It’s getting to be that time of year again. That elusive season where the air begins to regain a crispness; nutmeg, cloves, and ginger begin to dominate the taste palette; and health insurance companies give you a chance to review your policies. Yup, I’m talking about open enrollment. (Let the communal groan commence).
Comparing insurance policies is the great game of financial planning meets “what if”. How do I make my dollar go as far as possible while considering my health and what MIGHT happen?
Our current health insurance coverage
Like half of all Americans, I get my health insurance through my employer. Ever since I started my job, I’ve been covered under one of their traditional plans with a lower deductible. It seemed to make the most sense to me; paying a little more in premiums each month is worth it to have the least amount of health costs, right?
We are fortunate that my husband’s employer covers him and my daughter for free through his plan. Our plan was to originally add me to his plan, but his open enrollment was in the summer and we didn’t know it at the time. Whoops.
His only option is a plan with a low deductible but a high out-of-cost pocket. But after we missed his open enrollment window it got me thinking, is that really the best plan for us all to be on if something big were to happen? Even if the deductible is low, is it worth it to risk high co-insurance costs?
I considered that maybe it would be worth it for me to switch to a high-deductible health plan (HDHP).
I started by comparing the coverage and costs of the traditional and HDHP. The deductible and out-of-pocket max were higher on the HDHP, but that’s to be expected. The co-insurance, co-pays, and coverage were the same otherwise. The monthly premium for the HDHP was half the cost of the traditional plan.
The tipping point
High-deductible health plans have higher deductibles up front (hence, the name), but they are unique because they make you eligible for a health savings account (HSA).
I have heard about HSAs for years, but never really looked into them until recently. I didn’t see how it was worth it to lower my monthly premium because putting money in an HSA meant I would still have to spend the same amount of money.
But I was SO short-sighted.
I won’t go into the details of HSAs in this post because that’s been done in detail elsewhere. But I will say that learning about the HSA’s ability to be an investing tool for the future was a persuasive feature for me. You don’t have to spend the money each year so if you are relatively healthy it can grow quickly!
We are fortunate that neither my husband nor I have significant medical conditions and thankfully our baby also seems pretty healthy so far. We really don’t anticipate many (unforeseen) medical costs, so the money we contribute to that account should be able to grow!
One of my concerns was whether I could use the HSA money for my family’s health costs even if they weren’t covered under my HDHP. The short answer is yes.
How I Decided the HSA was worthwhile
The 2018 limit for HSA contributions for single-person plans is $3450 (for families it’s $6900, but remember, it’s just going to be me on this plan technically). To max out the HSA, I would have to contribute $287.50 each month.
When I add the monthly premium to that, it definitely is more than I’m paying each month for my traditional plan now.
BUT, I tried to think about the savings aspect and the fact that I likely wouldn’t use that HSA money every year. I can invest it and it can grow. Many people even use HSAs as a retirement strategy and they have a triple tax advantage.
I was curious how much that tax advantage would save me so I grabbed my latest pay stub and went to this online paycheck calculator. First I entered my info as it is currently to make sure I was using that calculator correctly.
Then I entered my info with the new insurance premium cost and a $287.5/month HSA deduction. That one change will save me over $650 in taxes! And that’s not considering the tax-free withdrawal benefits or the tax-free growth benefits! That’s a serious amount of change over time.
I figure it’s also just a smart financial move to be setting dedicated money aside for healthcare costs. We weren’t doing that before with the traditional plan and medical bills are still the number one cause of bankruptcy even among people who have health insurance.
The Clear Winner
As someone who has always been covered by traditional plans, I had a little bit of a lump in my throat when I went to submit the change paperwork. Even after having gone through all the math multiple times, and deeply understanding the advantages, there’s something psychologically difficult about that transition.
However, for my situation as a healthy young person with relatively low healthcare usage, the HDHP makes sense for me. The rest of my family will still have cheap insurance costs and I can build a “medical bill nest egg” for them if they ever need it.
I will be spending less on the monthly premium, but ultimately spending more each month by maxing out the HSA. But the tax advantages and the fact that the extra money is being saved is worth it to me.
What do you think… have you made the switch to a HDHP? Did you consider it and decide it’s not worth it? Let me know in the comments!