Hello and welcome to Financial Confrontation, a MarketWatch column where we help you weigh financial decisions. Our columnist will deliver her verdict. Let us know if you think she’s right in the comments. And feel free to share your suggestions for future Financial Confrontation columns by emailing our columnist at [email protected].
This is the time of year to sign up for a new health plan, either through your employer or through the government Health Insurance Marketplace.
Decisions can feel especially difficult this year. High inflation, layoffs and the possibility of a recession are weighing heavily on people’s minds and finances. Americans are on a tight budget and may be looking for ways to save money on the cost of their health insurance. One way to do that, at least in terms of upfront costs, might be to sign up for a high-deductible health plan. These plans typically have lower monthly costs (premiums), but they have higher deductibles, or amounts you have to pay out-of-pocket before insurance begins to cover health care costs.
So, is this the year to try to save some cash by signing up for a high-deductible health plan?
Why is it important?
It’s no secret that health care is expensive in America, but the language of health insurance often obscures that fact with euphemisms like “cost sharing,” “co-insurance,” copay” and “deduct”. Here’s a quick translation: if you see one of those terms, just replace it with a dollar sign, because it means Friend will pay.
Choosing a health plan is very important. Medical bills can strain a household’s finances and healthcare debt is very common. More than half (57%) of Americans have been in debt due to medical or dental expenses in the past 5 years, according to a nationally representative survey was released in June by KFF, an independent non-profit that researches healthcare issues.
One of the survey’s more troubling findings is that even people with health insurance fall into debt, with more than four in 10 insured adults reporting that they are currently in debt. related to health.
In other words, deciding which health insurance plan to choose can have far-reaching unintended consequences.
How much can you expect to pay for health insurance? If you achieve success through your work, that depends on a number of factors including the size of your company and the age of the workforce. On average, workers with employer-sponsored health insurance pay $6,106 per year for family coverage and $1,327 for individual coverage, according to KFF. Those at smaller companies typically have higher premiums and larger deductibles.
The federal government define a high-deductible health plan is one with a deductible of at least $1,400 for an individual and $2,800 for a family.
Regular high-deductible health plans (HDHPs) — but not always — comes with a health savings account (HSA) where people can store tax-free money to pay for medical expenses.
“ ‘Medical debt can really be a gift that doesn’t stop giving.’“
HDHPs have lower premiums, but are they more affordable in the long run than traditional health plans? Penguin Value compare HDHP with traditional plan in three scenarios and found that HDHP plan owners would pay more overall than traditional plan owners if they had medical expenses of $5,000 or $10,000 for a year.
However, HDHP owners have a lower total cost than traditional plan owners if their medical expenses are $1,000. “But betting on such an outcome — and such a low need for medical care — can be a gamble in an unpredictable world,” ValuePenguin writes.
Verdict
If you can afford a higher monthly cost, avoid a high-deductible health plan.
My reason
“It is difficult to predict exactly what your healthcare needs will be in the coming year. And for that reason, you should sign up for the most comprehensive package option you can afford,” said Karen Pollitz, senior fellow at KFF. Buying the cheapest option can open you up to the possibility that something is going to happen — you’ll get hit by a car, find a lump — and then “you’ll have a hard time figuring out what your plan is. How much do you get?” Pollitz said.
As the KFF survey shows, medical debt is common even among people with health insurance, she noted. “There are a lot of reasons for that, but the high deductible is one of the culprits,” says Pollitz.
That debt can have serious long-term consequences, including damaging your credit score or forcing you to cut other household expenses, including essentials like groceries. groceries, utilities and rent. You may even find yourself in a situation where your doctor refuses to treat you if you don’t pay your bills on time, causing you to delay getting needed health care. “Medical debt can really be a gift that keeps on giving, referring to the ongoing negative effects on people’s finances,” says Pollitz.
Is my judgment the best for you?
On the other hand, HDHPs with health savings accounts attached to them can make good financial sense for “a bunch,” says Pollitz: those “wealth enough to need a preferential savings scheme.” taxes” and have the ability to cover any health costs that may arise. “Partners in law firms often sign up with them, but associates and secretaries often don’t want to,” she adds.
Eric Roberge, a certified financial planner and founder of Beyond Your Hammock, a fee-only financial planning firm based in Boston, says health savings accounts (HSAs) is a great way to increase your wealth over time. “You can contribute pre-tax dollars, and any growth from the money you invest in an HSA is also tax-free,” he told MarketWatch. “If you withdraw and use that money for qualified medical expenses, that is also tax-free. It’s the only account that offers this triple tax advantage.” After age 65, you can use your HSA money for anything, not just medical expenses, but you’ll have to pay taxes on withdrawals.
A high-deductible health plan with an HSA can work well if you’re young, healthy, and don’t have a lot of medical expenses. But if Roberge notes that if you use medical services frequently or have a lot of high-cost prescriptions, this may not be the best choice, because the cost of the health plan is deductible. may not be worth approaching an HSA. “For people who can manage their health care bills without a problem while they are earning an income from their jobs and usually don’t have to pay a lot of medical expenses each year, the opting into HDHP not only saves you on premiums every year, but it also gives you the opportunity to grow your wealth in the long term in a tax-advantaged way through an HSA,” says Roberge.
Let us know in the comments which option will win this Financial Confrontation. If you have ideas for future Financial Face columns, email me at [email protected].
