You may have heard the saying, “When you have your health, you have everything.” So what goes into ensuring that you do have your health and that you’re taking care of yourself and the health of your loved ones?
Figuring out the health and preventive care plans that are best for you and your family is an essential and complex part of financial planning. So, we’re breaking it down to give you a better understanding of the basics as you start making decisions.
Making the Right Choice
When taking steps to understand your healthcare options, a good first step is to check what benefits you have through work.
Many employers do offer some sort of healthcare coverage, but not all. Before accepting your job offer, ask about the details of the coverage they are offering.
And remember, coverage is more than just a doctor’s visit.
Does your employer offer dental insurance, a health savings account, a vision plan, even pet insurance?
Is your plan a high deductible one? If so, will your employer make contributions to the Health Savings Account on your behalf?
These are all questions you should ask yourself while looking through what is offered.
If your employer does offer some healthcare options, you’ll then want to identify when you can enroll. Typically when you sign an offer letter at a new job, you’ll have the opportunity to enroll. Outside of that, there are often open enrollment periods that you can take advantage of.
Be sure to have your questions answered prior to enrollment and any acceptance of an offer as this cost could change how you feel about the overall offer itself.
Data gathered by eHealth found that the average health insurance cost for single coverage premiums in 2018 was $440 per month. For family coverage, the cost of premiums in 2018 was $1,168 per month. For many, this is a lot of money to be spending each month, especially on top of all your other necessary expenses.
If your employer doesn’t provide an adequate health coverage plan, then that should really be considered when accepting the overall offer.
It’s also important to take a look at the details of your options. You’ll want to understand the ins and outs of your coverage choices now, rather than waiting until you need to use them to find out all the details.
What will you have to pay and what if any will your company pay on your behalf?
Find out as much information as you can and don’t be afraid to ask questions. Remember, you’re dealing with your money and protecting the health of yourself and possibly family members.
Here are some key terms and plan types to understand:
Your premium is the monthly/annual amount you pay for health insurance. Whether you look at the number as a yearly or monthly perspective, knowing this number will help you plan your budget accordingly.
High Deductible Health Plan (HDHP)
This plan depends on two things. First is your deductible and second is your out of pocket maximum. Your deductible is the amount you pay for care before your health insurance provider pays anything. Once your deductible is met, your health insurance provider will pay a portion of care from that point, depending on your “co-insurance.” This is the cost-sharing percentage between you and your insurance.
Then, your out-of-pocket maximum is the most money you will pay out of pocket and then your insurance will cover everything.
Let’s say your deductible for the year is $2,500 with 20% co-insurance. You will have to pay for all the expenses until your deductible is met. Once that happens, you will be paying at a percentage attributable to your co-insurance percentage.
For example, assuming you have already met your deductible for the year, if you visit a specialist, who costs $100, then you will owe 20% of that cost ($20). You will continue to have to pay co-insurance on any covered expense until you meet your out-of-pocket maximum, which varies from plan to plan. At that point, the insurance company pays 100% of the cost.
With this type of plan, you’re eligible for a Health Savings Account which we’ll get to later, but it’s a nice perk.
This type of plan has fixed amounts, or “co-pays,” that you’ll pay when you go in for medical care. Your plan could have a $30 co-pay for primary care doctors, $50 for specialists (like your favorite dermatologist), and $10 for prescriptions. So, when you visit your doctors, specials, or refill a prescription, you know the amount you’ll need to pay, subject to any deductible or co-insurance. But, with this plan, you’ll usually end up paying a higher monthly premium to get the coverage benefit of co-pays up front.
Health Savings Account -- An HSA or Health Savings Account is a medical savings account that is tax-advantaged meaning that any amount you put in that account is put in before taxes are taken out. An HSA must be paired with a high deductible health plan (HDHP), as we talked about above. It can be used to pay for your deductible and any co-insurance expense. It might also be used for select medical expenses not covered by your plan, such as glasses or braces.
This savings plan can have contributions made to it by both an employee and employer, but remember that there is a yearly contribution limit. For an individual, that annual limit is $3500 and for a family, it is $7000. If you’re over 55 years of age, you are eligible to contribute an additional $1000 to your HSA.
The great news about an HSA is that if you don’t use the money you have contributed in that year, it rolls into the next year. By always maximizing your contributions to your HSA, you can build capital for future health care needs. This includes things like Long Term Care Insurance or a significant medical expense down the road when you’re enjoying your golden years.
HMO and PPO
AHealth Maintenance Organization [HMO] and Preferred Provider Organization [PPO] are both managed care plans. The two have some commonalities, but also key differences to keep in mind.
A study done by the Kaiser Family Foundation in 2018 found that at both an individual level and family level, the premium for a PPO option was higher than that of an HMO. Additionally, HMOs tend to have lower out-of-pocket costs when using a provider that is a part of your HMO network.
Although they tend to have a low deductible, copayment fees frequently come with HMOs for any doctor visit that is considered non-preventive care. These copayment fees are something that the PPO plan shares in common with an HMO. With a PPO plan, there are fewer restrictions on referrals and visitations with out-of-network providers. But bear in mind that there might be a higher premium and annual deductible attached to the more flexible option.
It might seem natural to look for a plan that offers a low deductible, as when you have a low deductible plan, you eliminate many out-of-pocket expenses. However, a low deductible plan often includes a higher premium. Evaluate the needs of your family year-to-year. With known medical needs, it might work better for your cash flow to have a low deductible plan. However, if you don’t anticipate a lot of medical expenses, the savings from a high deductible plan can serve as a much more cost-efficient option. These decisions are personal to you and your family’s needs and are great things to discuss with your financial adviser.
Ande began her 20+ year career as an adviser and quickly realized that many people weren’t taking into account was how emotions play a huge factor in financial decision making. Leaving behind her practice to focus solely on educating both advisers and consumers alike, she became an expert in behavioral finance. Author, speaker, thought leader, and money educator, Ande is helping women to take control of their money.