Why the Lowest-Premium Health Plan Isn't Always the Least Expensive

When employers review health insurance options, it's natural to focus on one number first: the premium.

After all, premiums are one of the largest and most visible costs associated with an employee benefits program. When one health plan costs significantly less than another, choosing the lower-priced option can seem like an obvious way to control expenses.

Sometimes it is.

But the lowest-premium health plan isn't necessarily the least expensive plan overall.

To understand the true cost and value of a health plan, employers need to look beyond the premium and consider what they're actually getting for the money.

Premium Is Only the Starting Point

Imagine an employer comparing two health plans.

Plan A has a lower monthly premium.

Plan B costs more each month but provides a different deductible, out-of-pocket maximum, provider network, prescription drug structure, or other benefits.

Looking only at premium would make Plan A the easy winner.

But that comparison doesn't tell the employer how much employees may pay when they actually use healthcare, whether employees' doctors participate in the network, how prescription drugs are covered, or whether the employer may need to spend additional money elsewhere to make the plan competitive.

That's why premium should be the beginning of the analysis—not the end.

Consider How the Plan Shares Costs With Employees

A lower-premium plan often reduces cost by changing how expenses are shared when employees receive care.

That may mean a higher deductible, different copayments or coinsurance, or a higher maximum out-of-pocket exposure.

None of those features automatically make a plan bad.

In fact, a properly designed higher-deductible plan may provide excellent value for some employers and employees.

The important question is whether the premium savings justify the differences in coverage and potential employee costs.

Employers should understand where the savings are coming from rather than assuming that a lower premium represents a pure reduction in cost.

Provider Networks Can Change the Value of a Plan

Two plans with similar-looking benefits may have very different provider networks.

A lower-cost option may use a more limited network of physicians, hospitals, or other healthcare providers. Depending on the workforce, that may be perfectly acceptable—or it may create significant disruption.

Employers should consider where their employees live, whether the workforce spans multiple states or regions, and how important broad provider access is to the organization.

A premium reduction becomes much less attractive if a significant portion of the workforce loses convenient access to the providers they use.

Prescription Coverage Deserves Attention Too

Prescription drug benefits can also vary substantially between plans.

Formularies, copayments, coinsurance, specialty drug provisions, and other rules can affect what employees ultimately pay.

For a workforce with significant prescription utilization, those differences can matter just as much as the medical deductible.

Employers don't need to predict every healthcare expense their employees will incur. They should, however, understand meaningful differences between the plans they're considering.

Employer Contributions Affect the Equation

The carrier's premium isn't necessarily what employees see coming out of their paychecks.

Employers decide how much of the cost they will contribute and how much employees will pay.

That contribution strategy can significantly affect both the employer's budget and how employees perceive the benefits package.

A plan that reduces the company's gross premium but requires substantially higher employee contributions may solve one problem while creating another.

Recruiting, retention, participation, affordability, and employee satisfaction can all be affected by how costs are distributed.

Don't Ignore the Cost of Disruption

Changing health plans can also have consequences that don't appear in a premium comparison.

Employees may need to confirm that their physicians participate in a new network. Prescription coverage may change. Deductibles and copayments may work differently. HR or management may spend additional time communicating the changes and answering questions.

That doesn't mean employers should avoid changing plans.

Sometimes switching carriers or plan designs is clearly worthwhile.

But the potential disruption should be weighed against the savings rather than ignored.

The Most Expensive Plan Isn't Automatically the Best Either

Looking beyond premium doesn't mean employers should simply purchase richer benefits.

Paying more doesn't guarantee better value.

An expensive plan may include benefits that employees rarely use, an unnecessarily rich plan design, or features that don't justify the additional cost.

The objective should not be to purchase the cheapest plan or the richest plan.

It should be to identify the option that provides the best combination of cost, coverage, employee value, and long-term sustainability.

Evaluate the Whole Picture

When comparing health plans, employers should ask more than:

"Which plan has the lowest premium?"

They should also ask:

• How does the plan design compare?

• What could employees pay when they actually use healthcare?

• Are there meaningful differences in provider access?

• How does prescription coverage compare?

• What will the employer contribute?

• What will employees contribute?

• Will changing plans create significant disruption?

• Are the savings large enough to justify the tradeoffs?

Sometimes that analysis will confirm that the lowest-premium plan is the best choice.

Other times, it will reveal that the apparent savings come with tradeoffs that aren't worthwhile.

The important thing is knowing the difference.

At Sound Insurance Brokerage Group, we help employers evaluate more than the price on a renewal spreadsheet. Our goal is to help businesses understand the costs, tradeoffs, and long-term value behind their employee benefits decisions.