When the topic of health insurance arises, the biggest question people seem to have is “How can I save money?” Many times, the question is asked with a great deal of fear behind it, and rightfully so. Health insurance premiums have increased at a rapid pace over the course of the last decade to the point where many people are spending more on their health insurance premiums than they are on their car payment or mortgage payment. The good news for many is that there are strategies that can be taken to lessen the burden of rising healthcare premiums.
One such strategy is to reconsider how your premium dollars are being spent. The majority of people never come close to meeting their deductibles or the out-of-pocket maximums on their policies. While co-pays for doctor visits and prescriptions are attractive, the cost to have these features as part of the health insurance policy can substantially increase the monthly premium. A good question for one to ask is why they have insurance in the first place. Is it for the benefit of the co-pays, or is it to protect their financial well-being in case of a large medical bill?
The true purpose of insurance is to protect against a large financial loss. However, HMO’s of the past introduced consumers to the co-pay and created a security blanket entitlement that many are hesitant to leave behind. Co-pays make insurance companies responsible for a claim with little or no responsibility on behalf of the patient. This leads to over-utilization, or use of the benefit which in turns leads to more claims and thus contributes to rising healthcare costs. The insurance companies know this and charge more in the premium to compensate for the higher level of claims that will need to be paid out.
Plans that have co-pays can cost anywhere from $30 -$60 per month or more than plans that don’t have co-pays. This leads us to the real question -- how often are you using the co-pay? If one goes to the doctor twice per year, and a doctor office visit is $50 (negotiated fee between the provider and the insurance company), is the extra $360 per year spent on that benefit worth it?
A program that incorporates an Health Savings Account (HSA) has become an effective solution for many. An HSA is a tax qualified account that, in many ways, is similar to an IRA, 401(k) or other IRS tax qualified account. Money that is put into it (with limits) is tax deductible, the money grows tax deferred, and the money can be taken out at a later date. In the case of an HSA, the money can be accessed after age 65 without penalty. A big difference between an HSA and other tax qualified accounts is that money can be taken out tax-free before age 65 if it is for used to pay for a qualified medical expense. In order to make contributions to an HSA, the IRS requires that a Qualified High Deductible Health Plan (QHDHP) is in place first.
A QHDHP incorporates 3 key components. First, the plan must have a high deductible. This is defined by the IRS as being at least $1000 for an individual or $2000 for a family*. Next, the deductible must be an aggregate deductible. This means that if there are multiple family members on the policy, all initial out of pocket expenses go toward one deductible that covers all family members covered under that plan. Finally a QHDHP may not include any first dollar benefits (i.e. co-pays). The one major exception to this last component is that preventative visits may be covered.
Because of its design, a QHDHP is typically much lower in monthly premium than a common HMO or PPO plan. While a typical group PPO for a family of 4 can run as much as $1092 , a QHDHP can drop that premium down to $798.* The difference in price of $294 per month can be placed in the HSA account and saved for future medical expenses. Additionally, the money left in this account at the end of the year rolls over.
A QHDHP coupled with an HSA account represents just one of many strategies to reduce monthly health insurance premiums. Please look for this newsletter in the future for more ways you can save. If you would like to see how this option could work for you and your family, please email me at chuck@quotesmadesimple.com, or contact me at 303-239-8794.
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