Pros and Cons of Having Multiple Health Insurance Plans

Many people consider having more than one health insurance plan to increase coverage and reduce out-of-pocket costs. This can provide broader access to care and better financial protection. However, it also adds complexity and potential coordination issues between plans.

A financial advisor can help you create a financial plan to save for healthcare costs in retirement.

Reasons to Have Multiple Health Insurance Plans

Having multiple health insurance plans can significantly enhance your coverage options.

By combining plans, you can access a broader range of healthcare services and providers. This is particularly beneficial if one plan offers better coverage for specific treatments or medications that the other does not.

There are several reasons to obtain coverage from multiple plans.

• Medicare coverage. Americans aged 65 and older receive Medicare coverage from the federal government. They can supplement this insurance with a private plan, such as an employer’s health insurance, or Medicaid if they qualify. 
• Spouse’s insurance plan. Spouses can cover each other by adding the other to an employer’s insurance plan. For example, say you have health coverage through your work, and your spouse is a dependent on your plan. If your spouse finds a job with health benefits, you can keep them on your insurance while they receive coverage from their new employer.
• Parent’s plan. U.S. law allows people under the age of 26 to receive coverage from their parent’s plan. This means you can keep coverage from a parent’s plan while getting your own from an employer or the marketplace.
• Divorced parents. The law for children under the age of 26 also applies to divorced parents. As a result, each divorced parent can name their child as a dependent on their health insurance.

How Does Having Multiple Health Insurance Plans Work

Having multiple insurance plans means one plan will be your primary coverage, and the other will be secondary.

As the names imply, your primary coverage takes effect first, and your secondary coverage covers any unaddressed expenses if necessary. Your Coordination of Benefits (COB) defines which health plan takes precedence in these situations.

Every health insurance plan has a COB policy that governs how it interacts with other health coverage. This way, the insurance companies communicate with each other to avoid reimbursing a patient twice for the care they receive. The COB ensures you receive a maximum of 100% of the cost for a procedure or doctor visit.

For example, say you break a bone and need surgery and physical therapy. Your COB will help you receive reimbursement for up to 100% of your healthcare costs and prevent double reimbursement. Because overlap usually exists between multiple plans, COB is necessary to keep patients from taking advantage of duplicate reimbursements.

Remember, having multiple plans doesn’t guarantee that your healthcare will be free. Despite the surplus insurance coverage, you typically will still pay copays, coinsurance and other out-of-pocket costs. For example, most plans charge a copay to see a specialist, so multiple policies won’t nullify this requirement.

Primary and Secondary Health Insurance Rules

State laws and insurance policies determine which of your plans becomes the primary and secondary. While the unfortunate reality is that you can’t choose this for yourself, understanding how the rules work can help you better benefit from your insurance plans.

Pros and Cons of Having Multiple Health Insurance Plans

Having two health plans might sound like a benefit with no costs. However, there are points to consider on both sides, as no strategy will be the perfect fit for everyone.

Pros of Multiple Health Insurance Plans

• More savings: Multiple plans can offset more costs, increasing your savings when receiving healthcare. For example, your primary insurance might only cover 80% of a specific procedure. If your secondary insurance covers the rest, you bear no cost.
• Continuous coverage: Job loss and turning age 26 can result in the loss of coverage. Fortunately, your secondary insurance can prevent a lapse in coverage even if you lose your primary plan.
• More accessible care: Most health insurance plans limit the types of procedures and care providers you can access. Multiple plans expand your access, allowing you to see doctors outside your primary plan’s network and receive reimbursement for different forms of care.

Cons of Multiple Health Insurance Plans

Here are three common issues:

• High costs still happen: Although multiple health insurance plans can improve your coverage, they don’t guarantee payment-free services or a 100% cost reduction. As a result, you can still incur heavy medical expenses for various types of care. In addition, multiple health plans never result in you receiving surplus payments from insurance companies.
• Double the fixed costs: Two health insurance plans mean paying two premiums and deductibles. This situation means a greater monthly premium cost and a higher out-of-pocket cost to satisfy each plan’s deductible limit.
• Redundancy: Multiple forms of coverage can overlap too much to be worth it. In other words, if your plans don’t expand your healthcare options, you may not experience a huge advantage.

How to Find a Health Insurance Plan

There are several ways to find a health insurance plan.

First, federal law requires employers to offer health benefits to full-time employees. So, finding a full-time job where you work at least 30 hours a week is a direct ticket to a health insurance plan.

On the other hand, working part-time means you must handle health insurance yourself. You can compare plans on healthcare.gov or use an online broker to break down plans for you.

Remember, federal law prevents price differentiation between companies, so each type of insurance plan will cost the same among providers. As a result, choosing a company with high customer service ratings should be a priority.

Your age and financial circumstances can also help you determine which healthcare plan makes sense. For example, turning 65 means you qualify for Medicare.

Enrolling when you turn 65 is crucial because you’ll incur financial penalties for applying late. Some exceptions do exist, such as those receiving healthcare from their job.

In addition, state Medicaid programs provide low-income families and disabled individuals with low- or no-cost health insurance.  

Do I Need Two Health Insurance Plans?

Whether you need two health insurance plans depends on your individual circumstances, preferences and healthcare needs.

These are situations where having two health insurance plans makes sense.

• COBRA transition. If you lose your job or transition to a part-time position, you can receive health insurance from your employer for up to 18 months due to the Consolidated Omnibus Budget Reconciliation Act (COBRA). ¹ You can also purchase an individual plan during this transition to ensure continuous coverage when COBRA expires.
• Specialized coverage. You may need an additional policy if you have a specific medical condition or need, such as fertility treatments or cancer therapy, that’s better covered by a specialized insurance plan.
• Coordination of benefits. You and your spouse both have employer-sponsored health insurance plans. Having both plans allows you to coordinate benefits and reduce out-of-pocket costs for medical expenses.
• Medicare supplement during retirement. Medicare doesn’t cover every form of healthcare. For example, original Medicare doesn’t cover eye exams or dental care. Therefore, you purchase supplemental coverage to cover costs, such as Medicare Advantage.

With those in mind, here are two common scenarios when it doesn’t make sense to have two plans:

• Overlapping coverage. Both plans provide similar coverage, and the benefits largely overlap. The services covered by both plans are redundant, and you are not likely to use the additional services provided by the second plan. As a result, having two plans results in unnecessary premium expenses.
• Limited benefits. One of the plans provides comprehensive coverage, and the second plan has limited benefits that do not significantly enhance your overall healthcare coverage.

Costs and Tax Considerations of Multiple Health Insurance Plans

Having more than one health insurance plan can provide additional coverage but also adds financial and administrative complexity.

Each plan has its own costs, including premiums, deductibles, copays and out-of-pocket limits. It’s useful to compare the total annual expense of maintaining both policies with the potential savings from reduced medical bills. If the extra plan doesn’t add meaningful coverage, you could end up paying more than you save - especially if that’s money you could invest elsewhere. 

Premiums for employer-sponsored health insurance are often paid with pre-tax income, which can lower your taxable earnings. However, premiums for policies you purchase on your own typically use after-tax dollars. Therefore, they are deductible only if you itemize deductions and your medical expenses exceed the IRS limit for that year.

Some people with high-deductible health plans can use a health savings account (HSA) to set aside pre-tax money for medical expenses. Withdrawals from an HSA used for qualified medical costs are not taxed. Flexible Spending Accounts (FSAs) operate similarly, but have annual limits that reset with each year.

Payments from insurers that cover qualified medical expenses generally are not considered taxable income, but it’s still important to keep detailed records of all healthcare payments and reimbursements.

What Two Health Insurance Plans Could Save You: A Real Example

Understanding how coordination of benefits works in theory is useful, but using actual dollar amounts as examples will make the value of a second plan much clearer.

Say you need surgery that costs $10,000. Your primary insurance plan has a $1,500 deductible, covers 80% of costs after the deductible is met and has a $5,000 out-of-pocket maximum. Your secondary plan has a $500 deductible and covers 70% of costs after the deductible.

Here is how the claim works.

• Your primary plan first applies your $1,500 deductible, leaving $8,500 in remaining costs.
• It then pays 80% of that amount, or $6,800, leaving you with a $1,700 balance after the primary plan pays.

Without a secondary plan, you would owe $3,200 total, the $1,500 deductible plus the $1,700 remaining after the primary plan’s payment.

With a secondary plan, the $1,700 balance gets submitted to your secondary insurer. The secondary plan applies its own $500 deductible, leaving $1,200. It then pays 70% of that, or $840, leaving a final balance of $360.

Your out-of-pocket cost drops from $3,200 with one plan to $860 with two, saving $2,340 on a single procedure.

That savings needs to be weighed against the additional cost of carrying the second plan. If the second plan’s annual premium is $1,800, you would need to use it enough each year to generate more than $1,800 in claim reductions to come out ahead. For someone with predictable and significant medical expenses, that threshold may be easy to clear. For someone who rarely uses healthcare, the math may not work in their favor.

Additional Considerations

It is also worth noting that the secondary plan does not simply pay whatever the primary plan leaves behind. Each insurer applies its own deductibles, copays and coverage rules independently.

This means some cost sharing will remain even with two plans in place. The final out-of-pocket amount depends on the specific terms of both policies and the nature of the claim.

Running this kind of calculation with your own plan details and typical annual medical expenses is the most reliable way to determine whether adding a second plan is worth the additional premium.

Bottom Line

Having multiple health insurance plans can offer both advantages and disadvantages to consider. Ultimately, the decision to hold multiple health insurance plans should be based on individual healthcare needs, financial considerations and the ability to manage the intricacies involved. By weighing these factors, you can make informed choices that best suit your circumstances.

Tips for Having Multiple Health Insurance Plans

• Health insurance is a part of every monthly budget because of premium costs. Fortunately, a financial advisor can help you create a financial plan that accounts for healthcare costs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Retiring means entering a new phase of accessing healthcare and using health insurance. Because health insurance during retirement can be challenging to navigate, it’s essential to brush up on your options and make an educated decision.

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