The rising costs of healthcare shouldn’t surprise you, but the fact that you might be overpaying for health insurance likely will.
Each year during open enrollment (either as part of your employment or on state exchanges), you get to choose (or decline) the health coverage that works best for you.
We will show you how to save on your existing healthcare costs and extend your savings.
Are You Overpaying for Health Insurance?
If health insurance was free you would likely select the best coverage, as the cost is not relevant. This is not the case in the real world. When reviewing your health insurance plan, you need to understand what you need (and use) and what you don’t. Why pay higher premiums for services you don’t need? Here is how you can compare healthcare plans and predict your future costs:
- Review your current health plan, costs, and services.
- Predict your expected health costs for next year. Be as precise as you can. Look at exact expenses from this year and years past. Pens, pencils or spreadsheets are highly recommended!
- Forecast any changes to your lifestyle and expenses so you can limit any unexpected expenses. Then add a buffer for all the ‘just in case’ scenarios.
From this stable foundation, you can better predict your health costs. Use this to select your health plan to limit your financial liability.
Traditional high-coverage health plans, like PPOs and HMOs, offer exceptional coverage, but at high monthly premiums. You end up paying a lot for unknown, unexpected healthcare that you might not use.
Newly popular plans, like high deductible health plans (HDHPs), offer lower premiums but by definition have higher out-of-pocket expenses that can leave you financially vulnerable to larger health costs.
What if a lower premium plan like an HDHP could deliver the coverage you need and save you money? More on that below.
Health Savings That Don’t Expire
Don’t you wish there was a 401(k) for healthcare? A way to save for all of those costs you have this year and the years to come? There is! Introducing the HSA.
An HSA or Health Savings Account is a personal savings account for health expenses. An HSA is not a health plan but can be used in conjunction with HSA-eligible health plans, like HDHPs, to save tax-free dollars on health expenses.
HSAs allow for tax-deductible contributions, tax-free interest and tax-free withdrawals (for medical expenses). In 2019, individuals can contribute up to $3,500 in tax-free savings and families can contribute $7,000.
HSAs offer the only dedicated long-term health savings. You can use that money to save for the $275,000 per couple in healthcare costs you can expect in retirement. That cost is on top of Medicare coverage. As a nice perk, if you don’t need your HSA savings for health expenses, after the age of 65, they can be used for anything, just like a 401(k) or IRA.
Combined Savings: HDHP + HSA
In a perfect world, we could maximize our healthcare coverage today and save health savings for tomorrow. While they are far from perfect, HDHPs combined with HSAs reduce short-term health insurance costs and create long-term tax-free savings.
HSAs and HDHPs also create the only way to break the vicious cycle of higher yearly health costs. You can balance the rising costs with your tax-free HSA savings. The more you save, the more you will have for next year. Your future self will thank you. You can check to see if you have an HSA-eligible health plan and open an HSA here.