WADING THROUGH THE WORLD OF DEDUCTIBLES, out-of-pocket maximums and co-payments is a challenge many of us face annually as we sift through our employer’s menu of health care plan options. Figuring out how to efficiently manage health spending for you and your family can seem a tall order, but if you invest a little additional time and thought into the process, you’re more likely to end up with a plan that fits your needs without costing the moon. As you weigh all the possibilities, your financial advisor can be a valuable resource and sounding board.
“Instead of reflexively choosing the same health plan during open enrollment season each year, it’s important to consider all your options,” says Danovan Clacken, Health Benefit Solutions Sales Manager at Bank of America.
Here are three questions you might want to ask yourself as you go through your options.
How much health care coverage do I really need?
Because health insurance premiums can be costly, you want to find the sweet spot between sufficient coverage and over-insuring, says Roger W. Gray, director of Health Benefit Solutions at Bank of America. That can take a little bit of extra work when you’re married, especially if you have children. "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," Gray says. For couples with children, it’s worth investigating to discern whether the most cost-effective option might be for each spouse to take their own employer-sponsored plan, including the children, on the plan that seems to best meet the family’s specific needs.
As you go through the options with your advisor, focus on two key elements:
Deductibles. What is the amount you'll pay for covered services before the co-insurance starts? (That’s when the insurer begins to share in the cost.) "With a lower deductible, you may pay higher premiums,” Gray says. “If you and your family have few medical expenses and don't think you'll reach the deductible, you might want to consider a high-deductible health plan (HDHP) and put the money you've saved with the lower premium into a health savings account (HSA)." (See more about HSAs below.) You must be in an qualified HDHP plan in order to contribute to an HSA.
Out-of-pocket maximums. ‘That’s the highest total amount you'll be expected to cover every year—and should be an important part of your evaluation," Gray says. Beyond the maximum, the insurer picks up all expenses, so if a family member has a medical condition that could cause medical costs to balloon, you might think about a plan with a lower deductible and lower out-of-pocket maximum.
One such plan is a PPO (preferred provider organization), which may be offered by your employer or (if applicable) your spouse’s. While it offers a lower deductible as well as a lower out-of-pocket maximum, it also has co-payments and higher premiums. If, for instance, you're planning on having a baby, expecting to need surgery or anticipating that your active kids will be paying visits to the ER, a PPO plan might be an appropriate choice, Gray says. A young single person with no history of chronic illness may not need the extra coverage or want the added cost of such a plan.
3 Most Common Health Accounts
These tax-advantaged plans can all be valuable, but they differ in key ways.