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Trying to sort through all the health insurance plans? Find out how you can choose an affordable health insurance plan that covers your family's needs!
It's that time again – open enrollment. Maybe you're gearing up to check out the digital packet Human Resources sent you that you have to sort through with all those dry, boring reports and figure out how you're going to handle these critical pieces of your finances in the next year.
Fear not my friends, over these next few episodes, we're going to break down the process, make it less painfully dull. And today we're covering how you can find an affordable health plan that fits your family's needs.
Where do I begin?
I'll tell you about our experience with health insurance because I think you're probably seeing the same thing. For the last decade, we've seen our health care costs go up. And when we had our first child and switched over to the family plan, I felt like there was a vacuum that was just sucking up all of our money.
Thankfully, we're a fairly healthy bunch, but even downgrading to a basic family plan was still pricey.
Last year, we received notice that, once again, our premiums for that plan would be going up. This time though, our premiums would have been right up there with our mortgage. No thank you. We knew we had to make a switch, but here's the thing.
It's scary. On one hand, handing over that much money month after month when we basically only use it for annual well visits seemed like such a waste. But we didn't want to be undercovered either.
Have you seen those bills from the doctor's office or hospitals? It's ridiculous. There was a lot of back and forth going over our options and running the numbers.
We switched last year to a high deductible plan and started contributing to a health savings account. So far, it seems like the right call for us. Now, you may be hearing about high deductible plans and thinking that would be great to save that much money every month, but is it the right choice for you?
How do you actually weigh the pros and cons?
Today I’m bringing back financial planner Michael Dinich to decipher and break down all the jargon around health insurance.
In this episode we discuss:
- The pros and cons of the typical plans offered – high deductible plans look good on paper but they be the worst choice for you
- Which numbers you need to keep an eye on to properly weigh the costs – because premiums and deductibles aren’t the only numbers you need to keep an eye on
- Ways you can maximize your benefits through FSAs and HSAs
Hope you enjoy!
Want more information about saving on your health care costs? Check out my first chat with Michael. We went over ways you can save and lower your health care expenses.
Resources to Save Money on Healthcare
Are you looking for more help with keeping health care within your budget? Here are some resources:
- Best Budget and Money Apps: Empower, Tiller, Mint
- Work with Michael: He's a certified financial planner who specializes in assisting families to navigate their health care options.
- How to Save Money on Your Health Insurance and Expenses
- Why We’re Switching to a High Deductible Health Plan
- How to Spend Less on Insurance
- Save Money on Health Insurance
- Grow Your Stash Faster: High Yield Savings with CiT Bank
If you’d like to chat about your money moves for this year, you can join us in the Thriving Families Facebook community. We're a fun and supportive group.
We swap ideas, questions, stories, advice. When we try to help one another out with our family and financial goals.
We'd love to see you there!
Why You Need Health Insurance
Health insurance. It's a huge expense. I know for us, it's right up there with a mortgage. It's a big chunk of money. And I feel two ways about this one. You have to have insurance. You know, it only takes one visit to the ER and we've done that with a two year old. No fun. And it's, it's, it takes a lot out and you can go bankrupt. You can ruin your finances.
Well, it's one, you know, bad medical expense. But on the other hand, it's such a big chunk of your money. So you are my go to guy when it comes to health insurance. And trying to figure it all out, find your way through this maze as everyone now is getting emails from their employers saying, Hey, by the way, here are your healthcare options.
And all they see are a ton of numbers. So I'm going to start off kind of with our experience. My husband gets an email every year and last year, we got 1 with 3 plans. They said, okay, we have this base plan. We have the plus plans like PPO and then we have the high deductible health plan with HSA.
It's like alphabet soup. Can you go over, first of all, what they mean when they're talking about PPOs and when they're talking about high deductible health plan?
Michael Dinich: Sure. So, a PPO is a preferred provider organization, right, and what that, a traditional PPO plan, what the employer is referring to is a plan with a lower deductible In exchange for a higher premium.
So basically what you're doing is you're paying more money each month for the coverage by taking less risk that if you have a medical emergency, you're going to pay less additional money out of pocket.
Elle Martinez: The problem to me is. There are so many costs involved besides what you're paying out of your paycheck, your premium.
We have deductibles, coinsurance, and copays. Can you go over what that is besides money coming out of our pockets?
Michael Dinich: Sure, and that's one of the problems a lot of times that the employers do. The difference between the two plans isn't as simple as just here's the high deductible and the low deductible version and everything else is the same.
Typically what happens is the co insurance is different. So with the, um, the PPO might have a lower co insurance, the high deductible plan might have a higher insurance. So it would be helpful for people to really understand what co insurance is, what their co pays are. Okay. So a copay is how much money you have to pay out of pocket to go see your health care provider.
All right. So you might have a 20 copay. So what that 20 copay means is if you go to see the doctor, you're going to have to pay 20 out of pocket. Co insurance, which co insurance, what that means is. You might see sometimes they'll say like 20 percent co insurance or 10 percent co insurance. What that means is every time you have a medical expense and you have a 10 percent co insurance, you're going to have to pay 10 percent of that amount up until you reach your maximum out of pocket limit.
So like when you look at those sheets, you'll see two figures. You'll see your deductible figure. Yes, I see it. And you'll see your out of pocket maximum figure. So let's say you have a 5, 000 deductible and a 13, 000 out of pocket maximum. And if you have a 10 percent copay, then what that means is you're going to pay 10 percent of every, you know, medical expense up until you reach that 13, 000 out of pocket maximum.
So the PPOs tend to have a lower copay. A lot of times they'll have like 10 percent opposed to 20 percent and they tend to have a lower out of pocket maximum. And then the high deductible plan then is the inverse of that. It'll have a higher deductible, it'll have a higher out of pocket, it'll have a higher out of pocket expense.
You would think if you go and you look at that PPO plan and you'd say, okay, what happens if I pay the premium, pay my out of pocket at maximum. And start comparing the cost to the high deductible plan, you would think that just intuitively that the PPO would be less expensive, but that's not always the case.
The PPO plan, even with triggering all those things could end up being more expensive than the high deductible plan. So that's why you really have to sit down and do the math. I know everyone, everyone always wants to, you know, kind of, you know, real quick, you know, what do I do? We really have to, you know, we have to look at that and then we, you know, we need to be good consumers of health care and really understand how the health care system works, which, you know, unfortunately most of us, you know, don't, don't know.
Elle Martinez: pay to be proactive. I know, and I've been guilty of this sometimes with finances when we're getting out of debt. It's kind of embarrassed. I felt like these were stupid questions, but you know, when you're talking about one, your health and to such a huge expense, it does, it does not hurt you to ask questions and find out more.
Michael Dinich: It should. And I think for whatever reason, you know, some people are really afraid to ask questions when it comes to healthcare, you know, like you said, maybe they're, they're afraid, uh, they don't understand it. And then. You know, they could always, if they don't want to talk to their employer about it, you know, most, you know, competent financial advisors, you know, should hopefully be able to offer a little bit of help there or insurance professionals should be able to offer help.
And it's definitely worth reaching out to somebody if you're unsure, because. I know healthcare can run between 20 and 30 percent of your budget. So, you know, if the healthcare expenses are costing that much, you know, that's a great opportunity. If you can get the same level of care for less money, you know, that's extra money that can go paying down debt, doing something fun.
Saving for retirement. Well, I think they need to be real honest with their, uh, you know, about their situation, their health situation. You know, I think that some people, you know, maybe bite off a little more than they can chew and so they go to a high deductible plan and then they don't have the savings to kind of back it up and then they get themselves, they get themselves in trouble.
If you're, if you know that you're extremely sickly, you know, you have ongoing medical issues, then a high deductible, a high deductible plan is probably not the best course of, you know, action for you. It'd probably be better with a PPO if you have a lot of ongoing, ongoing, you know, health maintenance issues.
However, for most younger people, uh, that don't have ongoing health issues, you know, they would probably be better served with a health savings account and a high deductible plan. So
Elle Martinez: let's say like a family, a couple sat down and they said, okay, we do have some things that a high deductible plan just numbers don't add up.
So they decide to go with a PPO plan and then they're going to do the flexible spending account. How can they max maximize that? I guess we should kind of take a step back. Like how does a flexible spending account work along with your health
Michael Dinich: insurance? Okay. So the flexible spending account is typically the employer contributes money into the flexible spending account.
And then that money is like a cash account that can get used, it can get used for ongoing medical expenses, you know, during the year. But those programs would typically use it or lose it. So if you don't spend that flexible spending account money at the end of the year, it's lost. And
Elle Martinez: that is the key difference between a flexible spending account and a health savings account.
So if you go with PPO, just know with your flexible spending account, you have to use it up before the year is over or you lose what you put in. Now, if you decide to go with a high deductible plan, a health savings account can have some really great advantages. So
Michael Dinich: for people that don't have, you know, a really pressing need that they think they're going to constantly be going in and spending that money, then they're probably better off with the health savings account because the health savings account, that money can grow and it can be used as a retirement, you know, a resource for retirement.
You do not have to go with who they pick out, but there could be some downsides to picking out your own health savings account. So if you go with, if you go with the employer's health savings account, then that money is going to be deducted from your, your taxable income. And it's going to save you a little bit on FICA taxes, assuming that you don't hit the, the income earning threshold for social security tax.
So it's going to save you a little bit of money in taxes and also they'll probably they'll change your withholdings based off the money going in there. If you set up your own health savings account, you'll still be able to deduct it on your tax return, but it won't save you the money in the FICA tax.
And, um, you know, you may have increased fees. Purchasing it, you know, one of the plans on your own, but sometimes people get to the point where they say, well, I really want to invest the money. And my employer is not offering an option for investment. And so they might do a hybrid plan where they might say, okay, we're going to move some of the money out, but we'll keep putting some in for the tax deductions or benefits.
So they might do some combination of the two. Health savings
Elle Martinez: account, I think, being in the personal financial community, I hear about it, people are like, you got to maximize it and invest it. And I think one of the first goals couples have is, first of all, have enough saved stash for your deductible should you need it.
How does investing work with a health savings account? Is it like a retirement account or is it something else? It can,
Michael Dinich: it can function, it can function kind of like an IRA. Where, uh, the money grows tax deferred, just like an IRA, you get a tax deduction for putting the money in just like an IRA, uh, where it's a little bit different than an IRA as an IRA.
You can access without a penalty after 59 and a half, where a health savings account, if you want to use the money for retirement income with the health savings account, you have to wait until age 65, you know, whether people should invest it, I, I wouldn't invest. you know, encourage anybody to really invest their health savings account until they had enough liquid in there and safe to cover their maximum, uh, annual out of pocket.
Okay. Okay. Gotcha. Because keep in mind your maximum annual out of pocket could be twice what your deductible is. Okay. So just to make the math kind of easy on me. Yeah. Let's say you have a maximum annual out of pocket expense of 10, 000 on your health insurance plan. Well, your deductible might only be 5, 000.
So putting 5, 000 into the plan, it's going to take 10 years, or sorry, two years to have 10, 000 in there in case you trigger the worst case scenario and have to spend out 10 grand. Yeah. So I wouldn't want people to start investing right away, like with the first 5, 000 payment, because what happens if in year two you trigger the full thing?
So I really like to see, you know, maintain that maximum annual amount in there, you know, someplace safe, you know, you know, if we're really talking about it, you know, maybe you would have what 13, you know, 12, in there, you know, the difference between 1 percent and 7 percent on that's really not life changing.
And you just don't want to find, you know, that you have a health emergency when the stock market's down. So keep that safe there. Then as you start building it up over and above that, if you want to start, you know, maybe taking a little bit of it each year and dollar cost averaging into some investments or something, you know, that might be, you know, a nice opportunity.
Key Takeaways about Choosing Health Insurance
Elle Martinez: Before we close up the episode, I want to focus on some key takeaways I got when I was chatting with Michael.
The first one is you have to run the numbers yourself. There's plenty of advice on the internet about what's the best option for you, but you have to consider your unique circumstances. And that means reviewing how much you've been spending the last few years, any expenses, premiums, everything, because you want to make sure that you're not undercover.
And at the same time, you want to find an affordable plan. If you're using money tools like personal capital, tiller and mint, you can pull those numbers fairly quickly. The second takeaway I got was premiums and deductibles do matter, but they don't tell the whole story. Right? That's what we focus on. How much money am I paying for it?
But as you heard, we have to consider things like co insurance and out of pocket maximums to make sure we're not undercovered or overextending ourselves financially. And finally, ask questions. This is so crucial, and if you're getting your health insurance through your job, make sure HR is doing their part and sitting down and explaining exactly what are the options and how it can affect you.
Remember, you have to live with this financial decision at least until the next year when you can sign up again or switch plans.
As you can imagine, there's so much more to discuss about this, and we're going to be continuing this chat in our free and private community over at Thriving Families on Facebook.
If you want to join in, ask questions, swap ideas, please, we'd love to have you. You can go here to chat. Hope to see you there!
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This episode was originally published in October 2018. Show notes have been updated October 2023.