Finding the best health care coverage for your family

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 like 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 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 Jennifer Goldsmith, director and head 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," Goldsmith 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 the following 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,” Goldsmith 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 premiums into a health savings account [HSA]." (See more about HSAs below.) You must be enrolled in a qualified HDHP plan to contribute to an HSA (and meet certain other eligibility requirements).

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," Goldsmith says. Beyond the maximum, the insurer picks up all covered 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 type is a PPO (preferred provider organization), which may be offered by your employer or (if applicable) your spouse’s. While it generally offers a lower deductible as well as a lower out-of-pocket maximum, it also has co-payments and usually 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, Goldsmith 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.

Make sure you look at both the in-network and out-of-network features of a plan, as there can be separate deductibles, out-of-pocket maximums, and co-insurance available depending on whether a provider or facility is in or out of network, and these features vary from plan to plan.

3 Most Common Health Accounts

All these tax-advantaged plans can be valuable, but they differ in key ways.

What are the potential advantages of combining a high-deductible health plan with a health savings account?

This combination has grown while enrollment in traditional plans has declined according to the CDC. Americans own more than 31 million HSAs, an increase of nearly 2 million over last year, reports Devenir Research.¹ One reason they’re popular: You can put funds into an HSA without federal taxes on contributions or qualified withdrawals, to use for out-of-pocket medical expenses not covered by your HDHP.

“When an HSA-qualified health plan is selected, participants can save on their health plan premiums and put those savings toward their health care expenses,” says Ed Shehan, senior vice president, Retirement and Personal Wealth Solutions, Bank of America. What’s more, he adds, you can invest funds in an HSA, and the earnings, as well as contributions and withdrawals remain federal tax-free when used for eligible health care expenses.

If you choose to invest the money, it can grow tax-free year after year, even into retirement. HSAs offer a variety of investment options. They can be interest-bearing accounts or, if the provider permits, you may be able to invest your contributions in certain securities such as mutual funds. Note that some HSA providers have minimum account balance requirements before certain investment options are available.

You only can contribute to an HSA while you’re enrolled in an HSA-qualified health plan, you do not have other disqualifying health coverage, and you cannot be claimed as a dependent on someone else’s tax return. However, you can use your HSA funds to pay for your eligible health care expenses in the future regardless of your specific health plan coverage at that time. For information on health plan deductibles, see our annual Contribution Limits and Tax Reference Guide. In addition to having a minimum deductible, health plans also must comply with the rules on annual maximums for out-of-pocket expenses in order to be HSA-qualified. Learn more about how HSAs work and ask your advisor how having one might help your investments last longer in retirement.

Are there other ways my employer can help me keep out-of-pocket costs under control?

Check whether your employer offers an optional flexible spending account (FSA). An FSA allows you to contribute pretax dollars to pay for eligible out-of-pocket health care costs during the plan year, but does not let you accumulate funds to save for health care in retirement, notes Shehan.

Your employer also might offer a health reimbursement arrangement (HRA). “In the HRA, the employer provides some funding to help employees pay a portion of the deductible,” Shehan says. HRAs, like FSAs, are typically for the specific plan year only. In addition, they don’t provide the same potential tax advantages to the account holder as HSAs or FSAs and are generally not portable if you leave your job, he notes.

Finally, some employers also may offer a limited purpose flexible spending account for dental and vision expenses, typically in combination with an HSA. “Paying vision and dental expenses from a limited-purpose FSA keeps more money in your HSA and allows it to grow,” says Clacken.