HOW TO HOLD DOWN RISING HEALTH INSURANCE COSTS

Following several years of modest price increases in health care coverage, the cost of premiums is beginning to shoot up again. Premiums for group health policies, for example, have risen around 8 to 12 percent in 2000, and as much as 20 percent for some small employers. Here are some suggestions from financial planners for minimizing the premium increases and your overall health care costs.

Study plan choices
Some employers, especially larger ones, offer more than one health care plan—HMOs, PPOs, POS plans, regular indemnity. Compare their benefits, costs and restrictions, and select one based on your health history, your family’s health and your likely needs in the future. Don’t automatically pick the least expensive plan. A plan with excellent prescription benefits, while more expensive could prove less expensive for you in the long run if you require high-priced prescriptions. An indemnity plan, where you have the freedom to use who you want but at a higher out-of-pocket cost than HMOs and PPOs, can actually be cheaper if you rarely need care. Review carefully the plan you had last year: its benefits and costs may have changed dramatically.

Shop around if on your own
Look for group policies through associations. Some HMOs let individuals in at group rates. Consider a medical savings account, which allows you to buy a high-deductible insurance policy and set aside money in a tax-free savings account to use to pay the deductible or other out-of-pocket medical costs. 

Choose a high deductible
It might knock 20 percent, perhaps more, of your premium costs. This works especially well if you normally are healthy. Stash money away every month in a money market emergency fund for deductible and co-pays. If you don’t use it, at least you’ll earn a little interest.

CHIP In
In 1997, the federal government began funding through the states the Children’s Health Insurance Program. This program is designed to provide health insurance for children whose parents make too much to qualify for Medicaid but can’t afford private coverage. For more information, call toll free (877) 543-7669. 

Use a flexible spending account
This is a great deal a lot of people overlook. You estimate how much you’ll likely spend on medical costs out of pocket over the next benefit year. Say it’s $2,400 based on previous experience or known future expenses. Your employer takes $200 out of your paycheck each month to put into your account. The benefit here is that the government doesn’t tax that $200, even when you eventually spend it on medical care such as co-pays and deductibles. In short, the government subsidizes your costs to the extent of your income-tax bracket. Of that $2,400 you use from the account, the government effectively pays $672 of it if you’re in the 28 percent tax bracket. Be conservative about how much you have set aside. Anything you don’t spend within the benefits year, your employer gets to keep.

Compare dual coverage
Couples with no children will probably have much or all of their health insurance tab picked up by their employers. Couples with children generally will have to pay for coverage for the kids. Usually, you’ll want to do this only under one of the plans, because it rarely pays to have a family covered under two employers. It might even pay to have both working spouses under a single plan. This works really well if one spouse has a “cafeteria” plan, so they can opt out of the health care portion and use their allotted benefit money for other benefits. However, if there is some concern about job stability, you may want to remain covered under both employers.

Take care of yourself
Exercising, eating healthy, not smoking or drinking, and other healthy habits can dramatically reduce the number of visits to doctors and hospitals—and your out-of-pocket expenses.

Don’t waste your money
Skip insurance for specific diseases (how do you know you’ll get cancer instead of heart disease) or accident insurance. The money is better spent on a good comprehensive medical policy.

Don’t go ‘naked.’ 
Above all, try to buy some form of medical coverage. A medical catastrophe can bankrupt a family. If you can’t afford comprehensive coverage, try a major medical with a large deductible. You’ll pay more out of pocket, but you reduce your chances of being wiped out financially. 

This column is produced by the Financial Planning Association, the membership organization for the financial planning community and is for general use. It is not intended as specific advice to any individual.

 

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