Financial Planning for December 2011

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Health insurance premiums are rising: What can you do to protect yourself?

As healthcare costs in the United States continue to climb, premiums are on the rise. Adding to the pain, coverage is being reeled in, co-pays are going up and deductibles are creeping higher. Maximum out-of-pocket expenses are going up as well.

Employer-sponsored health insurance premiums are not immune from the trend, with the Kaiser Family Foundation reporting a 60 percent increase in premiums employees pay for their health insurance over the past 12 years. A Commonwealth Fund study found a 63 percent increase in employees’ premium costs since 2003, with families paying an average of nearly $14,000 a year  in 2010 for employer-sponsored healthcare. From 2010 to 2011, according to the Kaiser Family Foundation study, families paying for coverage through an employer saw their premiums climb an average of about 9 percent.

Fast forward to higher costs

The march toward higher health insurance premiums is not expected to retreat any time soon, according to a PriceWaterhouseCoopers LLC (PwC) survey. Employers across a wide spectrum of industries report that their costs are projected to increase about 8.5 percent in 2012, and, along with those increases, employees can expect further cutbacks in coverage, higher deductibles and co-pays, and higher premiums next year and beyond.

The reasons for higher healthcare costs, and the higher costs of coverage, are debatable. Some critics blame the Affordable Care Act of 2010 for the latest spike, while others maintain that it is merely a result of unavoidable market conditions. Regardless of the underlying causes, the insured must find ways to deal with rising costs, while ensuring that their health and finances are protected.

Examine your options

The first step to reducing premium costs is to examine your options, especially during your employer’s open enrollment. If you are married and your spouse works, can he or she get a better deal? Some employers cover employees for free, but adding an entire family can be prohibitively costly. In these cases, look at whether your spouse’s company offers a more competitive cost for family coverage. If it does, keep your individual coverage, but go with your spouse’s plan for the remaining family members.

In addition to considering premium costs, look at out-of-pocket expenses, deductibles, co-pays and other factors. The proactive approach is to plan now for next year by evaluating all of your health insurance options and then choosing the right strategy for your needs and your budget.

A combined approach: high-deductible plans and health savings accounts

To reduce healthcare costs, many employers are offering a combination of high-deductible plans and health savings accounts (HSAs). In addition to cutting costs for employers, HSAs offer benefits for employees. Through a health savings account, insured workers can learn to better control their own healthcare costs while also taking advantage of tax breaks and, in many cases, matching employer contributions.

Contributions to an HSA are tax-free. These funds can then be used to pay for medical expenses with no taxes on the withdrawals. HSAs are also portable; the plans can continue to be used, including the employer’s matching contributions, even after an employee leaves the company.

Saving with an HSA is not limited to an employer-offered plan. Combining a high-deductible health insurance plan with an HSA can work for the individually insured person as well, offering lower premium costs and a reduction in income taxes. Contributions to your account can be deducted from your income for tax purposes, and, just as with an employer-sponsored plan, withdrawals to pay for medical expenses are tax free. Unused contributions can be rolled over into the next year.

Bridging the gap between now and Medicare

The above approach also works well for singles or couples 55 and over who are not yet eligible for Medicare. By stashing money in an HSA (up to $7,150 for a couple), you can save on income taxes and premiums and set money aside for future medical expenditures. Depending on the plan, co-pays are often waived after the deductible is met, saving more.
Even with the relatively high deductibles, a high-deductible plan combined with an HSA can often reduce overall costs when taxes and other savings are calculated.

Mitigate the costs

One thing is certain: health insurance premium costs, deductibles and out-of-pocket expenses are on the way up, but there are steps you can take to mitigate these costs. Talk to your financial advisor or your health insurance provider about how you can best deal with these costs and ensure that your health and financial well being are covered.


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