Happy day to you. This is Ken Kaufman, and I am thrilled you’re here for episode number 85, Open Enrollment Health Insurance. Now in my next episode, I’m going to jump into all the other benefits that you can select during your employer’s open enrollment. But today, I’m going to focus on health insurance.
It’s the beginning of November, and I thought most employers are in the process of exposing their employees to open enrollment, and so why not give some financial ideas and concepts and, hopefully, some open enrollment hacks to you here this week? And then the episode next week will be on all of the ancillary or non-health insurance benefits.
So here we are. We’re coming toward the end of the year. Your employer’s come forward and said, “Here is what’s happening with our benefits plan.” Now across the country in the United States, we’re averaging, from everything I hear, about a 4% to 5% increase on average in health insurance. So you may see your health insurance costs going up. Or maybe your employer’s paying for that, or maybe your employer can’t afford as much, and so they’re gonna be sharing more of the cost with you as an employee. Whatever your circumstance and whatever’s put in front of you, I’m going to talk to you as if you have two options.
You have an option which is called traditional insurance and an option which is a high-deductible health insurance plan that can be coupled with an HSA account. Now both of these are legitimate health insurance programs. But the major difference is how your very first medical expense at the beginning of a year is treated and in terms of what does the plan pay versus what do you pay. And there are some really cool benefits from a tax perspective as well as from the perspective of acting like a consumer around healthcare as opposed to just thinking you flash a card that says you have health insurance and everything’s just taken care of and you have no choice in where you go, in the pricing that you pay, or anything like that.
So when you sit down and you look at the option of a traditionally insured plan and an HSA plan, here’s the main difference. When you’re on a traditional insurance plan, your office visits, there’s generally a copay associated with it. And that would be if you’re going to your primary care physician or if you’re going to a specialist or if you’re engaging in telemedicine, which by the way done that a few times, really like it. It’s a great option for those who don’t want to have to drive, sit in a doctor’s office, and go through that whole process. Often, any diagnostic items like X-rays or labwork is covered.
And then after these basic things… Where you have these copays, the insurance pays everything else, and then if you have something major happen, like you, you know, have a horrible accident and you have to go to the emergency room or be in the hospital for a while or you contract a disease that requires a lot of medical attention or somebody in your family does, what usually happens is after you pay this initial copay or if there’s an upfront cost, like if you go to the emergency room, then you are paying some percentage of the cost, a lot of insurance programs are 20% of the cost, after you hit your deductible.
So let me back up here. You pay a copay or some initial fee, then you are paying your deductibles. So that means every dollar after that, you are having to pay out of your pocket, and then once you hit your deductible, then you pay some percentage of it, 10% of it, 0%, 20%. A lot of plans are 20%, so I used that as the example. You pay 20% of all of your medical costs up until you reach what’s called your annual maximum.
So you have a couple of really important things to think about in this traditionally insured plan. First one is what are your copays for office visits, for going to the emergency room, for prescriptions. And then after that, what is the deductible, so how much would you have to come out of pocket if you had something major happen that wasn’t covered under these basic services. And then what percentage do you have to pay above your deductible until you hit your out-of-pocket maximum.
So I’ll give you an example. Let’s say you have a plan, and your deductible’s $5,000. You have some medical emergency that ends up costing $100,000. Basically, what happens is you’re going to pay your deductible. In this case, let’s say it’s $5,000 for an individual or $10,000 for your family. You pay the $5,000. Then you pay 20% up until you hit your out-of-pocket maximum, which I think it’s right around $6,000 is the most that can be the out-of-pocket maximum on these traditional insured plans. And so now you pay 20% really on the next $5,000 of cost, which is $1,000. Your total out-of-pocket is $6,000, and then everything else is covered by the insurance plan so long as you’re in-network and using services that are covered on your plan. That is how that program works.
Oh, and a lot of people really get conditioned to, “Hey, I just paid $40 or $25 or $50,” whatever the amount is, “and I can go to the doctor anytime I want. And I have this basic copay when I go and get prescriptions.” And they’re used to that, and they like that, and they’re comfortable with it. The challenge with it is is it never encourages you to act like a consumer which is, “I want to look at the quality and the price of something that I’m going to buy, and I’m going to make decisions based on what I think is best for me and what’s the best use of my money.”
On the flip side is what’s called a high-deductible health plan or, let’s see that acronym, HDHP, high-deductible health plan. This is a really interesting option because it allows you to couple an HSA account with it, which I’ll touch on just briefly here, and then in the future, I’m going to do another episode about some really cool tax planning and retirement planning that you can implement when you have an HSA account. But you’re not eligible for an HSA account unless you’re on a high-deductible health plan.
And here’s what happens on a high-deductible health plan. There is no copay for office visits, for prescriptions, for anything. Every dollar of healthcare you receive up to a certain amount based on your plan, you pay 100% of it, I mean, after the discounts because your insurance usually has contracted discount rates so your doctor has to write down some of… You know, if they bill you $100 for something, the insurance might have a contract that says they’re only allowed to charge $80 for that. So after that contractual adjustment, you pay 100% of that cost, or it’d be $80 in the example that I gave. And the interesting thing here is is no longer is there just a copay, but now you have to know what is actually the cost of the services that you’re receiving and do you want to partake of those, and if you do, do you want to talk pricing or negotiate in some way with the provider like you would in just about any other situation when you’re buying something.
So it’s called first dollar deductible, meaning all of these first dollars that you spend up until you hit the deductible, they are all out of your own pocket. Then once you hit your deductible, usually, the way most plans are designed, you’re done at that point. There’s no more out-of-pocket. There’s no more out-of-pocket maximum. You are just good, and you’re done, and you don’t have to pay anything else. So often, the high-deductible health plans, it requires you to come out of pocket up front for your office visits and things like that and your prescriptions, but once you hit the deductible, you don’t have to pay anything else, and everything is covered 100%.
So the challenge with this that most people have is they’re used to having this insurance card and just paying a copay and not having to worry and think like a consumer. The amazing thing about this high-deductible health plan is it forces you…because the first dollar of healthcare that you are receiving in the new calendar year, if you were to sign up for this high-deductible health plan, it’s actually coming out of your pocket, and it makes you think differently. It makes you think about actually how am I going to consume health services, not to try to encourage you to not get things taken care of and be healthy and get your annual physical and everything that goes with that, but it allows you to think like a consumer of those services and the providers that you engage with.
Now I personally…and I’m not giving advice here. You’ve got your own employer, your own benefit plans, and you need to look at that and evaluate that, and if you want help, there will be somebody who can get to know your situation and give you good advice. I’m a big fan of the high-deductible health plan. One, because it gives me access to the HSA, which I’ll get into more details on the hacks around HSA accounts. But when we’re talking about health insurance hacks, I believe that the high-deductible health plan is a hack. It gets you into consumer mode. It gets you thinking about how to take care of yourself and to actually be smart about how you want to spend your healthcare dollars. It generally has a lower out-of-pocket maximum, so if you’re somebody who’s going to consume or every year you seem to hit your deductibles, a lot of times it can be beneficial to seriously consider the high-deductible health plan, and then when coupled with the HSA, it can actually make a huge difference, a huge difference.
So the difference between the two. Traditional health insurance. You have copays for basic services, emergency room exposure, and prescriptions. After you’ve paid that and if the costs go beyond that basic service or that basic level of care, you’re paying 100% of everything up until you hit your deductible, which could be $1,000, $2,500, $5,000. There is a cap on that, I think, legally. And that’s individually, or family, it might be $10,000. But that’s obviously beside the point. The point here is is that you have to absorb that whole deductible 100%, and then there’s usually a percentage that you pay up until you hit your out-of-pocket maximum.
The high-deductible health plan, it is first dollar of benefit that you’re receiving, first dollar of services you’re receiving. You pay 100% of that until you hit your deductible, and then you are off to the races. You don’t have to pay anything else the rest of the year. And generally speaking, these plans are cheaper than your traditional insured plans. If you have the same deductibles and a lot of the same elements of it, the high-deductible health plans are cheaper because you’re taking responsibility for all your basic healthcare needs, and then the insurance is only kicking in when there’s something major that happens.
And really it’s the purpose of insurance. You have some catastrophe or a lot of expense in this area that you can’t fund yourself. So the more net worth that you’re building, the high-deductible health plan can start to look more and more attractive because as part of your emergency fund or as part of your setting cash aside for emergencies, you can just fund that deductible right there and have it set away. And it could be in your HSA account, it could be elsewhere. I’ll get into those hacks in another episode.
But I mostly just wanted to kick the door open and say, number one, good luck with making all your decisions and getting everything updated in your open enrollment with your employer this year and getting all set up for next year. Number two, when you think about your health insurance and the options you have in front of you, don’t dismiss that high-deductible health plan. Take a hard look at it, do some analysis, and do some soul searching. And there may be some interesting opportunities there. The high-deductible health plan, it really is a health insurance hack, and it’s a way to become a true consumer of healthcare services like we’re a consumer of every other service and every other product that we buy, that we partake of, and that we participate in.
I hope this episode has been helpful. Many, many thanks to you for joining today. This is a wrap for episode 85 on Open Enrollment Health Insurance Hacks. Happy day.
