Any family’s budget can be severely impacted by healthcare costs, so I want to outline how a family can compare the advantages and disadvantages of a regular health plan with a high deductible plan.
Health Insurance Getting Too Expensive
What would you say if I asked you what your largest monthly expenses are? If your family is like most others, you’d definitely bring up food, transportation, or rent (or mortgage). And certainly, for the average household, those are big expenses.
The largest, though, might be healthcare. The absurd thing is how much money it may eat up from your budget even if your family is generally healthy.
Several years ago, during open enrollment at my husband’s place of employment, we learned firsthand. Every year, we check our alternatives for health insurance, and it seems to us that the costs are continuing to go up. We chose the “basic” family plan after having children, however the rate of increase of the monthly premiums was still very rapid. We eventually reached our limit.
According to the most recent revision, our premium payments would about match those for our mortgage. Given that we only take the girls to the doctor for their yearly checkups, we felt we wanted to mix things up. We are aware that we are not the only family going through this.
Currently, a family of four pays an average monthly premium of $833 per month, or $9,996 per year. You can see what a sizable sum of money health insurance may be when you factor in the costs of the typical deductible.
However, you might want to consider whether a high deductible health plan is a workable and affordable choice for your family this year when you get ready to explore your options during open-enrollment.
How High Deductible Health Plans Work
A High Deductible Health Plan (HDHP) has a higher deductible than a standard health insurance plan, as the name suggests. Employers and insurance providers like to offer this because it means you’re taking on greater financial responsibility for your medical expenses.
You should benefit from a decrease on the monthly premiums. For us, the monthly premium difference was a few hundred dollars. If you save $300 each month, you would have an additional $3,600 per year that might be put toward other financial objectives you might have.
Huge Tax Wins with a Health Savings Accounts
A Health Savings Account is another benefit of a high deductible health plan that may appeal to families (HSA). You can utilise this exceptionally tax-advantaged account to pay for medical costs.
If this seems familiar to you, it’s possible that you have come across or used a flexible spending account (FSA). That is often provided with the “more traditional” health insurance policies. In essence, you fund it before taxes.
For many years, we used an FSA to assist us pay for recurring costs like my glasses and contacts. Since we would lose the money if it wasn’t used by the end of the year, the challenge was making sure we estimated enough to put into the account.
However, with a health savings account, you can keep everything you don’t utilise. The amount can then increase in the account over time. When you have enough money saved to cover expenses like the deductible, you could choose to invest some of it to increase long-term growth.
The fact that your HSA donations are tax deductible makes it even better. Your employer might also provide contributions to your HSA, depending on the situation. What a wonderful bonus!
The fact that families can contribute up to $6,900 annually, that money grows tax-free, and that if we use the money for approved medical expenses, we can withdraw it tax-free, truly sweetens the deal.
Amazing, isn’t it?
It’s enough to make you want to switch right away, but your family may not be best served by a high deductible and HSA.
The Pros and Cons of High Deductible Health Plans
Although a high deductible health plan may seem appealing, there are some expenses to weigh. To be sure you are saving money with the larger deductible, you should be aware of your average annual spending.
For instance, if you had a chronic health condition that necessitates frequent checkups and maybe medication, you would have to pay a significant amount of money up front before your insurance would start to pay its share.
Using Mint to rapidly extract the figures is one method you can examine your spending. The amount of money you have paid out of pocket is then readily visible.
We discovered after reviewing several years’ worth of costs that our trips were largely restricted to yearly well-visits (which are covered by HDHP insurance), allowing us to save a sizable sum of money.
I asked a certified financial planner about the things that families should think about, and he mentioned that they should be aware of the out-of-pocket maximums associated with the plan they are considering.
You should have enough money set up (either in your HSA or regular savings) to pay such costs.
A recent surgery was performed on a relative of mine. Her share, even with insurance, came to $3,000!
Fortunately, she has some funds that she may use, but even so, that is a sizable sum of money.
Therefore, do the math to ensure that you could handle a medical issue, especially in the first year after switching plans.
Choose the Best Plan for Your Family
After assessing the benefits and costs, the decision was made to switch to a high deductible health plan and form an HSA. We still believe it was the right choice for us years later.
I trust that you now have a clearer grasp of your health insurance options. Knowing that information will help you decide what is best for your family and your budget.
What plan are you currently using? Would love to hear from you. Are you contemplating making a change?
Read more: How to Negotiate Your Way to Better Health