Calculator Inputs
Formula Used
This model estimates total cost by combining premiums with out-of-pocket spending for a claim. Coinsurance applies after the deductible, and spending can be capped by an out-of-pocket maximum.
- Covered claim:
covered = min(claim, coverage_limit) - Uncovered portion:
uncovered = max(0, claim - coverage_limit) - Out-of-pocket on covered amount:
oop_covered = coveredifcovered ≤ deductible, elsedeductible + coinsurance% × (covered − deductible) - Out-of-pocket cap:
oop_covered = min(oop_covered, oop_max) - Total out-of-pocket:
oop = oop_covered + uncovered - Total cost for one claim:
premium + oop - Expected annual cost:
premium + (expected_claims_per_year × oop) - Present value over years: sum of discounted annual costs (optional inflation).
How to Use This Calculator
- Enter annual premium and deductible for both plans.
- Set coinsurance, out-of-pocket maximum, and any coverage limit.
- Provide a claim amount to test and an expected claims-per-year value.
- Optional: choose years, discount rate, and inflation for a longer view.
- Press “Calculate Impact” to compare costs and view graphs.
- Export your results using the CSV or PDF buttons.
Insights
Deductible–Premium Tradeoff Metrics
A deductible shift changes your fixed cost (premium) and variable cost (out-of-pocket). For example, moving from a $500 to $1,500 deductible often reduces premiums by 8–20% in many markets, but increases first-dollar exposure by $1,000. Use the graph to see where premium savings stop compensating for added risk.
Expected Annual Cost Using Claim Frequency
The calculator uses expected claims per year to estimate average annual cost. If your frequency is 0.25, you are modeling one claim every four years. At 1.00, you model one claim per year. A change from 0.10 to 0.40 multiplies the expected out-of-pocket contribution by 4×, which can reverse the preferred plan even with identical coverage rules.
Coinsurance and Out-of-Pocket Maximum Effects
Coinsurance matters most after the deductible is met. With 20% coinsurance, a $10,000 covered claim above a $500 deductible adds about $1,900 beyond the deductible portion. The out-of-pocket maximum caps covered spending; if it is $3,000, then any larger covered claim will not increase your covered out-of-pocket beyond that cap.
Break-even Claim Size and Decision Bands
Break-even is the claim amount where premium + out-of-pocket is similar across plans. If Plan B costs $300 more in premium, it must save roughly $300 in out-of-pocket at your claim size to justify the switch. Use “Chart max claim” to explore wider bands like $0–$25,000 and locate stability zones where one plan dominates for most claim sizes.
Multi-year Present Value and Inflation Scenarios
For long horizons, the model discounts future costs. A 7% discount rate reduces the weight of year-5 dollars to about 0.71. If inflation is enabled at 4%, year-5 costs scale by about 1.17 before discounting. Combined, the net year-5 weight is roughly 0.83. This helps compare plans when premiums tend to rise over time.
FAQs
1) What does “expected claims per year” mean?
It is a frequency estimate. Use 0.50 for one claim every two years, 0.25 for one claim every four years, and 1.00 for one claim per year. It drives expected annual cost.
2) Why can a higher deductible still be cheaper?
If your claim frequency is low, premium savings may outweigh extra out-of-pocket. The difference chart (B − A) shows where one plan stays lower across many claim sizes.
3) How is coinsurance applied here?
Coinsurance applies only after the deductible on the covered portion. If the claim is below the deductible, you pay the covered claim amount. Uncovered amounts remain fully your cost.
4) What is the role of the out-of-pocket maximum?
It caps covered out-of-pocket costs. Once you hit it, additional covered spending does not increase your covered share. This can make plan differences shrink for very large claims.
5) What does “coverage limit” change?
It limits the portion treated as covered. Any claim amount above the limit is counted as uncovered and added directly to your cost. Set 0 to model unlimited coverage for simplicity.
6) How should I use discount and inflation rates?
Discount rate reflects the time value of money; inflation grows future costs. For short comparisons, you can set both to 0. For multi-year views, use realistic values from your context.