How to Choose a Health Insurance Plan: The Total-Cost Method
Every year during open enrollment, millions of people pick a health plan by looking at one number: the premium. It's the most visible cost, but it's often not the one that decides what you actually pay. A cheap plan with a huge deductible can cost more than a pricey one if you get sick, and a "good" plan with a low deductible can waste thousands if you stay healthy. The total-cost method fixes this by comparing plans the way your bank account experiences them: everything you'd pay in a year, across a few realistic scenarios.
The cheapest plan is the one with the lowest total cost for the year you're actually likely to have, not the one with the lowest premium.
The five numbers that matter
- Premium: What you pay every month just to have coverage, whether or not you use it.
- Deductible: What you pay out of pocket for covered care before the plan starts sharing costs.
- Coinsurance and copays: Your share after the deductible, either a percentage (for example, 20%) or a flat fee (for example, $30 per visit).
- Out-of-pocket maximum: The most you'll pay for covered, in-network care in a year. After you hit it, the plan pays 100%. This is your worst-case number.
- Employer HSA contribution: If a plan qualifies for a Health Savings Account, many employers deposit money into it. Treat that as a direct discount on the plan.
The formula
For each plan, estimate:
Total annual cost = (monthly premium × 12) + your expected out-of-pocket costs − any employer HSA contribution
Your expected out-of-pocket costs depend on how much care you use, which you can't know for sure. That's why you run the math for three scenarios instead of guessing one:
- Low use: Checkups and a couple of minor visits. Preventive care is typically free on all plans.
- Moderate use: A few specialist visits, some lab work, regular prescriptions, or a minor procedure.
- Worst case: A hospital stay or major diagnosis. You hit the out-of-pocket maximum.
A worked example
Imagine a single employee choosing between two employer plans. (These numbers are illustrative. Plug in your own from your plan documents.)
| Plan A: Traditional PPO | Plan B: High-deductible + HSA | |
|---|---|---|
| Your premium | $150/month ($1,800/yr) | $50/month ($600/yr) |
| Deductible | $1,000 | $3,000 |
| Coinsurance after deductible | 20% | 20% |
| Out-of-pocket max | $4,000 | $6,000 |
| Employer HSA deposit | None | $750 |
Now run the three scenarios, where "care used" is the total bill for covered care in the year:
| Scenario | Plan A total | Plan B total |
|---|---|---|
| Low use ($500 of care) | $1,800 + $500 = $2,300 | $600 + $500 − $750 = $350 |
| Moderate use ($3,000 of care) | $1,800 + $1,000 + $400 = $3,200 | $600 + $3,000 − $750 = $2,850 |
| Worst case (hit the max) | $1,800 + $4,000 = $5,800 | $600 + $6,000 − $750 = $5,850 |
The high-deductible plan wins by nearly $2,000 in a healthy year, still wins in a moderate year, and is essentially tied in a bad year. That pattern is common, and it's the opposite of what most people assume when they see the bigger deductible. Your numbers will differ, which is exactly why running them matters.
The HSA bonus most people forget to count
High-deductible plans that qualify for a Health Savings Account come with an extra edge that doesn't show up in the table above. Money you put in an HSA through payroll skips federal income tax and, in most cases, Social Security and Medicare taxes too. It grows tax-free and comes out tax-free for medical expenses. If you contribute $2,000 of your own money in a 22% federal bracket, you save roughly $440 in income tax plus about $150 in payroll taxes, which is another ~$590 in Plan B's favor.
Unused HSA money never expires. It rolls over year after year and can be invested, which is why many people treat the HSA as a stealth retirement account. The IRS sets annual contribution limits ($4,400 for self-only coverage and $8,750 for family coverage in 2026), so check the current year's figures before choosing an amount.
When a traditional plan is the better pick
The math doesn't always favor the high-deductible plan. A lower-deductible plan often wins when:
- You expect high, predictable costs: a planned surgery, a pregnancy, or a chronic condition with expensive ongoing care. If you're confident you'll hit the out-of-pocket max, compare the premium + max totals directly.
- You take expensive brand-name medications. Copay-based drug coverage on a traditional plan can be far cheaper than paying full price until you meet a high deductible.
- You don't have cash to cover the deductible. A $3,000 bill in February is only manageable if you have savings or a funded HSA. If you don't, the predictability of copays has real value.
- The premium gap is small. If the traditional plan costs only slightly more per month, its lower deductible and max may be worth it.
Check the network and the drug list
Total cost only works if the plan covers the care you actually use. Before you commit:
- Search the provider directory for your doctors, specialists, and nearest hospital. Out-of-network care can cost far more and may not count toward your out-of-pocket max.
- Look up your prescriptions on each plan's formulary (its list of covered drugs) and note the tier. Two plans can price the same drug very differently.
- Note the plan type. HMOs and EPOs usually require you to stay in-network and may need referrals; PPOs cost more but give you flexibility.
Special notes for families and marketplace shoppers
- Families: Family plans often have both an individual and a family deductible and out-of-pocket max. Run the scenarios using the family numbers, and consider what happens if one person has a bad year.
- Spouses with two employer options: Compare covering everyone on one plan versus each person on their own employer's plan. Some employers add a surcharge when a spouse has access to other coverage.
- Marketplace (ACA) shoppers: Your premium subsidy depends on your estimated income, so check your eligibility on HealthCare.gov or your state's exchange. The extra pandemic-era subsidies expired at the end of 2025, so many people are paying noticeably more than they used to, and households earning more than 400% of the federal poverty level can lose the subsidy entirely. Re-run your numbers every year instead of auto-renewing. If your income is modest, a silver plan may qualify for cost-sharing reductions that lower your deductible, which can make it a better deal than a cheaper bronze plan. On the other hand, starting in 2026 every bronze and catastrophic marketplace plan is HSA-eligible, so a bronze plan paired with HSA contributions is worth including in your comparison.
Make your emergency fund part of the decision
Your plan's out-of-pocket maximum is a real number you could owe in a single year. A good rule is to keep at least that amount available between your emergency fund and your HSA. If you choose a high-deductible plan, direct the premium savings into your HSA so the cash is there when you need it. That turns a scary deductible into a planned expense.
Actionable steps
- Pull the summary of benefits for every plan you're eligible for and write down the five numbers: premium, deductible, coinsurance, out-of-pocket max, and HSA contribution.
- Total up last year's medical spending from your insurer's claims portal to anchor your "expected" scenario.
- Run the low, moderate, and worst-case totals for each plan.
- Confirm your doctors and prescriptions are covered.
- If you pick a high-deductible plan, set up payroll HSA contributions before the plan year starts.
- Make sure your emergency fund plus HSA covers the out-of-pocket maximum.
Open enrollment rewards the people who spend thirty minutes with a spreadsheet. Run the total-cost numbers once a year and you'll stop overpaying for coverage you don't use, or underinsuring the year you need it most.