, such as age-appropriate exams or vaccinations for children. This kind of preventative care can be obtained through an employer's insurance (even many high-deductible plans allow for some basic preventative care) or funded by your FSA or HSA.
Need #3: Elective & mid-tier medical. For care such as physical therapy, foot orthodics, or having elective procedures such as a vasectomy, it is helpful to have an insurance that will cover the cost. This is an area, however, that for certain people may be more economical to save on the premiums and purchase using HSA, FSA, and/or negotiating with your provider.
Need #4: Dental coverage. A typical visit to a dentist costs $150 - $300. If you need a filling, that may be $300 - $600, depending on the cosmetic options you choose. A more intensive procedure such as getting a crown or planing may cost $750. The bottom line is that many dental procedures may be just as affordable on an out-of-pocket basis as they would be if you were to pay the dental premium and then still be stuck with up to 50% as a copay, but given the frequency and potential seriousness of dental issues, coverage can be a good idea. If your company offers you dental for just a few dollars a month, it probably isn't a bad deal. But don't stretch too much for dental when you could just as easily pay many claims yourself. Spend the money on floss and toothpaste instead, and contribute the difference to your HSA (if you have one).
Need #5: Vision coverage. For many people, trips to the eye doctor are rare and uneventful. Individuals who have prescriptions for eyeglasses or contacts are usually told to visit their eye doctor every two years. Even for people who have vision insurance, it often doesn't cover the full cost of glasses or contacts. A quick call to a local, reputable eye clinic informed us that paying cash for a routine eye exam would cost $125 -- very affordable, especially if paid with pre-tax dollars. Keep in mind that vision coverage would not pay for eye injuries, eye infections, or other more serious eye conditions. Your medical coverage would. All the more reason to focus on medical coverage and saving in an HSA, and not fretting about other coverage if it isn't affordable.