How To Choose The Best Healthcare Plan

If you just got that dreaded open enrollment email from your employer, you've come to the right place. Today, I'm going to give you an in-depth breakdown of the different types of healthcare plans. Fill you in on that healthcare lingo? What is the deductible anyways and then try to help you walk away knowing which plan might be best for you.

Now, I'm not saying this will be the most exciting topic, but I am going to give you some crucial information to use when thinking about your overall financial situation. Healthcare can have a massive impact on this mean. For many of us, medical emergencies might be the most expensive purchase you make it any given here. So if you want your finance to stay on track, don't let a medical emergency derail.

Okay, so first off what is open enrollment? This is a time when you have to decide which healthcare plan you're going to choose for the following calendar year and it's typically November one through January 15 th. And once you choose that plan, you're pretty set for the next year unless there's some major event like a new job or child. So it's really important you do a bit of extra research right now to choose something that might you might be stuck with for a full year? Oka, but what are the different plans out there?

The main options are HMO Health Maintenance Organization. PPO Preferred Provider Organization and HDP Highdeductible Health Plan. There are other types of plans available, especially for those using non-employer group plans, but today we'll just cover these, but before we get the details, we gotta cover some of this basic healthcare Lingo.

First off what is a premium? This is what you'll pay each year just to have insurance. Usually this will come out of your paycheck and employers typically cover some portion of this expense like around 70 per to 80 percent. I mean, this is basically your payment to have insurance now. What is it deductible?

This is the amount of money you need to spend on healthcare, not including your premiums before your insurance starts to chip in. Keep in mind that preventative care is generally covered in full before you hit your deductible.

So when talking about the deductible, we're really talking about the additional care you need beyond those standard checkups. What is coinsurance? This is the percentage of healthcare costs you pay after hitting your deductible, but before you hit your out-of- pocket max. Many plans will require you to pay about ten percent of coinsurance, for example, after you hit that deductible. So what is outof? Pocketcket. Max. Mean.

This is the maximum amount of money you will spend out of pocket on healthcare in a given year. This includes your deductible, but not your premium. After you hit this maximum, your insurance covers 100 percent of your healthcare costs. So once you hit that out of pocket max, you can go ham on healthcare costs. I mean, don't really do that. What is a coppi.

Short for co-payment, this is a fixed amount that you pay for covered medical services. The remaining balance is covered by the insurance company. A common scenario with this is like, when you go to the doctor and do a 20 dollars copay every time you see that doctor, but then you don't pay anything after that, it's just that flat fee all right.

So now that we got that basic ling go out of the way, let's get into the details about the different types of plants and we'll start with the HMO. The HMO requires patients to choose a primary care physician who then handles all the recommendations and referrals to other specialists for additional care if needed.

The premiums tend to be lower for HMO plans because they have special agreements with certain healthcare providers, but they also have more restrictions as well because you have to start with that primary care physician to really do anything else.

A big thing to consider here is how much you care about flexibility with that healthcare option. Do you want to be able to see a specialist without having to first get an appointment with that primary care doctor every single time. If so, it might be worth paying more for the next plan. I'm gonna talk about the PPO, so the PPO preferred provider organization is the most common type of health insurance plan by enrollment and it allows you to see in- network health care providers including specialists without any type of referral. The key with this plan is to stay in network DUCA.

If you go out of network with any provider, you'll likely end up paying much higher costs and spend way too much of your time going back and forth between the health insurance company and doctor. It's just a headache and in my experience, you want to try to stay in network. Trust Me. Generally PPO plans have higher premiums but much lower deductibles.

Now PPO plans typically require the insured to pay a cop-payment each time they visit a provider or they must meet a deductible before the insurance covers that claim. Now the deductibles are typically lower for POS so it doesn't usually end up being a huge cost to cover these initial visits before the insurance company starts covering those costs.

Ppo plans are also more comprehensive regarding coverage, including many services that other health insurance programs might exclude, so you may end up getting to see a wider variety of health care providers in this type of plan, it kind of makes sense why it might be more expensive in that case. Right. So what is an FSA.

An FSA is a tax advantage account that you can use for healthcare expenses that typically comes with a PPO or an Hama. This account is offered through your employer and you contribute pretax dollars straight from your paycheck to be used on medical expenses throughout the year.

The important thing to know about an FSA is that you have to decide during open enrollment so right now how much you wanna contribute for the whole year and it's a user or loses it. So once you changed jobs or run, the year ends any money you contributed but didn't use, it's gone.

Now estimating a whole year of healthcare expenses and knowing you have to remember to use it might stress you out. But with a little planning and a few helpful spending hacks, you can easily make an FSA work for you. I'll talk more about this in a bit, so it's just stay tuned now. Hdb. The High Deductible Health Plan has higher deductibles and lower premiums, but typically offers the ability to utilize an HSA health savings account to pay for qualified medical expenses using pretax dollars. This is kind of similar way the Eliade does.

This plan is the second most common type of health insuranceplant after POS and they're similar to POS in that you can generally see in network specialists without a referral, but the networks for HDP plans tend to be higher, so you tend to have more options for what's considered in network.

According to the IRS rules, a plan is considered to be high deductible if it has a deductible of at least 1400 dollars for an individual plan or 2800 for the family plan. Also, the out-of-pocket max is capped at seven K for individual plans or 14 K for family plans.

Now, these type of plans tend to favor those who have fewer medical expenses like someone who's generally healthy and doesn't visit the doctor very often because you pay lower premiums and then don't end up worrying about the high deductual if you never see the doctor. However, it's always hard to anticipate medical expenses for the outcoming year, so you kind of have to bank on not having too many issues for that following year.

But you could save 100 or even thousands of dollars by choosing this plan. When there's a good chance, you'll have very little to no medical expenses. What is in HSA. In HSA is a health savings account that is only available if you have a high deductible plan and it allows the participant to save for healthcare expenses.

This can be offered through your employer or you can open your own HSA as long as you have an eligible highdeductible healthcare life and you can contribute pretax dollars straight from your paycheck to be used on future medical expenses and it's not a user to lose it like that. Assa now it's tax advantage and that contributions to HSA are withheld from your paycheck pre tax so it lowers your taxable income a bit and any earnings within the HSA are also not taxed when used on eligible medical expenses. Most has also offer the ability to invest your contributions as well.

Not all has give this option but it has become more common. This is a great way to build some long-term savings for healthcare expenses that you may have late in life. Healthcare expenses are typically the number one expense later in your life. So if you can start putting away some savings now and then let them compound over the next 30 plus years or so, this can really add up.

Some experts say that the average American couple will need about 300 thousand dollars to cover out-ofpocket expenses for healthcare and retirement. That's a lot. The IRS does put a limit on how much you can contribute to an HSA, so for the year 2021, you can only contribute a maximum of 3600 dollars that may not sound like much, especially when you think about IRA limits of six K and 400 and one K limits of like 19500. However, when you add in the investment option and therefore the power of compounding with the tax-free withdrawals, you can really start putting away a lot of money for future healthcare.

And unlike the FSA. HSA contributions and earnings can roll over each year, so it's not to use it or lose it. They can just keep add enough. Assuming you max out your HSA contributions each year for 20 years through monthly contributions of 200 and 91.6 seven dollars, and assuming a seven percent annualized investment return, you could end up with over 100 and 60 thousand dollars. And if you were to still contribute the same amount each month, but let it sit in CA just making let's say zero 0.1 percent, you'd end up with around 80 K.

So this means by simply investing your HSA contributions and assuming a seven percent return, you could double your future savings. Now this does assume you max out your contributions for 20 years, but it's just a great way to illustrate the power of compounding. The premium is that monthly cost to you right whether your employer covers it or not, so a lower premium will typically mean a higher deductible.

The deductible is the guaranteed cost if you have health care needs, so you need to make sure you're ready to cover this amount. For example, if you have the high Deductible health plan, you'll pay lower premiums. But if you have to get a blood test, for example, you might end up paying for the full amount of that test as you must hit your deductible first before the insurance really starts. Covering costs.

Often a lower cost to you each month can mean a higher deductible and outof pocket max and vice versa, so you have to weigh what makes sense more for your needs. Maybe you get more peace of mind from knowing that you're paying more each month without having to worry about covering a high deductible. For instance, on the flip side, if you rarely go to the doctor, you may just want to save in the monthly premium cost and risk the higher deductible with the High Deductible Health plan.

If you can really build up that HSA as well, this could be a better plan for those that are young and saving and don't anticipate a lot of medical costs now for that third factor, the outofpocket max. This is the max that you'd have to cover. If you really have really big healthcare expenses for the year, so you wanna keep this in mind now I've only dealt with this number one time and that was when we had our child during 2020.

A birth and then subsequent nights at the hospital can be super expensive, so we ended up meeting this out-of- pocketcket max pretty early on. If we had chosen a different healthcare plan that had lower out-ofpocket costs, we could have saved thousands of dollarss. However, if this plan has a lower out-ofpocket costs, it likely has other downsides like a lack of flexibility for in-network providers. There is also another factor worth mentioning here, kind of a 4th factor, which we can view as the bonus factor.

Employer HSA contributions. If your employer contributes a decent amount to your HSA, which some do you might want to consider this plan. This typically doesn't require you, the employee to even contribute to the HSA. So if your employer is going to give you free money through these contributions to use for future healthcare expenses, this may be the deciding factor similar to 400 and one K mash contributions. If you can take advantage of this free type of money, it's always worth considering all right. But how do you even estimate your medical cost? This is a big one right.

How does anyone really know how much they'll spend on this like we'll never be able to get used that exact number. But there is a decent way to do this and how to think about this. And it starts with your recurring costs first. So if you really wanna put this number on paper, start with those costs that you know for sure you're going regularly have over the next year.

This includes multiprescriptions, contact lenses, dental visits you know typically twice a year those copays and are there any regular visits that you're going to make? Now if you regularly visit your primary care physician for healthcare checks, you can also add in this cost depending on which plan you're looking at. It is worth mentioning that preventative care is usually covered 100 percent, but there might be some cases where these checkups don't actually qualify for that.

If you might need physical therapy this is another recurring cost that you can account for. Who doesn't have that naing injury that they keep putting off to get checked. Keep in mind that if you overestimate your costs and then use the FSA at the end of the year, you may be scrambling to use what's left in the account right.

You might be surprised that an FSA can be used for things like sunscreen, overt countunter medicine like Tylenol and Amazon even has an HSA FSA page where you can start looking at what's eligible. You might be surprised to find out how easy it is to use these funds last minute. So once you put together those recurring costs then think about the big ticket costs like surgeries or maybe even starting a family.

Many people are surprised that you're probably going to have to pay thousands of dollars out of pocket for those birthing costs like we talked about, it's definitely not free for most healthcare plans to even have a baby. My wife and I thought we had this one cover, but ended up getting overwhelmed when the amount of bills coming away even 12 months after our son was born. And in some cases you have to visit an out-of-network hospital that then has to build the insurance company. And then it's just a mess.

You're kind of the go-between. I simply suggest that you consider the high end you're outofpoet max and what you might end up having to pay if your in- network plans change. Nhtsa or FSA is one of the nice ways to help prepare for this so I hope that breaks it all down and it gives you better understanding of kind of what to do over the next few weeks or even months during an Open Enrollment.

It's a really important decision, don't fret over too much. Hopefully, your employer has simplified this a bit, lays out your plans in a pretty understandable way, and you can use this post as a guide to kind of get going and make that important choice. I'm Tony from Wealthfront. Thanks so much for joining. I'd love for you to subscribe to our channel, have a great day.

Disclaimer: Please note that the information we provide is for educational purposes & Reviews only and should not replace professional financial advice.