With Kim Lankford, Contributing Editor at Kiplinger’s Personal Finance
Good news, folks! We may get some relief on health insurance premiums and better insurance options for healthcare. To learn more, Steve speaks with Kim Lankford, Contributing Editor at Kiplinger’s Personal Finance, on how to pick a better health insurance policy.
Slowdown In Healthcare Cost Increases
Over the past few years, healthcare costs have been marching steadily upward and insurers have been raising premiums to keep pace. But the rate of increase appears to be stabilizing.
Going into 2019, the average health insurance cost increase was about 5%. Rate increases have particularly stabilized for people who are self-employed or otherwise buy their own insurance. In addition, there are several new options offered by new and existing insurers who are coming back into the market.
Steve notes that a 5% increase is almost twice the rate of inflation, but it’s still good news relative to the double-digit increases of the past few years.
Benefits Of HSA Plans
Kim recommends comparing insurance rates to see if you could save money by going with a smaller provider network and by raising your out-of-pocket costs. She also sees value in HSA plans for those with high deductibles.
For instance, HSA plans offer a triple tax benefit:
- your contributions are either tax deductible or pretax if it’s through your employer
- the money grows tax-deferred
- HSA money can be used, tax-free, for eligible medical expenses in any year.
With an HSA, unspent money stays in your account and continues to grow, tax-deferred. HSA accounts offer investments in mutual funds, and money can be withdrawn, tax-free, provided it’s spent on eligible medical expenses.
After you’re 65, you can withdraw HSA money, tax-free, for Medicare part B, part D, and Medicare Advantage premiums.
Steve reminds us that insurance is for catastrophic purposes, not everyday occurrences. So a high deductible helps keep premiums down and your savings add up over the years. You will, of course, feel the pinch when you have to pay out-of-pocket, but it works out in the long run, especially if you have a healthy lifestyle.
If you incur minor medical expenses, Kim recommends paying for them out-of-pocket, and not from your HSA account. This way, money in your HSA will continue to grow for the future, when you may have a lot more medical expenses.
Understand Your Out-Of-Pocket Expenses
Further, because there could be unforeseen medical expenses, it’s really important to understand your maximum out-of-pocket expenses for deductibles and copayments. Ideally, you should set aside your maximum out-of-pocket, so you have the money for medical emergencies.
Centers Of Excellence
There is a growing trend, especially in employer health insurance coverage, where plans pay for care at Centers of Excellence for such things as cardiac care, cancer, knee replacement, etc. These centers are often outside your geography but are still considered in-network care.
Statistics show that hospitals such as Mayo Clinic or Cleveland Clinic offer very good care, with few post-procedural complications. Consequently, employer plans find that it’s in their best interest to cover that even if it’s not nearby. So check if your company supports Centers of Excellence.
Strategies For Borderline Income
Americans who fall below the Federal poverty level get subsidies to help pay their premiums. However, if your income is higher than poverty thresholds, you need to do all you can to rein in your premium.
For instance, if you’re an early retiree with income that’s near the poverty threshold, Steve recommends not taking as much out of your retirement accounts and making do with less, so that you qualify for subsidies.
To see whether you qualify for a subsidy, check out health insurance calculators at healthcare.gov and on your state’s website. Kiplinger also offers help, with articles such as Kim’s 7 Ways to Save on Prescriptions, and more at kiplinger.com/askkim.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Well, good news, folks. We finally may be seeing some relief regarding health-premium pricing and availability in the health insurance market. And to get a handle on this, I’ve asked Kim Lankford, from Kiplinger’s Personal Finance, to join me today. She’s a regular guest on this show, and she’s going to help us pick a better health insurance policy.
Hey, Kim, welcome back.
Kim Lankford: Thanks for having me.
Steve Pomeranz: So in the last few years, health care costs have been marching steadily upward and insurers have been raising premiums to keep pace. But is the rate of change, the rate of increase changing now?
Kim Lankford: It is, actually, there’s kind of good news.
Like you said, there’s been a lot of increases, very large increases in health insurance costs for the last several years. But they’re starting to stabilize a little bit. Whether you have insurance through your employer or on your own, the average cost increase across the country is about 5%.
And for people who have employer coverage, that’s the same as it’s been for the last several years. But people on their own, it’s stabilizing, this is considered stabilizing a little bit.
Steve Pomeranz: Yeah.
Kim Lankford: Increases had been so much over the last several years. And you may also have several new options; some new insurers are coming back into the market or entering the individual market.
So there may be many more options to have during open enrollment this year than you had in the past.
Steve Pomeranz: I know in my own company last year and the year before, we saw some horrendous price increases in premiums. We actually had to switch insurance companies and kind of rush back and forth to try to get something. But I hate to say 5% increase, it’s almost twice the rate of inflation, but that’s good news, 5% is good news.
Kim Lankford: It’s good news compared to the last few years. Just like your business did for individuals, a lot of them will have the same type of situation.
If the plan that they currently have has big price increases, take a look at your other options because there are some new options out there. I find a lot of people who—if they didn’t mind switching to a smaller provider network—were able to save a decent amount of money.
And it’s tradeoffs like that. What they need to consider is premiums versus out of pocket costs versus having the doctors and hospitals they want to have covered.
Steve Pomeranz: That’s true. So let’s get to the policies themselves, and see how we can save our listeners some money. So we know that policies come in all shapes and sizes, but particularly with regard to deductibles, high deductibles, low deductibles that translates to a change in the premium.
And high deductibles also have the benefit of you being able to develop or start or fund an HSA account. Tell us about that.
Kim Lankford: Well, and that’s one of the benefits of a high deductible plan. The difficult thing is everyone’s been having to pay higher deductibles, whether you have insurance through your employer or on your own.
And people on their own, especially, have had some very high deductibles. But kind of a bit of a silver lining is that if you have a deductible of at least $1,350, for individual coverage or $2,700 for family coverage, you’ll be able to contribute to a health savings account.
And this provides actually a triple tax benefit. Your contributions are either tax-deductible or pretax if it’s through your employer, the money grows tax-deferred and can be used tax-free for eligible medical expenses in any year. So this isn’t like a flexible spending account, where you have to spend it by the end of the year, this you can keep in the account.
Many of them have mutual funds that you can invest in and have the money grow tax-deferred for the future. And as long as you’re using it for eligible medical expenses, you can withdraw it tax-free. Also, after you’re 65, you can even withdraw the money tax-free for Medicare part B, part D, and Medicare Advantage premiums.
You can’t make new contributions after you’re on Medicare, but a lot of people are now considering this as kind of an extra stash of money for retirement health care expenses.
Steve Pomeranz: I’ve seen that in my own practice with clients coming in with $43,000 in their HSA, and they’ve used as it as this tax-free savings account, and I think it’s really quite a good way, if you can, in fact, afford to pay out of pocket for your regular ongoing expenses.
One thing that I think it’s important to realize is that insurance is for catastrophic purposes. Your house burns down, things of that nature. So you really should have a high deductible, even though it’s painful when you go into the doctor, you get prescriptions, it is painful, but one way that keeps your premium costs down is by getting a high deductible, and that’s really what insurance is for.
What if I don’t expect to have much in medical expenses for the upcoming year, is there something I can do or a way of thinking that could save me money?
Kim Lankford: Well, in that case, really, it is a benefit to go with the high deductible plan. And you never know what your medical expenses are going to be during the year.
But in that case, you could set aside the money in the HSA, if you can afford to contribute the extra money, pay for any medical expenses that you do end up having, up to that deductible, out of your pocket. And then keep that money growing in the HSA for those future expenses, when you may have a lot more medical expenses.
Another key thing is—because nobody knows what is going to happen during the year—it’s really important to look at the out of pocket maximum coverage that the policy has. And this is the coverage, the average actually is about $3,500 for employee-only coverage. This is for employees, and individual coverage is about the same.
And family coverage is about $7,000 on average for employee family coverage. And that is the most that you could pay out of your pocket for deductibles and copayments. Generally, this is just for in-network care. But this is if you end up having much, much bigger medical expenses than you’re thinking about.
Or if you do have medical issues, look at that, because you may end up having to kind of max out your health insurance. But the good thing about those policies that have that type of coverage—this is under the ACA law—has this type of coverage with no coverage maximum.
You will get everything covered after you reach those out of pocket maximums. But just really understand how that works. Talk with your employer or the insurance company, about what’s included in that amount. Whether it’s your deductible for your whole family, whether it’s your out of pocket costs. And then, kind of keep that in the back of your mind.
Even if you’re healthy, that this is what you’d have to pay if you did have a major-medical emergency.
Steve Pomeranz: Well, I think there is some comfort in the idea that your total out of pocket is capped. And again, we see what the bills from hospitals are, there’s these horrendous numbers, and to know that you’re capped at $3,500 or whatever the number is, is, I think, the whole idea about insurance.
One thing that I notice when I was studying your notes, was that there’s new plans, new features to a plan called the Centers of Excellence program. That sounded really interesting, what is that?
Kim Lankford: Yeah, this has been a growing trend, especially in employer coverage, and a lot of these plans now are helping you to pay to go to some major hospitals.
Especially in things like cardiac care, some knee joint type things, bariatric surgery, cancer care. Some hospitals like Mayo Clinic, Cleveland Clinic that are specialists in this care, that might not even be in your state. And this is especially an employer plan, sometimes they’re having a Center of Excellence, where they will consider that in-network care and may even pay some of your expenses to stay there or travel there in order to get that care.
Because they are looking at the statistics and finding out that the care is very good care where they’re not having to have a lot of complications afterward. And the employer plans are deciding it’s in their best interest to cover that even if it’s not nearby.
Steve Pomeranz: Some of the other things that are covered, fertility treatments and bariatric surgery, which I was surprised to read, those are also covered.
And so you really want to check with your company’s policy to see whether, in fact, this Centers of Excellence program is available. All right, what about strategies for people with higher incomes? Tell us about that.
Kim Lankford: Below 400% of the Federal poverty level, and that’s $48,560 for single, $65,000, almost $66,000 for couples, and just over $100,000 for a family of four.
People whose incomes are below that level will get a subsidy to help pay their premiums. And so, if you buy on your state marketplace or healthcare.gov, then you will get a big or small portion (depending on your level of income) of the premiums covered through that tax credit.
However, if your income is higher than that, those are the people who have the biggest sticker shock. And a lot of our readers are early retirees, who may actually have pretty high income, especially when they count the money that they’re withdrawing from their tax-deferred accounts like 401Ks and IRAs or if they have a taxable pension.
In that case, you really need to really do whatever you can to lower the cost. First of all, if you’re near the cut-off, really think carefully about what you can do to lower some of those-
Steve Pomeranz: So like, maybe not take so much money out of your IRA as an example?
Kim Lankford: That’s exactly right. I talked with a reader who had been doing exactly that. And they had gone over top of the limit and then realized, I just missed it by a little bit, and decided to kind of tighten their belts. They were going to be going on Medicare in just a few years, and just really limit what they were taking out of their IRAs and 401(K)s, until they went on Medicare, in order to be able to qualify for the subsidies. So take a look at what those limits are. There’s calculators at healthcare.gov and on the states’ sites that can help you figure out how close you are to a cutoff.
Steve Pomeranz: Kiplinger does a really good job here. They have articles, for example, the Seven Ways to Save on Prescriptions, and they’ve really done a very good job, which is why we have them continually back on this show because their research is deep and it’s broad and it’s exactly what we’re looking for. So Kiplinger.com. Kim, is there a specific place on the site people can go to?
Kim Lankford: Actually, I think right now, the lead article, since open enrollment is about to get started and going on with many employer plans right now. I think we’ve got it right in front of the site. But I also do a column called Ask Kim.
And you can go to kiplinger.com/askkim and find all my columns there, too.
Steve Pomeranz: Okay, we’ll put all that on the site and, of course, to hear this and any interview again. To ask a question of anything we’ve discussed, don’t forget to go to our website, which is stevepomeranz.com.
And while you’re there, join our weekly update, where we will send you all of the news and all of the shows and segments that we’re doing on a week to week basis. I think you’ll really enjoy that, that’s stevepomeranz.com. Thanks, Kim.
Kim Lankford: Well, thank you very much.