If your employer says it’s time for open enrollment for health insurance, you might wonder if you should stick with your current plan or make a change.
During open enrollment, you might be able to:
– Sign up for, drop, or switch your insurance plan (some may have high deductibles and come with savings accounts like HSAs).
– Add or remove family members (dependents) from your plan.
– Adjust how much money you set aside, tax-free, for health costs (through an FSA).
A plan with lower monthly payments might seem like a good idea, especially if you’re earning less or worried about money. But be careful—choosing a cheaper plan with a high deductible could end up costing you a lot if you face a serious health issue.
In fact, a survey found that many people with high-deductible plans don’t have enough savings to cover those deductibles.
If you’re thinking about changing your plan, take the time to compare the pros and cons to make the best choice for you.
4 Questions to Ask Before Changing Your Health Insurance
When it’s open enrollment, there’s more to think about than just the cost if you’re considering switching to a high-deductible health plan (HDHP) with lower monthly payments.
Dr. R. Ruth Linden, a health expert, says, *“It depends on your health, how often you use healthcare, and how much risk and uncertainty you’re okay with.”*
So, should you switch? Here are four important questions to help you decide.
1. What Are My Options?
If your employer gives you several health insurance options, it’s time to compare them.
One common option is a High-Deductible Health Plan (HDHP). These plans have lower monthly costs but require you to pay more for healthcare before insurance starts helping.
To encourage employees to choose an HDHP, employers might offer pre-tax contributions to a Health Savings Account (HSA). An HSA is like a special savings account you can use only for medical expenses.
For 2024, an HDHP must have at least:
– A $1,600 deductible for individuals or $3,200 for families.
– Out-of-pocket costs can’t go over $8,050 for individuals or $16,100 for families.
If you have an HDHP, you can qualify for an HSA. Even if you switch to a different plan later, you can keep using the money in your HSA.
When deciding between an HDHP and a regular health insurance plan, compare these key factors:
– Monthly Costs (Premiums): Your employer might cover part of the premium, but you’ll still pay the rest.
– Co-Pays: This is what you pay for things like doctor visits. If you see doctors often, this cost matters.
– Deductible: How much you must pay before insurance starts helping.
– Coinsurance: The percentage you and your insurance share after meeting your deductible. A higher insurance share means less cost for you.
– HSA or FSA Contributions: If your employer adds money to these accounts, include it in your total value.
Although it could be tempting to look at the cost you know you’ll pay every month — the premium — Haney noted that doing at least a little worst-case scenario planning could help provide a better picture of what each offers.
As an example:
Plan A has a $3,000 deductible and 100% coinsurance.
Plan B has a $1,500 deductible and 50% coinsurance.
Now, let’s say you had to go to the hospital and your bill was $6,000.
For Plan A, you’d have to pay to meet your deductible, but then the coinsurance kicks in, so your total amount would be $3,000.
For Plan B, you only have to pay $1,500 to meet your deductible, but you still have to pay 50% coinsurance for the remaining $4,500. At 50%, you’d need to fork over another $2,250 for a total of $3,750.
You should factor in all the categories when creating your comparison, Haney pointed out, but this example gives you a general idea of how one difference could affect your financial outcome.
2. How Healthy Am I?
And more importantly, how healthy do you think you’ll stay for the rest of the year?
“If you are a person who only goes to the doctor once or twice a year for your well-person exam… then a HSA/high-deductible health plan is likely a good decision to make at any age,” Linden said.
But even if you’ve never needed to go to the doctor for anything but your annual physical, Linden advised that you should seriously consider how you would handle a sudden change in health — whether it’s treating a worsening cough or an injured foot.
At what point would you consider forgoing care if you knew you had to pay a lot more for a doctor’s visit?
“One might be disincentivized from going to the doctor,” she said. “The difference between the $25 copay and a $90 copay might dissuade someone from making an appointment.”
Putting off care could lead to bigger medical issues down the road — or medical bills you can’t afford to pay. If that’s the case, sticking with a plan with lower copays might help you save money in the long run.
3. What Does the Rest of My Financial Picture Look Like?
When faced with any financial decision — including choosing your health care plan — avoid tunnel vision.
“It’s very easy to zero in on one thing, to the detriment of the bigger picture,” Haney said. “Before you start to try to save money on your premiums, you need to know: Can you cover the potential difference that you’re taking on?”
You can start by looking at your budget. Determine if you have enough money to cover the higher deductible without draining your savings. If not, are there other areas where you can cut your budget without sacrificing insurance coverage?
On the flip side, if you’re healthy and can easily cover the deductible with your current savings but have stayed with your old plan out of habit, you could be missing out on a financial opportunity.
With an HSA, you can start to invest your money once you reach your plan’s minimum threshold — typically around $1,000 to $2,000.
The money in an HSA grows tax-free, contributions up to the limit are tax-free and withdrawals for medical expenses are tax-free. If you’re keeping score, that’s a lot of tax-free money.
And an HSA is yours forever, so even if you end up leaving the high-deductible plan, you get to keep that account. So if you have enough savings to pay for medical expenses out of pocket, you could leave your HSA untouched and let it grow with the market.
When you retire, you’ll be able to use that HSA to pay for the inevitable increase in age-related medical costs without having to dip into your other retirement accounts.
“What we’re seeing is with retirees, one area where there is a woefully inadequate amount of funds set aside is in the area of medical expenses,” Haney said.
4. How Secure Is My Job?
If you’re on a traditional health insurance plan through your employer and are worried you might lose your job in the next few months, this might be the time to swap your traditional plan for a high-deductible version.
Why?
If you can use the time you have with your current employer to build up your HSA, you can use those funds to help pay for medical expenses after you lose your job — including COBRA premiums.
This wouldn’t be a solution if you’d struggle to cover the deductible and you don’t have a lot of time to build up your HSA, but you should at least consider this option to continue your medical coverage if you become unemployed.
But if you’re at a job you consider to be relatively secure and you’re stressed out about future health issues, this might not be the time to take on the additional risk of a new plan.
“If your health insurance is working for you, if you’re able to access the care you need, if you can pay for it, your employer is contributing to your premiums, stay the course,” Linden said. “You’ll have an opportunity in a year to rethink your options.
“If it ain’t broke, don’t fix it.”