If you try to save on health insurance wherever you can, you’ll have more money leftover for other more fun purchases, and you’ll also be doing your patriotic part to help the nation keep its health care costs down, which are expected to reach $3.06 trillion in 2014, according to the Centers for Medicare & Medicaid Services.
And with open enrollment in health plans now under way across the United States, and new rules (and penalties) under the Affordable Care Act (ACA) being ushered in for 2015, there’s no better time for you to create your own checklist on ways to keep your health care costs in check.
There are many ways to save on health insurance, but here are five action step to get you off to a good start:
Action Step No. 1: Choose the right plan
Before you can pick the most cost-effective plan for you and your family, you need to know what the plans are and the advantages and disadvantages each offers. Only then, based on how you use health care services, can you decide or at least guesstimate which plan will produce the most savings.
PPO: The most common type of health plan is a preferred provider organization (PPO) in which you, in addition to your monthly premiums, are responsible for a portion of the cost (co-pay) for visiting a medical provider. Typically, you can choose any doctor, specialist or hospital you like, within a preferred network of providers, without first obtaining a referral from your general physician. If the only doctor you can find is one outside your company’s list of preferred partners, you can still see that provider, but you’ll pay more for that option.
HMO: Typically, a health maintenance organization offers a more limited network of doctors, hospitals and other medical providers than a PPO does. In addition, if you use out-of-network providers or non-authorized care, your HMO will not pay any portion of your bills. Moreover, you can see a specialist only after obtaining a referral by your primary care physician. In exchange for these restrictions, HMOs are generally less expensive — with smaller co-pays and broader low-cost coverage for drugs and preventive care — than PPOs, but not always. Kaiser Permanente, the pioneering HMO that offers a system of managed care via its own network of in-house doctors and hospitals, has the highest rates in Southern California and other areas of the state in the new ACA era.
Consumer-directed or account-based plan (sometimes also known as indemnity or fee-for-service insurance plans): As a rule, these plans come with higher-than-average deductibles and lower-than-average premiums. Unlike with PPOs, you typically pay most of the cost for doctor visits and other health care until your deductible is met. About one-third of all companies in 2015 are expected to offer this high-deductible option their only plan in 2015.
After reading about the different plans and services each provides, compare costs. Generally, an HMO will be less expensive than a PPO. You may sacrifice some choice with an HMO, but if the doctor you like happens to be in your insurer’s HMO network, then you should come out ahead.
If you currently have a PPO and are thinking about shifting to a higher-deductible consumer-directed plan, add up from last year (or past 12 months) your PPO’s co-pays, premiums, and negotiated rates for the services you received. As a benchmark, a typical family of four spends close to $10,000 a year in payroll deductions and out-of-pocket expenses.
If you’re not the kind of family that runs to the doctor for every sneeze or sniffle and you consider your family to be in relatively good health, without any chronic conditions requiring regular doctor visits, you could be well served by a high-deductible plan. Many high-deductible plans also are linked to Health Savings Accounts (HSA), which offer tax-savings and spending caps, which you’ll read more about below.
But again, you have to do the math. In making your choice, realize that as with stocks, past performance (your health history), doesn’t always indicate future results. For example, if you plan to get pregnant, your doctor visits will increase, so a low-deductible PPO might be a better option than a high-deductible plan.
Action Step No. 2: Use all available subsidies
Company subsidy: First off, if your company offers a health plan, it will likely be less expensive than if you purchased a health plan on your own. Nearly 150 million Americans obtain health insurance through their company.
In 2014, employer-sponsored family health coverage reached $16,834, up 3 percent from 2013, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2014 Employer Health Benefits Survey. Of that total, workers paid $4,823. Again, if you can find a comparable unsubsidized plan (be sure to compare apples to apples) for less, buy it, but it’s not likely you will.
Government subsidy: The government subsidizes health coverage for about 60 million Americans who purchase their insurance through the Health Insurance Marketplace. Largely, this assistance occurs through Medicaid and premium tax credits. Typically, you qualify for these programs based on your household size, income and other factors, like age and disability.
Another program, the Children’s Health Insurance Program (CHIP), provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid.
Don’t rule out government help because you think you earn too much. For many eligibility groups, income is calculated in relation to a percentage of the Federal Poverty Level (FPL). For example, the FPL for a family of four is $23,850 in 2014. But if your income is 33 percent above the FPL ($31,720.50), you would still be eligible for assistance.
Again, more Americans fall into these income ranges than you might think. For example, if you started a business and showed no or little income for the first year or more, you could qualify for Medicaid assistance the next year. This knowledge should provide some comfort to entrepreneurs thinking of venturing out on their own, operating without the safety net of employee wages.
But neither do you have to be poverty-stricken to receive help. Even a family of four earning up to $95,400 would be eligible for some tax credits (dollars you take right off the top whatever you owe the IRS). So, if you’re purchasing health insurance yourself, take advantage of what the government is willing to give you.
Action Step No. 3: Flex your savings muscles with 2 tax-advantaged accounts
Health Savings Account: An HSA is a tax-advantaged savings account designed to work with a high-deductible consumer-directed option outlined above. Tax advantaged simply means you reduce your taxable income by whatever amount you contribute to your HSA. So, if you had taxable income of $50,000 and you personally contributed $3,000 to your account, your taxable income would be only $47,000.
For 2015, you and your employer combined will be able to contribute up to $3,350 ($6,650 for a family) to your HSA. Participants 55 and older (and not yet enrolled in Medicare can contribute an additional $1,000). Typically, participating employers contribute about $600 per employee. (Employers do this to incentivize more employees to select high-deductible plans, which are the cheapest of the major health care plans to support.)
Whatever HSA set-asides you don’t use one year rolls over into the next and continues to grow, tax-deferred year after year, the way your assets in a 401k plan or IRA grow. But unlike a 401k plan or IRA, when you withdraw money from your HSA for qualifying medical expenses, you don’t pay taxes on that money. So, because you win two ways, an HSA is an even better value than a 401k.
After you turn 65, you can withdraw funds from your HSA for any reasons without penalty. It does not have to be for a medical expense. If, however, you withdraw money from your HSA for non-medical reasons before 65, you will incur a 20 percent tax penalty.
Besides giving you tax-advantages, another standout feature of HSAs, when linked with your high-deductible plan, is it limits your out-of-pocket expenses, including deductibles, coinsurance and copays. In 2015, those limits will be $6,450 for individuals and $12,900 for families.
Better still, most employers establish out-of-pocket limits below the above-listed thresholds, and in 2015, first-time prescription drug costs must count toward the out-of-pocket maximum.
Flexible Savings Account: The FSA is another tax-advantage opportunity for health care consumers to save money, and the account doesn’t have to be linked to a high-deductible plan. As with an HSA, you designate a portion of your paycheck to be deposited into an FSA tax-free and then use the money to pay for medical expenses.
If you plan to use both an HSA and an FSA, your FSA will become a limited FSA, meaning you can only use the FSA for non-medical expenses, such as dental, vision and over the counter medicines. You wouldn’t, however, be able to use it for your deductible and co-insurance expenses on your high-deductible plan.
Unlike your HSA, you also must decide ahead of time how much money you want to go into the account for the plan year. And unlike an HSA, you can only roll over only a maximum of $500 into the next year. Before 2013, Flexible Savings Account users lost whatever money they didn’t use.
So, an FSA is not nearly the deal an HSA is, but it’s still something. But being able to set aside $2,500 tax free might help soften the blow of paying for your child’s braces. With the tax advantaged dollars you use, figure that if you’re in the 25 percent tax bracket, you’ll be purchasing health services at a 25 percent discount.
Action Step No. 4: Pick a doctor who is your cost-cutting ally
It’s no longer enough for a doctor to just practice medicine. A good physician should be your ally in helping you keep your health care costs down. This person should be able to recommend which are the best labs and hospitals for your tests and procedures and which centers work with patients to lower out-of-pocket costs. Some superstar doctors, knowing you have a high-deductible plan or limited finances, might even take up the case of your scheduled procedure with the hospital’s finance department to negotiate a lower rate.
Also, look for a doctor committed to keeping your prescription drug costs low. Such a physician will be generous with free drug samples that may clear up your condition long before you need to run to your pharmacy to fill a prescription.
Action Step No.5: Crack the code
No one should care more about cutting your health care spending than you. While you can sometimes expect your health care provider to intervene on your behalf to help reduce your health care costs, be prepared to take up the battle yourself.
Before calling different hospitals to learn what they typically charge for your operation — a very proactive cost-cutting initiative on your part — ask your medical professional for the current procedural terminology (CPT) code for the procedure you’ll be undergoing. The CPT is the industry term for the billing code. Armed with this five-digit number, you can call multiple hospitals and receive quotes or estimates for the same procedure. Not all treatment centers will be forthcoming with the information you’re seeking but you’ll open far more doors with the code than without it.
Another way to check what specific facilities charge near you is to consult the HealthCareBlueBook.com. The privately held website allows consumers to look up the fair market cash price for thousands of medical procedures, diagnostic tests, medications and other services. Specific price data are available by U.S. zip codes, allowing users to customize the results for their local area.
Take special note of the Fair Price, which represents the amount that many providers accept from insurance companies as payment in full for a service. This amount is typically lower than a provider’s “list price.” The fair price is calculated from industry data on numerous providers, payors and employers across the United States.
Get in motion
There are many steps you can take that will help you save on health insurance. The whole process can be overwhelming to say the least. The Affordable Care Act, passed in 2010, stands at about 20,000 pages, and continues to grow, so if you don’t understand every rule, regulation or stipulation of your company or government-sponsored plan, be patient.
Start with the above five cost-cutting ideas — select the most appropriate cost effective plan for your useage, use every subsidy you can get, take advantage of tax-sheltered HSA and FSA accounts, enlist a doctor to be your cost-cutting ally, and crack the hospital codes so you can negotiate a lower price for your particular procedure. Then look for even more ways to save.
Good luck and good health in 2015.