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Comparing health discount plans

by Tony Novak, CPA, MBA, MT
, revised 11/17/11

Millions of Americans use some form of health discount plans to supplement their health insurance plans. Most modern health insurance plans now include some form of PPO discount arrangements. Other discount plans are marketed directly to consumers without insurance.

An easy way to understand a discount plan is to simply think of it as an insurance company's negotiated pricing schedule with medical providers without insurance. They offer an opportunity for consumers to pay the same lower price for health care without necessarily being covered by the insurance that negotiated the pricing. In reality the preferred provider networks operate entirely independently of the insurance companies and are therefore able to market their services directly to consumers in this manner.

Unlike health insurance, these health discount plans are available to everyone, cover all pre-existing conditions and almost always pay for themselves by saving the member more than they paid. Some view the growth of health discount plans as the only "good news" in consumer health care delivery in many years.

Discount plans are not designed to replace insurance and do not provide any level of financial protection.  But they are very effective for reducing out-of-pocket health care costs on a daily basis. These plans utilize Preferred Provider Network (PPO) provider contracts to pass negotiated savings on to members. (The terms "health discount plan" and "health discount savings plan" are commonly used interchangeably with "PPO discount plan"). For some expenses like routine dental care and most prescription drugs, these PPO discount plans prove more far more cost-effective than their counter-part health insurance plans.

A member of a PPO discount plan pays the contracted network price that is usually lower than the cash price of a medical service. Discounts vary on a case-by-case basis but you should plan to save 20% or more from the "cash payers price". So if your total household out-of-pocket health costs were $2000 last year, then they should be cut to about $1500 in a PPO discount plan.

 Some less scrupulous plans advertise "up to 80% savings" but this is really just sales puffery. It would be ridiculous to expect your discount plan to cover 80% of your health care costs, but some misguided members latch on to this type of sales pitch without consulting common sense. You should expect most network savings to be in the 20% to 30% range regardless of the network you choose. There is no evidence that one particular PPO network offers larger savings than another. We can safely assume that intense competition and negotiation in the field of medical cost reimbursement keeps all major PPO fee schedules at about the same level.

The three most important questions to ask when selecting a discount plan are 1) How much does it cost?, 2) What providers are in the network? and 3) Can I check it out before I commit? The various brands of PPO discount plans do vary considerably in these three areas.

Cost

The most significant distinction is cost. All-inclusive plans that cover medical, dental, prescription, vision and other supplemental expenses range from less than $20 per month to more than $80. Plans that cover only dental or prescription drugs cost less. The plan that costs the most offers the same benefits as the less expensive plans. The range in costs is largely attributable to sales commissions. The plans that do not use commissioned sales agents are less expensive. Those that offer only direct automated online enrollment are the least expensive. Of course, the net savings you realize from your PPO plan is directly related to its cost. If an average household saves about $500 per your using a PPO plan, then of course it does not make sense to pay more than that for your plan membership. A good all-inclusive PPO discount plan should be priced under $250 per year and cover everyone in the household.

Providers

The second most important is the list of available medical providers. Make sure that your plan offers this information before you enroll. Most plans have a Web site that allows you to search by zip code, provider name or medical specialty.

Free Trial Period

The final test of a discount plan' s value is left up to you. No other person is better qualified to evaluate a plan' s benefits in your neighborhood, wit your providers and you unique patterns of use. The better PPO discount plans offer a free trial period of 30 to 45 days so that you can check out the specific provider discounts and the plan' s customer service features on your own. A reputable plan provider will cheerfully refund your membership fee if you cancel during the trial period.