Health insurance could be a blind spot in your financial plan

In this Master the Green you'll learn:

💰 How you should evaluate your health insurance choices

💰 Key terms that impact your cost and coverage

AND

⛳ Where you should focus if you really want to shave some strokes off your game

 One part golf, all parts money

 Let's tee this one up🏌️

Boring creates blind spots

Putting is the most boring part of golf

And that’s a problem.

Putting accounts for the largest portion of your score in golf

If you two-putt every green, that’s 36 strokes

• If you shoot even par 72 – putting is 50% of your strokes
• If you shoot an 80 – putting is 45% of your strokes
• If you shoot a 90 – putting is 40% of your strokes

Yet, how often do you practice putting?

I’m willing to bet it’s not part of your normal practice routine, and if you’re like most, you probably just roll a few putts on the practice green before you tee off and consider yourself ready.

But imagine if you were able to improve your putting but just 10%.  You would shave 3 strokes off your score.  That’s making 3 more of those pesky 5 footers every round.

In a game where every stroke counts, ignoring what happens on the green can be a costly mistake.    

One of the biggest blind spots in personal finance

The average person in the U.S. spends $13,493 on health care annually.

That’s more than $40,000 for a family of 3.

Sure, health insurance is a pretty boring topic, but it’s health care is one of the largest line items in your budget and it presents a huge opportunity to optimize your plan.

Open enrollment season

Open enrollment is a critical period during which you have the opportunity to make decisions about your employee benefits for the upcoming year.

Your health insurance plan is the “crown jewel” of our open enrollment choices. 

However, without a full understanding of your options, especially if you’re choosing between your plan of your spouses, you might not be making the most of your opportunities.

Health insurance is one of the biggest decisions you’ll make from both a financial and a well-being perspective. 

Here’s how to make sure you don’t miss out on any opportunities this year

There are two types of health insurance plans

There are two main kinds of health insurance plans – PPO and HMO. Understanding the difference between these two types of plans will ensure you have access to the doctors and specialists you want to see.

PPO (Preferred Provider Organization): These plans offer a network of preferred healthcare providers but allow you to see out-of-network providers at a higher cost. You do not need referrals to see specialists, such as a dermatologist or an allergist. Premiums and out-of-pocket costs are typically higher than HMOs.

HMO (Health Maintenance Organization): These plans focus on providing cost-effective and coordinated healthcare services. Your primary care physician will act as your quarterback for health care decisions and will make referrals to specialists within a specific network of providers.  HMO plans are not as flexible as PPO plans, but typically have lower premiums.   

There are various costs associated with health insurance

With either type of plan, there are a few different costs associated.

Premium: This is the amount that your health care coverage costs. Your employer may cover some or all of this expense. Any portion you’re responsible for is usually deducted from your paycheck.

Deductibles: You may have an annual deductible to meet before the insurance company starts covering certain medical expenses. Once the deductible is met, the insurance plan covers a portion of the costs, and you’re responsible for the remaining portion.

Copayment: Sometimes referred to as a “copay,” this is the upfront fee you pay at the time of services, such as doctor visits or for prescription medications. 

Coinsurance: After your deductible is met, coinsurance will kick in. This is a cost-sharing arrangement where you and the insurance company each pay a percentage of covered healthcare expenses. For example, with a 20% coinsurance, you’re responsible for 20% of the costs, and the insurer covers the remaining 80%.

Out-of-pocket maximum: This is the highest amount you’re required to pay for covered healthcare expenses in a specific insurance plan year. Once this limit is reached, the insurance company covers all eligible expenses, providing you with financial protection and limiting your financial responsibility for the rest of the year.

Here’s how to compare the costs of different plans

Here’s a comparison of two plans to illustrate how the above terms translate to real dollars spent:

Plan A: $750 monthly premium, $500 deductible, 80% coinsurance with an out-of-pocket maximum of $6,000.

Plan B’s premiums are lower and total just $6,000 for the year vs. $9,000 for Plan A. This means that if you don’t spend $1 on health care during the year (an unlikely scenario), you’ll come out ahead with Plan B.

However, Plan A carries a lower deductible and coinsurance than Plan B. This means that after paying the initial $500 deductible, you’re only paying 20 cents on the dollar for every healthcare expense up to the $6,000 out-of-pocket maximum.

Plan B carries a much higher deductible and 100% coinsurance after that. Under this format, the amount you spend on health care rises dramatically, but levels off once you’ve hit your out-of-pocket maximum. 

Both of these plans have an out-of-pocket maximum of $6,000, so they both limit the upside on the amount you will potentially spend on healthcare, but you’ll hit Plan B’s out-of-pocket maximum first because you’re shouldering more of the expenses on the way there. 

One more important note about health insurance

Plan B is also considered a High-Deductible Health Plan or HDHP.

High Deductible Health Plan (HDHP): These plans have higher deductibles and lower premiums than some other plans. They are often paired with Health Savings Accounts (HSAs) which allow pre-tax contributions for medical expenses. HDHPs are designed to encourage cost-conscious healthcare choices and often cover preventative care without required a deductible. 

Health Savings Accounts are one of my favorite types of accounts because of their triple tax advantages.

I'll tell you more about that in next week's Master the Green.

Which plan is right for you?

If you’re choosing between two plans, there’s a few factors to consider.

Are the doctors you prefer to see in the plan’s network?

If you are on prescription medicine, are the drugs covered in the plan’s formulary?

Will you need a referral to see specialists?

Do you prefer a lower premium and higher out-of-pocket expenses or are you willing to pay a higher premium in exchange for lower out-of-pocket expenses?

What is the out-of-pocket maximum?

Answer these questions, and you’ll be able to stick to your approach to open enrollment and not leave yourself short-sided.

Need some more help?

There's three ways I help people like you:

1.  Ask me anything – Do you have money questions?  Are you over asking friends or the internet for advice?  As a newsletter subscriber, I’m happy to take 30 minutes out of my day to help you.  I'll do my best to be sure you leave with something of value to consider.

2.  Get a one-time financial plan - Over the course of 90 days, we'll strive to help you get financially organized and offer up recommendations to achieve your financial goals.  You'll leave with answers to questions like:

Am I saving enough for retirement?

How can we pay less in taxes?

Do we need life insurance?

3.  Get fee-only financial advice - Hiring a financial advisor is a decision most people only make once in their lives - so we don't take it lightly.  We'll go through a three step process to show you how we work with clients, and let you make the decision if it's a good fit for you or not. 

If you've never considered hiring an advisor before, this is a great way to see what comprehensive financial planning looks like.

Schedule a 30 minute call to get started today.