Healthcare: Lease vs. Buy?

I have easily read a dozen articles over the years comparing the pro’s and con’s of Buying vs. Leasing anything from cars and computers to homes. New (and not so new) tax-advantaged savings and spending vehicles have given healthcare consumers new options as well as new way to look at the way they purchase healthcare.

With premium costs escalating at a rate that has consistently been more than twice that of inflation, consumers of healthcare are desperate for alternatives to manage these costs. For my analysis purposes, I assume the cost of healthcare to include both the premiums paid for insurance and the additional out-of-pocket costs associated with getting care (copays, deductibles, etc.). Here is how one could evaluate his option to Lease vs. Buy Healthcare.

Lease:

I equate leasing healthcare to purchasing a health insurance plan that includes copays for office visits, prescription drugs and in some cases hospital stays (or limits exposure for hospital stays to a small deductible and coinsurance). Purchasing plans like this will require a higher premium; but, limit the additional out-of-pocket exposure for care to relatively small predictable amounts. Your healthcare is essentially “under warranty” while you lease your plan.

You are able to enjoy this type of coverage (and may benefit from having it based on your kind of medical care required) as long as you pay your premium. You benefit, from the standpoint of getting value for your premium dollar, by “using” the insurance to receive discounted pricing to access care. The more you use the plan, the more you “benefit.”

At first glance, these types of plans would seem to benefit people who have above average healthcare expenses. However, since copays paid for services rarely count towards out-of-pocket maximums, they can accumulate quickly towards total healthcare spending – particularly for people who take multiple maintenance medication. It is worth doing the math to determine the best approach.

Buy:

I equate buying healthcare to purchasing a qualified high deductible health plan and funding a tax-advantaged savings/spending account to pay for medical expenses. Purchasing plans like these require a lower premium payment – freeing up an otherwise fixed expense to fund a portion of the deductible. Using a tax-advantaged spending and/or savings vehicle ensures that out-of-pocket costs are paid from non-taxed earnings (providing 25%+ in additional savings).

With these plans, you will be subject to higher costs for care (for office visits and prescriptions, you will be responsible for the negotiated charges) than copay-driven plans. However, all of these costs are credited towards an aggregate deductible and capped after stated maximums are reached. You benefit, from the standpoint of limiting total cost, from limited healthcare spending. Unspent dollars can accumulate for future use.

It is easy to see that these plans would tend to benefit people who have a below average healthcare expenses. However, as I alluded to above, many times these plans are attractive to people who have a number of copay expenses (ie. multiple regular prescriptions, office visits, etc.). Regardless of utilization, people who “buy” their healthcare do have real financial incentives to maintain their health as well as shop for quality and cost-effective care.

There are lots of things to consider when trying to identify the coverage that best fits you and your family. However, this is becoming an extremely important financial decision for most households. Information and analysis are key to making good decisions.

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