The hospital bill said about $72,400. I paid about $213.
I still have that statement in a file folder. Not because I’m proud of the number – though I am – but because I want to remember how important it was to pick the right health plan. A few years ago, I needed surgery for a torn meniscus in my knee. Not emergency. Elective. I had time to plan. And I had a PPO plan that I’d chosen specifically for this kind of scenario.
Let me back up. At the time, I was between jobs – left my underwriting position and hadn’t yet built my consulting practice. I was on a COBRA plan from my former employer. It was a PPO with a about $1,500 deductible, about $3,000 out-of-pocket maximum, and a wide network. I paid about about $650 a month in premium. Expensive, but I knew I needed surgery.
I could have switched to a cheaper HMO plan. Lower premium, lower deductible, but strict network and referral requirements. I’d have to pick a primary care physician, get a referral to an orthopedist, and then use only in-network facilities. If I followed all the rules, my costs would have been similar – maybe a bit lower. But if I stepped outside the network, I’d be on the hook for the full bill.
I chose the PPO because I wanted to pick my own surgeon. The best knee guy in Chicago was out-of-network for most HMOs, but in-network for my PPO. That made the decision easy.
The surgery was done at an ambulatory surgery center – not a hospital, which saved money. The surgeon billed about $12,000. The facility billed about $55,000. The anesthesiologist billed about $5,400. Total about $72,400.
My plan’s negotiated rates: surgeon about $4,200, facility about $18,000, anesthesiologist about $1,800. That’s about $24,000. I had already met my about $1,500 deductible earlier in the year for an MRI and physical therapy. So my coinsurance was 20% of the negotiated rate: about $4,800. Then I hit my out-of-pocket maximum of $3,000, so I actually paid only about $3,000 total for the year. I had already paid about $2,787 toward that maximum before surgery (deductible plus copays). So my portion for the surgery was about $213.
That’s the magic of a low out-of-pocket maximum. Once you hit it, everything else is free.
Now, imagine if I had been on a high-deductible health plan with a about $6,000 deductible and a about $9,000 out-of-pocket max. I’d have paid the first $6,000 myself, then 20% coinsurance up to $9,000. Total out-of-pocket $9,000. That’s about $9,000 vs $3,000. Big difference.
The Health Plan Comparator can show you these trade-offs.
The key is to pick the plan that matches your expected health needs. If you’re healthy and rarely see doctors, an HDHP with an HSA can save you money. If you have a chronic condition or expect a major expense, a low-deductible plan with a low out-of-pocket max is usually better.
Someone I worked with – let’s call her Megan – had a baby last year. She was choosing between a PPO with a about $2,000 deductible and about about $5,000 OOPM, and an HDHP with a about $5,000 deductible and $8,000 OOPM. The PPO had higher premiums. She ran the comparator. The PPO’s total annual cost for a planned C-section and hospital stay was about $6,500. The HDHP’s total was about $11,200. She chose the PPO. Good choice.
Now, let me talk about networks – because that’s where PPOs shine. A PPO allows you to see any provider, in-network or out-of-network, without a referral. You pay less in-network, more out-of-network, but you always have coverage. An HMO or EPO typically has no out-of-network coverage except emergencies.
I learned this lesson from a client – let’s call him Ray. Ray had an HMO plan. His son needed to see a pediatric neurologist. The nearest in-network neurologist was 90 minutes away. There was an excellent neurologist ten minutes from his house, but out-of-network. The HMO would not cover any out-of-network care. Ray had to drive 90 minutes each way for every appointment. He was exhausted.
He switched to a PPO at the next open enrollment. He paid about $150 more per month in premium, but he could see the local neurologist. He told me “I would pay double to not lose two hours every week.”
The Coverage Gap Calculator can flag this issue.
So how do you choose between a PPO and an HMO? Here’s a simple rule.
Pick a PPO if you want the freedom to see any provider without referrals, if you have a specialist you love who might not be in-network for all plans, if you travel frequently, or if you value convenience over the lowest possible premium.
Pick an HMO if you are generally healthy, don’t have strong provider preferences, live in an area with a robust HMO network, and want the lowest possible premium and predictable copays.
Pick an EPO if you want no referrals but also no out-of-network coverage – it’s a middle ground.
What about POS (Point of Service) plans? They’re like HMOs but with limited out-of-network coverage. They’re less common now.
My surgery was a success. I’m back to running, biking, and chasing my kids. And I paid about $213. That’s a win. But I know that not everyone has that experience. I’ve heard horror stories of people who had the same surgery, same hospital, same surgeon, but a different plan – and they owed thousands.
I remember a woman named Teresa. She had a high-deductible plan with a about $7,000 out-of-pocket max. She needed her gallbladder removed. Emergency surgery. She went to the nearest hospital – which happened to be out-of-network. Her plan covered emergencies at in-network rates, but the hospital was a “balance billing” facility. They billed about $80,000. Her insurer paid about $30,000. The hospital demanded the remaining about $50,000 from her. She fought for a year, hired a patient advocate, and eventually settled for about $20,000. Still, that’s about $20,000 she didn’t have.
That’s the danger of narrow networks and balance billing. Even with a good plan, a single out-of-network provider can bankrupt you.
So here’s my advice for anyone facing a planned surgery or expensive treatment.
First, before you schedule anything, call your insurer and get pre-authorization in writing. Ask them to confirm the negotiated rate for the procedure, the facility, and the anesthesiologist. Anesthesiologists are often out-of-network even when the surgeon and facility are in-network. Ask if you can request an in-network anesthesiologist.
Second, if you have a choice of plans, use the Health Plan Comparator to model the total cost for your expected care. Factor in premiums, deductibles, coinsurance, and out-of-pocket max.
Third, consider a PPO if you need flexibility. The higher premium may be worth it for peace of mind.
Fourth, build a health savings account if you have an HDHP. The HSA is triple-tax-free. Max it out. Use it to cover your deductible and out-of-pocket max if you ever need care.
Fifth, know your out-of-pocket max. That’s the most important number. Once you hit it, you’re done paying for covered in-network care. So if you have a high-cost year, you want a low OOPM.
My surgery year was my highest-cost year ever. But because I had a low OOPM, my total out-of-pocket was capped at $3,000. I paid about $213 for surgery, and the rest of the year’s care – physical therapy, follow-ups, an unrelated urgent care visit – cost me nothing more. That’s the beauty of the out-of-pocket max.
If you haven’t checked your OOPM lately, pull out your summary of benefits. Look for the number. If it’s higher than about $5,000 for an individual or about $10,000 for a family, you have a significant financial exposure. Consider switching to a lower OOPM plan at next open enrollment, even if it means higher premiums.
P.S. Ray – the one with the HMO and the 90-minute drive – he eventually moved. Not because of the insurance, but because his wife got a job in another state. His new employer offers a PPO. He says “I never thought I’d be grateful for a PPO, but here we are.”
By Marcus
