Think about how much time, thought, research, and energy someone puts into buying a car. Now, think about how much time they might put into choosing a healthcare plan. How do the two compare?
We only get one body, so our health should be one of our top priorities—if not the top priority. Therefore, we should put the same amount of time and effort into picking a health plan as we would for any other major purchase.
Admittedly, the current healthcare system’s daunting nature can scare people away from trying to understand their options. In 2020, the average monthly premium is $456 for individuals, which adds up to nearly $5,500 annually. And that doesn’t even include health-related out-of-pocket expenses.
Healthcare can be expensive and overwhelming, but there is more information available than ever to help us make the right decisions for our health. We just have to be willing to put in the time to learn.
The Ins and Outs of High-Deductible Health Plans
A good place to start is learning the difference between a standard healthcare plan and a high-deductible healthcare plan (HDHP). During open enrollment, many people assume a high-deductible plan is going to cost them more—the phrase “high-deductible” sounds expensive! This type of plan can actually save people money, though.
High-deductible plans might seem intimidating, but they’re relatively straightforward; paying a higher deductible—the limit we pay for healthcare costs out of pocket before insurance starts paying—means enjoying lower monthly premiums and the ability to open a health savings account (HSA). This allows us to focus our healthcare funds on the things that will improve our overall well-being, like mental health services.
When should someone choose a high-deductible health plan? High-deductible plans are great for people who don’t have extensive healthcare needs—typically younger, healthier people.
How to Choose a Healthcare Plan: Is a High-Deductible Plan the Right Option?
The idea of having to spend thousands of dollars out of pocket before insurance steps in is scary—even though most people are spending that much on monthly premiums with a preferred provider organization (PPO).
But if we look further and examine the advantages of an HSA, we may get more excited. An HSA is a triple-tax-advantaged account that allows people to contribute pretax (or tax-deductible) dollars, make tax-free withdrawals to pay for qualified medical expenses, and grow their funds free of tax—and HDHPs are the only HSA-eligible health plans.
So how do HDHPs and HSAs work together? One way is by putting all of the money saved on monthly premiums straight into an HSA, where it can either be used to cover healthcare expenses or invest it.
Still wondering how to choose a healthcare plan that will enhance overall wellness? Here are a few questions to ask during open enrollment to know whether a high-deductible plan is the best option:
1. What healthcare expenses do I already have (or will I have in the future)?
Think through all current and potential healthcare expenses, such as ongoing prescriptions, chronic health issues, dental or vision needs, planning for a baby, etc. For some of us, we might come to realize that we don’t need to pay ridiculous monthly premiums because we’re not actually using the care a PPO plan offers. And with a high-deductible plan, we can also leverage the advantages of an HSA.
The advantages of a high-deductible health plan with an HSA are especially potent if employers match the funds contributed to an HSA. Why give money to an insurance company when we could instead put it in our pocket to cover expenses that benefit our well-being?
2. Am I willing to pay a high deductible if I experience unexpected medical costs?
This is the riskier part of a high-deductible plan. It requires a willingness and ability to pay a higher deductible, even in the event of unforeseen medical expenses. With some research, we can prepare for the unexpected—but we shouldn’t just stop at the cheapest plan.
I often see people choose the cheapest premium but forget to make a plan to cover their deductible. When life events cause them to need more healthcare than expected, they struggle to afford it. They then forgo important and necessary healthcare, which snowballs to cause even bigger medical issues the following year.
3. Do I need an extra retirement vehicle to reach my future goals?
The HSA triple tax advantage allows the account holder to save, invest, and spend on qualified healthcare totally free of taxes. In this way, it’s even better than a 401(k) when it comes to saving for retirement. For those of us who can stand to handle larger out-of-pocket healthcare expenses or who don’t really spend much on healthcare, we can use our HSA as the ultimate investment vehicle to save for our dream retirement.
There’s no reason to pay for more healthcare than necessary, especially when the savings on premiums can be directed into an HSA that stays around for life. Picking a high-deductible health plan and pairing it with an HSA can help us come out ahead each year and put extra money away for a healthy, stress-free retirement.
Good health is the key to happiness and overall wellness. How we approach health should be unique to our needs and financial situation. With research and planning, though, we can better decide how to choose a healthcare plan that will benefit us. Our health—physical, mental, and financial—is worth the time and effort.