A Healthy Menu
You could save a bundle on your insurance if you choose the right options.
By Kimberly Lankford, Contributing Editor
From Kiplinger's Personal Finance magazine, October 2005
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It's open season, the time when you find out how much your health insurance will cost you in the next year. After four years of double-digit increases -- the cost of family coverage rose 59% between 2000 and 2004, according to the Kaiser Family Foundation -- you may dread opening that envelope.
Take a deep breath and make sure you read everything, because your options may be different from what you have come to expect. "Defaulting into the same plan every year doesn't work anymore," says Linda Cushman Ruth, senior health-care strategist with Hewitt Associates, a human-resources consulting firm.
For example, employers are not only hiking premiums but also finding less obvious ways to boost your costs, such as raising deductibles and increasing co-payments. That could make your current policy more expensive than you realize. At the same time, your com-pany may offer new plans that will save you money, or give you a bonus if you can get coverage through your spouse's job (more on health-plan options).
Run the numbers. Start by assessing the care that you are likely to receive throughout the year, and run the numbers through all of the plans offered by your employer and your spouse's employer (many have calculators to help). Also, compare the plans' out-of-pocket caps for catastrophic care.
You may be offered the opportunity to open a health savings account (HSA). If your health-insurance deductible is at least $2,000 for a family policy (or $1,000 for an individual) and the policy meets a few other requirements, you can set aside pretax money in an HSA up to the amount of the deductible, with a maximum this year of $5,250 for families or $2,650 for individuals. You can withdraw the money tax-free to pay for medical expenses. Use the money for nonmedical expenses and you'll pay income taxes plus a 10% penalty (there's no penalty if you're 65 or older). And if you don't need the cash, it can accumulate year to year.
Jim Colosimo of Tucson, Ariz., faced big price hikes every year to cover himself, his wife, Margaret, and his son, John (now 23), under his employer's HMO. Says Jim: "When the premium increased by more than $100 per month last year, to $540, I said enough is enough."
His employer offered several other options, including a plan with a much higher deductible -- $2,500 per person, $7,500 for the family -- but with a significantly lower price tag: just $121 per month. "I did the math and ended up getting the high-deductible plan," Jim says. "It was the right way to minimize risk -- if there was a catastrophe, I'd be covered."
So far, the strategy has paid off. By mid August, the Colosimos had invested the maximum $5,250 in an HSA, spent less than $900 in out-of-pocket medical expenses and anticipated saving $5,000 in premiums for the year.