Navigating the Confusing Array of Health Insurance Options with a New Baby

by Kevin on August 16, 2013

My wife and I are in a very blessed financial position. Our parents were amazing enough (and hard working and financially diligent enough) to save up for our college eductions. Whether through scholarships or straight payments, my wife and I graduated without a dime of student loan debt. And that has made all the difference in our financial lives.

We work a combination of a great paying job with decent benefits and a teachers-aren’t-paid-enough job with better benefits. We’re also at a place — thanks to living a low debt lifestyle where our income far exceeds our spending needs — that my wife can take the fall semester off work.

Since having a child definitely qualifies as a “qualifying live event” (that, my dear readers, is quite the understatement) we have the option of reconsidering our various health insurance options.

After looking at everything and crunching the numbers all I have to say is, no wonder we tried to pass healthcare reform and it ended up being more than 2,000 pages…

Health Insurance Options for Adding a Child

As I mentioned my wife is allowed to take up to the first year off of work without pay after her FMLA coverage runs out. She’s going to take off the fall semester and return in the spring.

Because of this we have to pay the full premium on her health insurance for about 3 months. As you might imagine this is not inexpensive, so we wanted to look at our options before making a decision.

1. Stay with current health insurance

Just adding a child to bump our coverage into family coverage range under normal circumstances (where the school system pays part of the premium) bumps our plan to about $500 per month.

When their payments drop off for 3 months we are responsible for the full amount which pushes it to the $1,300 range.

Ouch.

Like I said, we know having her take off the semester would be a financial burden. Loss of income plus increased cost of benefits. But we’re of the mind that those first six months are critical for his development, so it’s worth it.

But it doesn’t make the premium sting any less.

2. Change to my health insurance

We could change course and jump onto my employer’s health insurance which would only run us about $350 per month. That would be a savings of $950 per month — certainly worth it, right?

Not so fast. My employer uses a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). Sure, I can set aside income pre-tax and never pay taxes on it if it is used for health costs. That’s a win. But the HDHP has a $2,500 family deductible associated with it for the calendar year. We’d be on the hook for the first $2,500 worth of costs, then 20% of costs after that.

Knock on wood and cross your fingers, we’re hoping not to have that many trips to the doctors office and pharmacist. So we could end up saving money. But if something drastic happened we would have to pay the full $2,500 out of pocket first and then 20% of whatever remained. Considering the move would only save us three months of $950 — $2,850 — it doesn’t seem worth it. If we just spent $2,500 on the deductible and no more, we’d be ahead by $350.

But trust me.

Switching back and forth on the insurance companies… the pain involved with fax this, request that form, no we don’t provide that documentation even though your new insurance company is asking for it …

Avoiding that is definitely worth $350. Heck, it might even be worth the full amount.

(Have I mentioned how much I loathe health insurance companies?)

3. Buy health insurance elsewhere

Lastly we could eschew those two options and look to buy health insurance on our own. But again, the pricing hasn’t been that competitive and switching to the insurance then back at the beginning of the year is just not attractive.

Our Decision

We’ve decided to eat the cost of staying with my wife’s coverage for two reasons.

One, as mentioned above, switching back and forth on insurance companies is a serious, serious pain.

Two, and more importantly, despite the cost we both see value in maintaining consistency with the insurance company we’re using. Especially at such small potential savings with high aggravation to boot.

I won’t say I’m pleased to spend almost $3,000 more than I should for the same exact coverage, but that’s what we’re doing.

What would you do?

{ 3 comments }

JB August 17, 2013 at 10:04 am

You are not adding in all the savings of the HDHP. OVer the course of the next year your deductable for the entire family is $2500.
You already noted that just the 3 months of paying full price for your wife’s will cover that.

For the next 12 months, using no coverage, just paying premiums you wil pay:
$4200 in premiums for yours
$6000 in premiums for hers
That’s $1800 difference for the year, not counting the extra 3 months.

You are actually only “at risk” of paying $700 with the $2500 family deductible. But if you hit it, all the rest of the year will be 100% covered (assuming it is like most other HDHPs). And with a new baby – you will use it this year if no other.

And you contribute pre-tax to the HSA as you mentioned. Any money you contribute there is rolled-over year over year, with interest. – unlike an FSA that disappears at the end of the year.

For you, with all your budgeting for future and explanned, maybe paying $3000 for the hassle of a health plan change (which your HR people will assist you with) is worth it.

For the majority of people, using the HSA to hold the same amount they WOULD have paid in premiums for a traditional plan, and using that to pay the deductable allows for saving and planning for more than a year a at a time.

This year you will be using all that deductable, but next year maybe only $500 of it and the next could be wishing for that 100% coverage after the deductable.

We haven’t even added in the 20% co-insurance that traditional healthplans usually have, once you meet your deductable.

Kevin August 17, 2013 at 10:23 am

Sorry for not being clear. She goes back to work in January and her premiums will go back down to the normal rate versus us paying the full amount.

Or maybe that’s what you mean, the difference would be ~1,800 low for the year on my insurance than on hers.

However, there are some other assumptions that aren’t correct: my HDHP only covers 80% after you hit the deductible, so you’re still on the hook for some potentially big amounts until you hit the out of pocket maximum (which I believe is over $10,000), and our HSA account has some stupid $6 “maintenance fee” on it. And her plan, if I remember correctly, just has the typical office co-pay rather than owing a percentage.

We can get the same preferential tax treatment using her FSA (carefully, since it doesn’t roll over like the HSA).

Great comment though and definitely made me look at the numbers again.

Thomas August 25, 2013 at 8:55 am

great article, thanks very much

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