Sit down here, sonny, and Uncle Joe will tell you a story….
Health insurance used to be so easy: there was one plan….traditional coverage. Insurances started getting all fancy pants back when HMO coverages were created. I remember the time well. It started when cars looked like this:
And people looked like this:
Not like this:
Ah, the good ol’ days.
Anyway….now we have a new problem. Health insurances are a maze. Not only are there HMO, PPO, and traditional types, (not to mention POS), but there are deductibles and prescription drug coverages with doughnuts (not the good kind) and now more headaches.
Solving the Health Insurance Problem
Health insurance is a tightrope. You don’t want too much coverage, but at the same time, your goal is to be adequately covered if something happens. While too much insurance can crash your budget today, not enough can bankrupt you if something goes wrong.
So what do you do?
1) Measure deductibles. Deductibles are the amount you’re going to pay out of pocket before your insurance kicks in (and sometimes after your insurance pays a specific sum).
Common mistake: people choose a high deductible plan because it’s cheaper, without any emergency fund. If you don’t have the resources to cover your deductible available, you’re asking for trouble!
The right move: Evaluate your deductible based on your resources. Raise deductibles as you have more money and can self insure.
2) Decide on the coverage type based on your need. HMO, PPO and Traditional coverages are all made for different types of people.
An HMO is generally a better choice for people who are healthy or who are pregnant. Because HMOs will often cover more costs associated with pregnancies, you’re better off choosing this coverage if you’re shopping while starting a family.
A common mistake: people choose HMO coverage because it’s inexpensive, when in fact it severely limits your treatment options if you’re sick. Your health matters! Don’t choose HMO plans if you have many health issues.
A PPO buys you more flexibility in most cases. While you’ll have a primary doctor, you’ll still be able to see specialists in-network for lower costs than out-of-network doctors.
Traditional coverage is the best type as long as someone else is paying.
3) Is there an HSA available? If so, sign up! While HSA (Health Savings Accounts) don’t earn any money, they do allow you to save tax free toward your deductible out-of-pocket costs. In years that you don’t have many expenses, you can cut the cost of your coverage by a ton by using an HSA with a high-deductible plan.
4) Decide the type of insurance that’s right for you, and then research that type. Why evaluate all the different types of insurance when only one fits?
Common mistake: people will call an insurer to get fed a plan that doesn’t fit. Inside of the US, look online for several different options. This is a great idea abroad as well, although private health insurance sites are a fine place to start your search.
5) Don’t give up on the Affordable Care Act state exchanges if you’re in the USA. While there are a ton of political reasons insurance costs are currently high, that’s because insurers are covering their butts in case costs are high. In any open marketplace you’ll find market forces will drive prices lower. Assuming that your state will allow for open competition, you should check exchanges regularly to see if you have a more cost effective option available in the future.
Health insurance can be a huge drag on your pocketbook, but by choosing coverage levels based on your need rather than on only the cost, you’ll be effectively covered now and as your assets grow and the ACA becomes less politicized, you’re sure to see your costs drop over time.
Photos: Awesome car: Rob_sg; Totally Awesome 80’s dudes: aturkus ; Lady Gaga et al: TJ Sengel
Joe, with all your knowledge of the good old days, you must be really old! 🙂
Insurance really is a tightrope act. With so many Americans declaring bankruptcy despite having coverage, I nowadays worry more about having inadequate coverage than I do on the premiums we pay.
FWIW, our HSA does have investment options (even a Vanguard index fund) so we max it out and use it like a mini-401k. If there’s money there at traditional retirement age, we can use it on regular expenses then.
This is all such great advice. I’m betting premiums will stay high until a few years after the tax penalty hits its peak. At that point I think a lot more people will jump into the insurance pool bringing costs down, but right now $95 may not be enough of an incentive for young, healthy people who think nothing bad will ever happen to them to take the plunge.
Right! “I’m a really safe skiier!” (Some guy actually told me that once…..)
My insurance is positively going down the drain this year. We are going to take advantage of an HSA for the second straight year, but when all is said and done, my medical costs will likely double. But, hey.. They are covering my family of five.. So I shouldn’t expect anything extraordinary in today’s age.
Double! Ouch. That’s a mess.
I’m shocked at how high the deductible has become on high deductible plans. The lowest one at my work next year is something like $4k max out of pocket (per person, so $8k for both me and my wife). The other options got as high as $12k and $15k max out of pocket. These numbers may not be entirely accurate as I can’t remember 100% what they were, but they have really pushed these high deductible plans to try and get people lower rates. Unfortunately most people who take the highest deductible & out of pocket max are often the least prepared to pay a big hospital bill.
Right on, DC. That’s the huge problem that’s coming down the road next: people with healthcare, but still can’t afford their healthcare costs.