Healthcare spending can be a large part of the family budget. So I want to break down how a family can weigh the pros and cons of a traditional health plan versus a high deductible.
Health insurance is becoming too expensive
If I asked you what your biggest monthly expenses are, what would you say? If you're like most families, you would likely mention rent (or mortgage), food, or transportation. And yes, that is a huge cost for the typical family.
However, one of the largest can be health care. The crazy thing is how much it can get out of your budget, even if you are a relatively healthy family.
We found out firsthand a few years ago when my husband's employer had an open enrollment. Every year we review health insurance options and it seemed to us that the cost continued to rise. After having children, we decided to go with the "easy" family plan and the monthly bonuses were still rising pretty quickly. We have finally reached our limit.
With the latest update, our monthly premiums would be pretty much the same as our mortgage. Since we only visit the doctors for the girls' annual wells, we knew we had to change something. We know that we are not the only family dealing with this.
Currently, the average monthly premium for a family of four is $ 833, or $ 9,996 per year. Add the cost of the average deductible and you can see how much money health insurance can cost.
However, as you prepare to review your open enrollment options this year, you may want to consider whether a high deductible health insurance plan is a practical and affordable solution for your family.
How high deductible health insurance works
As the name suggests, an HDHP (High Deductible Health Plan) has a larger deductible than a typical health insurance plan. The incentive for employers and insurance companies to offer this is for you to take more financial responsibility for your health care costs.
The benefit to you is that you should see a decrease in monthly premiums. For us, we saw a few hundred dollars a month difference in bonuses. With a saving of $ 300 per month, this equates to an additional $ 3,600 per year that can be used for other financial goals.
Huge tax profits with a health savings account
Another reason a high deductible plan can be attractive to families is the ability to have a health savings account (HSA). It's an extremely tax-privileged account that you can use to pay for medical expenses.
If this sounds familiar, it may be because you have heard of or used a Flexible Spending Account (FSA). This is usually offered with the "standard" health plans. Basically, you use pre-tax money there.
We have used an FSA for years and it has helped us pay for the regular expenses like my glasses and contacts. The problem was making sure we charged enough to access the account. If we don't use it by the end of the year, we'll lose it.
However, with a health account, you keep whatever you don't use. It can then grow in the account over the years. After you've saved enough to cover the deductible, for example, you can invest part of it to improve long-term growth.
Even better is the fact that your HSA contributions are tax deductible. Depending on your employer, they may also offer contributions to your HSA. That's a fantastic bonus!
What really makes the deal sweet is that families can contribute up to $ 6,900 each year to keep the money growing tax free and when we use the money on qualified medical expenses what we pull out is tax free.
Sounds great right?
It's enough to get you on board and switching right away, but a high deductible and HSA may not be the best solution for your family.
Advantages and disadvantages of high deductible health insurance plans
A high deductible plan sounds great, but there are some costs to consider. With the higher deductible, you need to be aware of your typical annual expenses to ensure you stay ahead of the curve.
For example, if you have chronic health problems that require regular visits and possibly medication, pay big bucks up front before you hit your deductible and let your insurance cover your portion.
One way to check your spending is to use Mint to quickly get the numbers. You can then easily see how much you paid out of pocket.
Looking at spending over a number of years, it was confirmed that our visits were largely limited to annual well visits (which are covered by HDHP plans) which means we can save a significant amount of money.
When I spoke to a certified financial planner about what families should be aware of, he indicated that families should also consider their own pocket maxims in the plan they are considering.
You want to have enough storage space (either with your general savings or with your HSA) to cover those expenses.
A relative of mine recently had a procedure. Even with insurance, their stake was $ 3,000!
Fortunately, she has some savings to use, but that's quite a bit of money.
Please enter the numbers to ensure you can accommodate a medical issue, especially during the first year of switching plans.
Choose the best plan for your family
After weighing the costs and benefits, we took the plunge and switched to a high-deductible health insurance plan and opened an HSA. Years later, we think it is the best decision for our situation.
Hope you now have a better understanding of your options when it comes to health insurance. With this knowledge, you can make the best decision for your family and finances.
I would like to hear from you – what plan are you using now? Do you have any plans to move?