The Changing Landscape of Health Insurance

October 29, 2014

Now that we are in the midst of open-enrollment season, this is a great time to start looking at how the trends in health insurance may impact you and your family. In the last few weeks, Wal-Mart has announced that they will no longer offer health insurance to certain part-time employees. Other large employers are rolling out new plans that will either charge a steep premium to cover spouses that have coverage available at their employer, or they are not offering coverage to those spouses with their own option at all. In addition to all of this, there is an undeniable trend towards high-deductible health plans paired with a Health Savings Account (HSA).

This is not necessarily bad news. However, it does mean that choosing your coverage this year may need more time and study than before. Here are a few things that you may want to consider:

What is the total cost?

When I was first married, my wife and I were covered under a traditional health plan through my employer. That meant I paid a high premium for the coverage but a low co-payment and deductible each time we visited the doctor. Under my current high-deductible plan, there is no co-payment, just a high deductible that must be met before insurance benefits kick in. In exchange, my premiums are much lower.

This confused my wife the first time she visited the doctor on my new plan. Before she would just pay a $10 or $25 co-payment and be seen by the doctor. Now, she must pay the full amount for the doctor’s visit, which could exceed $100 for some visits.

In her mind, our new plan was much more expensive, but what she didn’t realize was that the true cost of the traditional plan was in the premium. Under the traditional plan, I might pay $200 a year in co-payment but $12,000 a year in premiums. Under the new plan, I may have to pay $2,500 in deductibles, but only $6,000 in premiums.

When comparing plans, make sure you estimate the TOTAL cost of the benefit. This includes the co-payments, the deductibles, AND the premiums. As a general rule, the healthier you and your dependents are, the more favorable a high-deductible plan may be. On the other hand, if you or a dependent has chronic health issues, you may benefit more from a traditional plan with co-payments and lower deductibles.

Does separate coverage make sense?

When only one spouse has access to an employer-sponsored health plan, the decision is easy, but if both of you have access, see if it makes sense for each of you to claim your own benefit. Here’s why:

1. Your employer may help foot the bill. Some employers pay the premium for the employee, so if both of you work for an employer that does this, you will want to take advantage of it.
2. Your employer may contribute to your health savings account. Some employers make an annual contribution, so if both of you work for an employer that does this, take advantage of it. Just remember: although you have two health savings accounts, you have one annual limit.
3. Your employer may assess a surcharge. As mentioned in the opening paragraph, some employers are starting to assess a surcharge to employees that cover spouses that have access to their own plan at work. If either of your employers does this, consider separate plans.

If you decide to use just one plan, make sure the total cost is justified.

Can you afford the higher deductible?

As more employers are switching to high-deductible health plans (HDHP), employees may want to take full advantage by contributing the maximum to their health savings account. That’s because money that goes into an HSA lowers your taxes today and comes out tax-free as long as it is used for qualified health care expenses. Unlike a flexible spending account, you don’t have to spend all of the money from your HSA each year.

Whatever you don’t use just continues to grow tax-deferred. As a bonus, in the unlikely event that you have too much money in your HSA, you can take distributions to supplement your retirement income starting at age 65 without the normal early withdrawal penalty. Just remember that if it is not used for qualified medical expenses, you will still have to pay ordinary income taxes on the distribution.

Planning your health insurance may be a lot more time consuming than it used to be. You need to estimate your insurance needs, compare you and your spouse’s benefits, and possibly contribute to an HSA. But this is a case where 15 minutes could possibly save you a lot more than 15%.