Healthcare costs represent over 10% of the average American’s yearly income. These costs have a significant impact on your savings and lifestyle. Understanding your financial exposure (aka how much you can expect to pay), can help you plan (and save) for next year. Let us show you the two most common health care costs – out-of-pocket-expenses and deductibles.
Understanding these costs might allow you to save tax-free dollars for health costs. More on that below.
What are Health Insurance Deductibles?
Deductibles are the amount you must pay for your medical care before your insurance starts to cover it. Some services like preventative visits are 100% covered before you reach your deductible, so it’s important to read the plans you’re considering to see if that’s the case.
What are Out-of-Pocket Costs?
These are all costs you have to pay for your healthcare, outside of premiums. These can include your co-pays, coinsurance, and deductibles. It also includes any medical service you receive that isn’t covered by your insurance.
You need to understand your out-of-pocket maximum. This helps frame the total financial liability of your yearly health insurance costs.
If you need any more help, you can review our health insurance basics to better prepare for open enrollment.
Understanding your out-of-pocket costs and deductible costs are important for two keys reasons:
- Combined, your out-of-pocket costs and deductible costs showcase your total maximum costs per year for your insurance. In a worst case scenario, this should help you understand how much you would be required to pay. The only caveat is any expense or procedure that is not covered by insurance.
- They also determine your HSA eligibility. You must satisfy a minimum deductible and maximum out-of-pocket requirements to contribute to an HSA (health savings account). In 2019, HSA-eligible plans that qualify must have minimum deductibles of $1,350 for individuals and $2,700 for families. Qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,500 for families. You can read all about HSA-eligibility here. HSAs provide the only dedicate long-term health savings. They also create 100% tax-free health savings, investing, and spending.
Now that you have your healthcare costs covered, what’s next? Getting ready for open enrollment takes time. We wanted to help you save time along the way. See our open enrollment guide below to get started.
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.