Healthcare Coverage Plans – What You Need to Know
Whether you’re ready or not, 2018 is winding down and 2019 health care sign ups are likely happening at your company. If you’re fortunate enough to have your employer offset some of the costs of healthcare, or are looking to understand the basics before you sign up on an independant plan, there’s a few things you should know to help you make the most educated decision.
First off, there are two types of plans: High Deductible Health Plans (HDHP) and Traditional Healthcare plans. Depending on your current health, family size, and several other factors, one plan may work much better for you versus the other. Let’s breakdown the specifics to find out why.
High Deductible Health Plans (HDHP)
This type of plan is defined as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family. In conjunction, monthly costs (often called the premium) are lower as the participant is taking on more upfront costs if medical care is needed.
A deductible is the amount you pay for covered health care expenses before your insurance plan starts to cover costs. With a $1,350 deductible, for example, you pay the first $1,350 of covered services. Then, any amount above your deductible, you only pay a copayment as defined by your plan. Copayments can be anywhere from 0-30%.
This plan can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with money free from federal taxes.
If you are a relatively healthy individual, or have healthy individuals on your plan, the HDHP could be a great way to keep your medical costs low. Since the plan is associated with lower premiums, if you do not need too much care within the year, you will likely save money. In addition, HDHPs allow you to place money in a Healthcare Savings Account (HSA).
Contributions to an HSA are done so pre-tax and can be used for qualifying medical expenses such as medical bills, prescriptions, glasses and a variety of other healthcare costs. If you don’t use the funds in a calendar year, you can keep these funds for a future medical use. The 2019 limits for an HSA are $7,000 if you have a family plan or $3,500 if you have an individual plan.
If you frequently need to go to the doctor and/or have long-term health conditions requiring medical care, the HDHP plans are less than desirable, as participants will be subjected to high deductibles to pay for their medical care. This plan may also be less desirable if you are unsure if your medical needs could increase during the year. For instance, if you have several dependents on your plan or are planning on expanding your family, you will likely accrue many medical costs which will mean you are on the hook until you reach your high deductible.
In addition, unexpected trips to the emergency room or unexpected medical procedures will likely prove more costly, especially if you have not set aside enough in your HSA.
A Traditional Plan, or sometimes called a Low Deductible plan is associated with higher monthly costs and a low deductible when paying for medical services. For example, your monthly cost for a family plan could be $600 compared to $200 for a high deductible plan. However, the deductible is significantly lower than a HDHP – usually under $1,000 per person.
Low deductible plans are allowed the use of a flexible spending account (FSA). This account allows you to put pre-tax dollars into a savings, however, you must use it within the calendar year, or you will forfeit the funds at the end of the year. Some plans will allow for a $500 rollover to the following calendar year, so check your employers plan for details. The contribution limit for 2019 is $2,650.
There are several benefits to low deductible plans. If you or your family members have medical conditions which lead to several office visits, medical procedures or consistent medication, you can rest assured that your out of pocket costs will predictable as you will likely hit your low deductible early, and your copayment will kick in. In addition, quick visits for simple illness will likely carry a small copay compared with a larger bill if you were enrolled in a HDHP.
The high monthly cost of a low deductible healthcare plan is an obvious disadvantage. Even further, if you are enrolled in a low deductible plan, and have a healthy year, you will ultimately be paying higher overall costs than you would with HDHP. Also, enrollment in an FSA is somewhat of a guessing game as you are only allowed to rollover up to $500 pre-tax dollars and if you do not use the rest, you forfeit that money.
Overall, understanding all the options is what will likely have the best impact on your pocket book. Be sure to check out your HR resources to fully understand your company’s plan or speak with your insurance provider. All plans have documentation to breakdown the specifics to help you make an educated choice!