Edwin gave Kevin a sheet that explained the health coverage options available, and how much they would cost. One would be $200 a month, one would be $50 a month, and the last option would be free. Kevin was a bit confused. He asked Edwin, “Isn’t health coverage always free when you get it through your job?”

“Not necessarily,” Edwin explained. “Each of the health plans we offer require a monthly premium. Our company will pay for up to $300 of that premium.”

“So,” Kevin interrupted, “that plan that will cost me $200 a month actually costs $500 a month, but you guys are paying for $300 dollars of it?”

“Exactly,” Edwin said.

Kevin asked, “Can I just get individual insurance on my own and have the company pay for part of that?”

“Some companies allow you to do that,” Edwin answered, “but ours doesn’t. I’m glad you asked that question, because some people have been confused about that. Also, I don’t know if you have any health conditions, but if you do, employer-sponsored coverage is generally your best bet. Employer-sponsored plans can’t reject you or charge you more based on your health status; individual plans can.”

Kevin was glad for the tip. “Thanks,” he said, “but I have another question. Why wouldn’t everyone just choose the plan that the company pays the entire cost of? I can’t imagine why I would pay $50, let alone $200 for something I could get for free.”

Edwin explained that it depended on what people were looking for. “Well, our most expensive plan is a Preferred Provider Organization, or PPO. With PPO’s, there’s a network of doctors you can see, but you can go straight to a specialist. So, if you hurt your back, you can go right to an orthopedic surgeon, if you’d like. That’s not true with our other two plans, which are Health Maintenance Organizations, or HMOs. With HMOs, you have your care managed by a primary care provider, or PCP. If you hurt your back, you have to see your PCP, who will then refer you to a specialist if he thinks it’s necessary. So your PCP manages your care, which keeps the insurance company’s costs down, which is one reason it’s cheaper.”

“So,” Kevin said, “the $200 plan gives me more choices in the doctors I can see. I get that. And getting to see specialists without a referral isn’t really important to me. But with these remaining options, if they’re both HMOs, why would I pay $50 when I could get the same thing for free?”

“Another good question,” Edwin replied. “One thing I haven’t told you about is additional costs. All three of these plans have something called a copayment. Each time you get a medical service, you pay the copayment. These plans all have different copayments. Let’s just compare the two HMO plans. The $50 plan requires that you pay $5 every time you get a medical service while the “free” one requires that you pay $30 for each medical service.”

Kevin thought for a moment, and then said, “So, if I rarely go to the doctor, it makes more sense for me to get the “free” plan. But if I went to the doctor three times a month, I’d be paying 30 bucks each time…that’s $90 a month! If I went to the doctor 3 times a month on the other plan, I’d be paying the $50 premium, plus $5 for each visit, which adds up to $65 a month. Okay, I see why I might want to pay a little more up front and pay less for each visit.”

“And that’s just the copayment,” Edwin said. “The “free” plan also has a $500 deductible, which means you have to spend $500 on medical care before the plan will start to help.”

Kevin and Edwin took another 20 minutes going over the differences between the plans. One major difference was that Kevin’s doctor since childhood was part of the $50 plan, but not the free one. Even though he rarely went to the doctor, this and the deductible with the free plan was enough to make it worth it for him to pay $50 a month, and he signed up for that plan.