Friday, June 22, 2007

Maternity Insurance: Is It REALLY Worth It?

Having a child can be quite expensive. The average cost of a birth is $8,000-$10,000 nationwide. Is it really worth it to purchase maternity insurance? Consider the factors.

Cost of Premiums
- Our Maternity Rider costs $230.02 per month, or $2,760.24 per year ($27,602.40 over 10 years).

Cost of Premiums + Deductible in Use - Assuming that the maternity rider is kept in place for 10 years, and used for two births, the deductible and coinsurance each time would be $2,750 for our insurance plan. Total cost over ten years - $33,102.40.

Expenses in Need Without Maternity Rider - The average birth costs $8,000 to $10,000. Our standard health insurance covers complications of pregnancy, so the maternity rider isn't needed for C-sections, etc.

Ability to Pay Without Insurance - Without insurance, we would have to pay the bill over time, as would most people, though my understanding of medical bills is that no interest can be charged as long as you are making efforts to make timely payments.

Ability to Self-Insure - If you know how many children you plan to have and when, self-insuring may be possible. The factors below assume a monthly deposit or payment of $275.85 ($33,102.40/10/12) for ten years and assume a birth cost of $10,000.
  • Example 1: Births at the end of years 5, 8, and 10. You could pay for all three births in cash. At the end of year 10, after paying for the final birth, you would be left with $8,951.62 in the account.
  • Example 2: Births at the end of years 1, 3, and 8. You would not have enough in the account to pay for any of the births outright. At the end of year 10 you would be left with $3,600.57 in the account.
  • Example 3: Things don't always go according to plan. Births at the end of years 1, 3, 7, and an unexpected birth at the end of year 10. At the end of the 10 years you would be left with a bill for $6,640. With insurance, you would have paid $38,602.40 over that 10 years, instead you will be paying $40,000.
  • Example 4: Two planned births. Births at the end of year 4 and 7. You could pay for both births in cash, and be left with $17,729.72 in your account at the end of year ten, paying $20,000 instead of $33,102.40 and getting interest for the difference!
  • You'll have to do the calculations yourself based upon the cost of your maternity rider and when you plan to have children. But don't forget - things don't always go nearly according to plan. The ability to self-insure is there if you have time to build an account up before it is needed.
Return in Payment vs. Premiums Paid In - Based on the information above, most people who keep this type of maternity coverage will pay in more than they receive in return, and quite a bit more.

Other Considerations - Nearly a million full-term newborn babies are placed in a nursery or observation for an average of 3 days, at $2,000 per day ($6,000 extra). You should check your insurance policy, but a maternity rider may be required to ensure that newborns are added to the policy from birth. With some plans a newborn will be considered for coverage only after reviews from their two-month check-up. This factor could quite easily change the value of the maternity rider if it is required to make the nursery care above, any illness and immunizations of newborns, and doctors visits for newborns all covered from their day of birth.

Conclusion - Maternity insurance is a toss-up. If your newborn will be covered from birth without it, you are going to have to pay high premiums for the rider out of your own pocket, and you don't plan to have several children in a short period of time, it could quite easily be more costly than it is worth. If the lack of maternity insurance will cause the pregnancy to be a stressful time for you, or you believe you can carry it for a short period of time, and if it is provided by your work or at a discounted price, it could quite easily be worth what it costs. You'll have to weigh the issues individually to consider if maternity insurance is REALLY worth it.