Picwell Blog

Is the Lowest Cost Health Plan Always the Best Option?

Sep 28, 2022 8:00:00 AM / by Picwell

In our previous posts, we explored the topics of risk aversion and capacity to pay. We discussed how preferences related to risk and financial wellness, or capacity to pay, affect the way employees choose (and use) their health care benefits. As benefits leaders, it is critical that your team accounts for all of these factors when designing benefits plans. But, even if you have the best benefits, how can you be sure your employees are going to choose the right plan for their needs?

In this blog, we’ll discuss why health plan recommendations are crucial to help employees navigate the confusing world of benefits.

What is the best health care benefits plan?

Before we get into the importance of choosing the right health care plan, let’s begin by reviewing why employees enroll in health insurance in the first place. As you know, health insurance is designed to help shield your employees from the financial burden of medical costs. This form of risk protection is one of the primary value-adds that health insurance brings to the table.

People who have higher levels of risk aversion will see more value from health plans that provide higher levels of risk protection and, as such, they are also willing to pay more for these plans. Similarly, people who are very financially constrained could experience extreme financial hardship in the face of high unexpected medical bills, and that means that they will get more value from plans that limit their exposure to those costs.

Health insurance recommendations

So what does this mean? The conclusion here is that both the need and preferences for different amounts of insurance protection will vary. In order to help your employees enroll in their “best” health insurance plan, you need to think about what they value. Now, it probably sounds like it’s nearly impossible to understand what each and every employee values and wants from their insurance plans. And that’s because it is. At least it is if you try to do it on your own.

Luckily there are solutions available that can not only take the burden off you and your team’s shoulders but also ensure each and every employee gets the guidance they need to make smarter benefits decisions. These are called benefits decision support solutions.

Benefits Decision Support as a Solution

Benefits decision support solutions help employees in many ways. But it’s important to note that not all solutions are created equal. Some solutions are simply cost calculators, that is, they rank plans strictly based on cost. The problem with these types of solutions is that they implicitly assume that the best plan and the cheapest plan are one and the same - but we all know that’s just not true. Each employee has different needs and preferences that need to be evaluated when comparing health care plans. The best plan should be based on the value it provides, rather than the cost.

Scoring vs. Ranking Health Insurance Plans: Which is Better?

So, if the “Best Plan” comes down to value not cost, then let’s qualify what that means. When we talk about value, we are talking about the relationship between the coverage that a plan provides and the price it charges. An employee who is more risk averse will be willing to pay additional premiums for insurance that will cover more medical costs, but at some point, that plan might cost so much more that it just isn’t worth it, no matter how risk averse they are. 

Let’s face it. Health insurance is complicated, and similarly, assigning value to a health insurance plan can also be complicated. 

So what’s the best way to handle a complicated concept? Simplify it!

At Picwell, our mission is to help employees make smarter benefits decisions. Our decision support solution provides education and guidance to help employees do just that. And a key component of this is clearly displayed in the Picwell Score.

The Picwell Score

When employees use Picwell, they begin by answering a few questions about themselves and their risk preferences. The system then creates a risk profile, crunches the numbers, and evaluates health plans for them. The result is a list of available plans, ranked by fit. 

Next to each plan on the Health Results page is a Picwell Score. The Picwell Score works on a 100 point scale. The “Best Value” plan gets the highest Score and then the Score of every other plan tells employees how close that plan is to the best plan.

The Picwell score

Since each employee has different needs, the Picwell score takes each employee’s personal needs and preferences into account, resulting in a highly personalized assessment. And it all only takes a few minutes!

Why Scoring > Ranking When it Comes to Health Plans

Scoring plans instead of simply ranking them has a few advantages:

First, it represents a comprehensive measure of value that can balance multiple factors like cost, risk protection and personal preferences.

Second, because it combines multiple factors into a single metric, it allows for easy comparison among plans that may differ in many ways.

Finally, it allows us to communicate relative value. If an employee has two really great options available, they will be able to easily see that in the Picwell scores. On the other hand, if an employee has one clear best option, that plan would have the highest score and all of the other plans would have much lower scores.

In the former case, the employee can know that they are getting a great value either way. Even if they don’t choose the top scoring plan, they can choose another high scoring option and know that their plan choice is still a great value. In the later case, the employee gets a strong signal that the top scoring plan is the best way to go. 

This level of detail would not be possible with a simple ranking.

What Plan Recommendations Actually Look Like 

So, we’ve talked about the fact that the best plan is not necessarily the cheapest plan, and the Picwell Score allows us to think about ranking plans in a way that considers what people value when it comes to health insurance coverage. 

Now let’s take a look at what plan recommendations actually look like.

How often is the lowest cost plan the best plan?

First, let’s look at how often the lowest cost plan is, in fact, the best option. It turns out that after accounting for employees’ preferences, the “best” plan - that is, the plan that represents the best value to an employee - is also the lowest cost option. 

This figure shows how often the lowest cost plan also had the highest Picwell Score 80% of the time, it had the second highest score 13% of the time, and 7% of the time it was ranked third or lower based on score. 

Lowest cost plans graph

This means that while the lowest cost option is frequently the best value, 20% of the time, employees would have found more value by spending more. In other words, after accounting for different levels of coverage, premiums and employees’ preferences, Picwell recommended that 1 in 5 employees would be better served enrolling in a health plan that - while perhaps more costly - shielded them from more risk. 

What is the cost difference when the lowest cost plan is not the best plan?

Looking at our data from last year, we see that about 20% of the time people would have been better off in a more costly health plan, but just how much more are we talking about?

While we find similar numbers among employees with individual and family coverage in terms of the share of the time the lowest cost option also had the highest score, we see some pretty big differences between these two groups when it comes to just how much more the best plan costs.

The graph below represents additional cost in monthly terms. To calculate this, we looked at the total cost difference - after summing together premiums, predicted OOP costs and any employer HSA contributions - and then we divided those by 12. Thinking of costs in monthly terms is a helpful way to think about the added costs, as they relate to a household’s budget.

Cost difference graph

Here, we see that for individuals, the best plan is often pretty close in cost to the lowest cost option. Close to half of the time (45%) the added cost for the best plan only amounted to $25 per month or less.

For people covering families, we see a different story. Among the households for whom the lowest cost plan was not the best option, nearly one-third of the time (31%), the best option would have amounted to at least $100 more per month in additional cost. Much of this additional spending takes the form of pre-tax premium contributions, which is something that we account for when scoring plans.

Smart Benefits Decisions Rely on Solid Recommendations

There are numerous advantages to implementing a decision support solution that scores health plans based on value over cost. As health insurance continues to get more complicated, employees will continue to need comprehensive guidance to help them choose the health plan that puts them in the best position, both personally and financially.

Check back tomorrow for Part 2 as we dig into these results a little more and show how recommendations vary based on personal characteristics.


Written by Picwell