ON-SITE YOGA CLASSES. Subsidized gym memberships and bike-share programs. Free activity trackers. Smoking-cessation programs. These are just a few of the preventive health benefits that many companies now offer their employees, in addition to health insurance coverage.
Research shows that a healthier, less stressed workforce is a more productive workforce. But the benefits can add up for you, too: The longer you stay healthy, the lower your lifetime health-care costs might be. So if your company offers yoga classes at lunchtime, start practicing your lotus pose. Take advantage of any preventive health benefits your employer offers that seem appropriate for you.
The Annual Health Benefits Checkup
You may also find significant savings by reviewing your current health benefits to determine whether you've made the right choice.
Making this decision isn't a once-and-done deal, completed when you're first hired. You have a chance to update your selections every year, and you can also review and change your selections for certain life changes—for example, if you've recently walked down the aisle or you're about to become a parent.
The guide that follows should help you figure out how to make the most of the health benefits your company offers.
Your Plan or Your Spouse's?
Because health insurance premiums can be expensive, you want to find the sweet spot between sufficient coverage and over-insuring, says Bob Kaiser, senior vice president, Health Benefit Solutions at Bank of America Merrill Lynch. The first step in making your selection is to consider your health history and your family situation, he says. A young single person with no history of chronic illness can generally afford to choose a higher-deductible plan, which means lower premiums. But for parents with young children, the decision may require a little more thought.
Because health insurance premiums can be expensive, you want to find the sweet spot between sufficient coverage and over-insuring.
"If both you and your spouse have employer-provided health insurance, compare benefits and premiums with your family's particular health history and needs in mind," says Kaiser. As you compare, ask yourself these two questions.
First, what's the deductible—that is, the amount you'll pay for covered services before the insurer picks up the cost? "With a lower deductible, you will pay higher premiums. If you and your family are reasonably healthy and don't think you'll reach the deductible, you might want to choose the plan with the higher deductible and put the money you've saved with the lower premium into a health savings account (HSA), where the money has the potential to grow," suggests Kaiser.
Staying Covered in Retirement
Leaving your job before you're eligible for Medicare? Consider these ways to fund the gap
If your spouse is still working, transferring to his or her health plan may be the best way to stay covered until Medicare kicks in. Here are some other choices:
1. Stay on your old plan. Under COBRA, you may continue your former employer's coverage for 18 months, though you'll pay the full cost plus a 2% administrative fee.
2. The Affordable Care Act lets you purchase health insurance from federal- and state-run insurance exchanges. As soon as you leave your job, you're eligible.
3. Consider a high-deductible plan linked to a health savings account (HSA). The premiums are generally lower because the deductible is higher.
4. Work part-time for an employer that offers health coverage to part-time workers.
That's because the account is interest bearing. And if you're depositing more than $1,000 into an HSA, you may choose to invest that money in mutual funds. But you can only open an HSA if your health plan is a qualified high-deductible plan—for 2016 and 2017, that's any plan with a deductible of at least $1,300 for individuals and $2,600 for a family.
The second question is: What's the out-of-pocket maximum? For a qualified high-deductible plan, it's $6,550 for individuals and $13,100 for families in 2016 and 2017. "The out-of-pocket max—or the highest total amount you'll be expected to cover every year—should be part of your evaluation," Kaiser says. "Consider how likely you are to be racking up medical expenses."
One of you may have the option of a PPO (preferred provider organization) plan—which offers a lower deductible and a lower out-of-pocket maximum but also has co-payments and higher premiums. If you're planning on having a baby, expecting to have surgery, or anticipating that your active kids will be paying visits to the ER, a PPO might help you keep your annual out-of-pocket expenses down, Kaiser says. "But if that's your choice," he adds, "you won't be eligible to open an HSA."
The Advantages of a Health Savings Account
These accounts, available to people who are enrolled in a qualified high-deductible health insurance plan, allow you to sock away pretax contributions for future health-care costs. The money in these accounts has the potential to grow tax-free, and withdrawals are also tax-free as long as they are used to pay for qualified health expenses. HSA funds can be used to pay for Medicare parts A, B, D and Medicare HMO premiums. They can also be used to pay for Long Term Care insurance.
If you use your HSA for non-medical reasons, the amount you withdraw is subject to income tax and, potentially, an additional 20% federal tax. Be aware as well that there are limits to the amount you can contribute to an HSA in a year: $3,350 for individuals in 2016, going up to $3,400 in 2017, and $6,750 for families in both years.
HSA funds that you don't tap to pay qualified medical expenses today can continue to grow tax-free until you need to use them for medical expenses in retirement. After age 65, you can take money out of your HSA account for any reason without penalty, although those withdrawals will be subject to ordinary income taxes.
Do You Need a Flexible Spending Account?
To make the most of those tax-advantaged HSA savings, consider pairing your HSA with a limited purpose flexible spending account (LPFSA), if your employer offers one. An LPFSA can only be used to reimburse qualified dental and vision expenses. "Instead of depleting your HSA to cover dental and vision expenses, you can cover those costs with your pretax contributions to a limited purpose FSA," says Melody Peterson, senior vice president, Retirement and Benefit Plan Services at Bank of America Merrill Lynch. Money in an LPFSA does not typically carry over from year to year, except in limited circumstances.
Look for a Tiebreaker
No one knows what the future might hold when it comes to health, and that can make choosing the right health plan seem a little like guesswork.
After you've considered your family history and crunched all the numbers, if you're losing sleep over the decision, take another look at the preventive health incentives your company and your spouse's company offer. That free yoga class or bike-share program just might end up being the tiebreaker.
3 Questions to Ask Your Advisor
- What strategies can I use to prepare for rising health-care costs?
- How can I see to it that my family and I get the medical care we need without jeopardizing our retirement savings?
- Does it make sense to create an emergency fund for a potential health emergency?
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Neither Bank of America nor Merrill Lynch provide tax, legal, accounting or benefits consulting advice. This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice. If you have questions regarding your particular health care situation, please contact your health care, legal or tax advisor.