About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area, that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual financial planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the The DREAM Financial Planning Process ™ to help our clients achieve their goals.
Open enrollment (the annual period where you can enroll in major medical health insurance plans), begins November 1, 2020 and will remain open for 45 days, or until December 15th. If you're getting coverage through your employer, please check with your Human Resources department as your open enrollment period might be different. For someone looking to change or add coverage, this offers a short window of time to decide on and select your health insurance plan. Before rushing a decision to meet this deadline, take some time now to review and prepare. Below we’ve rounded up our top tips for choosing the right health insurance plan for you and your family’s needs.
Who Should Utilize Open Enrollment?
The Open Enrollment Period (or OEP) is for anyone looking to make a change to their health insurance coverage, whether through their workplace or the federal market. This could include looking for a cheaper plan with similar coverage, gaining coverage if you previously had none or changing your coverage altogether to better meet your needs.
Tip #1: Asses Your Current Costs
When thinking about changing your health insurance plan, it’s important to reassess your healthcare-related expenses. Take a look at how much you’re currently paying per month for your plan as well as what sort of out-of-pocket expenses you paid over the past 12 months.
These could include:
- Routine doctor’s visits
- Specialist visits
- Emergency room or urgent care visits
Unless you foresee any major changes in the coming year (such as pregnancy), this could be a helpful indicator when it comes to determining what type of coverage will be cost-effective and appropriate for you.
If you found your out-of-pocket expenses to be too high, now’s your opportunity to search for a plan with lower deductibles (although your monthly premiums will likely rise).
Tip #2: Choose Your Marketplace
You’ll may be able to gain coverage through several marketplaces including:
- Your or your spouse’s workplace
- Federal marketplace
- Local or state marketplace
- Private exchange
- Directly through insurance providers
If you have the option to gain coverage through your employer, this will likely provide you with the lowest premiums. That’s because your employer pays a portion of the premium, which tends to be lower anyway.
If your employer does not provide healthcare coverage (or you wish to look elsewhere for it), you can gain coverage through the federal or state marketplace. You’ll start at Healthcare.gov, which will then direct you to your state’s marketplace (if applicable). While premiums are likely to be higher, you may be eligible for premium tax credits to help offset the monthly cost.
Tip #3: Decipher Your Available Plan Types
There are four common types of health insurance plans you’ll come across when selecting coverage: HMO, PPO, POS, EPO.
Health Maintenance Organization (HMO)
Pros: HMOs tend to have lower monthly premium costs and out-of-pocket costs as compared to other plan types.
Cons: You’re typically limited to seeing providers only in your network, and these must be coordinated by your primary care provider (unless it’s an emergency). This gives you less overall flexibility.
Preferred Provider Organization (PPO)
Pros: PPOs offer the user more freedom when it comes to choosing healthcare providers and specialists. You can see people outside of your coverage network, although this will typically result in higher out-of-pocket costs. Additionally, you typically will not need a referral from your primary care provider to make appointments with specialists.
Cons: Out-of-pocket costs and premiums tend to be higher for PPO plans, especially when compared to an HMO.
Point of Service Plan (POS)
Pros: With a POS plan, you have the flexibility to visit out-of-network healthcare providers, but typically at a high out-of-pocket cost.
Cons: Similar to an HMO, you will likely need a referral from your primary care provider to see a specialist or have a medical procedure done. Additionally, your primary doctor will coordinate your care for you.
Exclusive Provider Organization (EPO)
Pros: An EPO will typically offer you lower out-of-pocket costs, and a referral is not needed to see specialists or have medical procedures done.
Cons: You will be required to visit specialists within your network, unless it is an emergency. An EPO will typically provide less flexibility and freedom when it comes to choosing care providers.
Tip #4: Account For Your Current Providers
As shown above, every plan type either requires you visit in-network providers or offers lower out-of-pocket costs for visiting an in-network specialist. If you already have preferred providers on your current plan, switching plans could jeopardize your ability to visit them in the future (or cost you more to do so).
When comparing plans, make sure to check whether or not your current healthcare providers are in-network. If they are, you should have no problem continuing to see them as you did before. If they’re out-of-network, you’ll either have to find a new provider or prepare to pay more for every visit.
Picking the right health insurance plan for you and your family can feel daunting, confusing and rushed. With some time left before open enrollment, do yourself a favor and create your plan of action now. Reduce the stress and headaches by understanding what type of plan may be right for you, what coverage you know you’ll need and determine what marketplace you’ll be buying from. When November hits, you’ll be more than ready to make a decision that’s right for your healthcare needs.
Tip #5: Take Advantage of your Health Savings Account (HSA)
An HSA can be used to save for future medical costs. They tend to have multiple tax benefits including:
- Pre-tax income is deducted from your paycheck, lowering your total taxable income.
- Your HSA balance grows tax-free.
- The IRS won't tax money you withdraw to pay for medical expenses.1
How Do I Qualify for an HSA?
To be eligible for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). Not only do these plans offer a tremendous tax benefit, they serve as another avenue for retirement savings. These accounts offer a win-win situation by balancing today’s savings and planning for the future. In exchange for lower premiums, an HDHP has higher deductibles. If you have large unforeseen medical expenses, you may have sizeable out-of-pocket expenses. In addition, you can not:
- Be claimed as a dependent on the previous year’s tax return.
- Have Medicare.
- Have any other health coverage, aside from certain exceptions as outlined by the IRS.1
What qualifies for a high deductible health plan?
For 2020, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP'S total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be more than $6,900 for an individual or $13,800 for a family
The tax advantages of an HSA are as follows:
- Contributions to an HSA are pre-tax or tax-deductible. Just like a 401(k), 403(b) or IRA.
- Earnings grow tax-deferred. Just like a 401(k), 403(b), or IRA.
- Withdrawals for eligible medical expenses are tax-free.
In order to qualify for an HSA, you must have an HDHP (high deductible health plan). This doesn't work for everyone, particularly those with high healthcare costs.
When using HSA funds for non-qualified medical expenses before age 65, you’ll owe tax plus a 20% penalty.
Maximum contribution amounts for 2020 are $3,550 for self-only and $7,100 for families. The annual “catch- up” contribution amount for individuals age 55 or older will remain $1,000.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a business, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals is their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. If you're looking for guidance on: Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio feel free to send me an e-mail.
On the first Thursday of every month I send out a monthly newsletter with tips and tricks to help you manage your Finances. In the September Newsletter I discuss 9 common insurance mistakes to avoid. Before you buy Insurance, make sure you're working with a Fiduciary and ask about the agent's fees and commissions, which are often very high or hidden for Whole Life Insurance products and Annuities. How do you know if this is what they're trying to sell you? Look out for terms like cash value, guaranteed return, no risk, or tax-free growth.