Moving health insurance plans (or providers) is the most important benefits decisions you will make this year. It affects both your health and your wealth.
Health insurance is designed to deliver medical care and access, with set financial parameters. With that in mind, we will review why this goal can become somewhat convoluted and complicated when selecting a health plan.
How to Think About Healthcare
Health insurance creates an effective safeguard against yearly health costs. It allows individuals and families to pay set (and structured) amounts and cap their yearly health-related financial risk.
Which health insurance plan (or benefits offerings) will limit your financial risk while providing the most medical care and coverage? To complicate the matter, this needs to include all expected and unexpected health costs. Forecasting for unexpected health costs might be impossible, but planning for them is not.
Let’s investigate common health insurance plans and structures to see which provide the “best” coverage for you and your family. AND, how to move from one health insurance plan to another.
PPO or HMO Health Insurance Plans
Over 70% of all employer-sponsored health plans are still high coverage plans like PPOs or HMOs. These plans offer higher levels of coverage, and lower yearly out-of-pocket maximums but require higher monthly premiums. Some employers may cover a part or all of these monthly premiums costs.
PPOs and HMOs do a great job of limiting yearly health expenses. They, however, must be renewed each year and provide no long-term health savings. As health insurance premiums rise, these plans get more expensive.
HDHP and HSA
High deductible health plans (HDHPs) are growing in popularity. Employer-sponsored HDHPs have doubled in participation in the last five years. They help employers reduce growing benefits costs and keep employee monthly premiums low. Everyone enjoys lower monthly premiums!
HDHPs do have higher out-of-pocket costs when compared to PPOs and HMOs. In order to reduce your financial exposure, use tax-free HSA contributions to ensure you have money for medical expenses, just in case. Think of an HSA an as insurance on your health insurance. More on that below.
Short-Term Health Insurance Costs to Consider
As healthcare cost rise, out-of-pocket medical expenses and monthly premiums are pulling more and more from your paycheck. Short-term health insurance costs require you to better understand your expected healthcare usage. These costs include expected preventative care, prescriptions and doctor visits, to name a few. Coupled with your fixed monthly premiums costs, this helps outline your expected short-term health costs.
Long-Term Health Insurance Costs to Consider
PPOs, HMOs, and HDHPs all are limited by yearly renewals or employment. This means at best, they help you plan for health costs 12 months into the future. What about next year? The ten years after? Or retirement?
An HSA is a designated savings vehicle to save money for health expenses. It allows individuals and families to save pre-tax money for qualified medical expenses. You can save, spend or invest HSA funds. You can save them for years to come for health expenses. After the age of 65, they can be used for anything, just like a 401(k) or IRA.
An HSA can only be used with an HSA-qualified health insurance plan, like an HDHP.
Moving Health Insurance Plans
Balancing short-term and long-term health insurance costs is the reason many Americans are switching more PPOs or HMOs to HDHPs (and adding an HSA). HDHP lower monthly premium costs. HSA create long-term health savings. They are the 1-2 punch in health benefits. As you go through this process, here are some tips for changing health insurance plans:
When or if you do decide to change health insurance plans, and move from a PPO or HMO to an HDHP coupled with an HSA, you need to have a clear view of your short and long-term health costs. So that the health insurance plan you have today, helps you limit your health expenses well into retirement. Start investing in your health today.
If you need more help with health account decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.