October through December is the time of year in the United States to consider which health insurance options are available for individual and family coverage in the coming year. Your employer, HealthCare.gov (the Insurance Marketplace), or the state health insurance marketplace in 11 states and the District of Columbia are where you can find plans and enroll in coverage. Also, if you’re 65 or older, Medicare is an available option.
Studies show that 4 out of 10 adults would be unable to cover an emergency expense of $400 or more without borrowing money from family and friends, or against their retirement savings such as an IRA or 401(k). It's essential to have an emergency savings fund that covers all your expenses for a few months in case you experience a job loss or illness.
Your premium is the monthly bill you pay to your health insurance company to maintain coverage. It’s best to consider your total health care cost, not just the monthly premium you pay when selecting your plan.
Following are some of the most critical cost you should consider when selecting your health insurance plan during open enrollment:
Deductible: This is the amount you will pay upfront before the insurance company starts to pay on your claim. For example, according to Healthcare.gov the cost of treating a broken leg can reach $7,500. If your deductible is $2,000, then you would pay that amount upfront before insurance pays any of the cost.
Copays and coinsurance: Both are a form of cost-sharing between you and your insurance company. Copays are flat fees, whereas coinsurance is a percentage of the healthcare cost paid by you after you’ve reached your deductible. For example, if your coinsurance is 70/30, your insurance company would pay 70 percent of the covered cost, and you would pay 30 percent.
Out-of-pocket maximum: This amount is the most you will spend on covered services in a calendar year. After meeting this amount, the insurance company pays 100 percent for all covered health care expenses for the remainder of the calendar year. If your plan has a $10,000 out-of-pocket maximum, once you pay $10,000 in deductibles, copays, and coinsurance any additional covered care would be paid by your insurance company.
COBRA: Generally, group health plans sponsored by employers are required to offer employees and their families the opportunity for a temporary extension of health coverage under certain instances, where coverage under the plan would otherwise end. It gives employees the opportunity to pay the entire premium for coverage up to 102 percent of the cost of the plan. Having an emergency savings fund is essential because COBRA can run upward of $500 to $1,000 or more per month.
If you anticipate having a lot of doctor visits and high prescription drug cost, you may want to select a plan with a higher monthly premium, so the insurance company covers more of your healthcare cost, versus a low monthly premium which requires a higher deductible and out-of-pocket cost.
To help offset your health care cost, consider contributing to a tax-favored health plan such as a Flexible Spending Account (FSA) or a Health Savings Account (HSA). Both are special accounts which allow you to deposit a limited amount of money through your employer every year to pay for certain out-of-pocket health care expenses. Also, self-employed people who have high deductible plans can set up HSA accounts. Amounts deposited into an FSA or HSA are not subject to federal income, Social Security, or Medicare taxes. Check with your employer to see if they offer an FSA or HSA.
Make it a point to think about your total health care and prescription drug cost, because this could make a significant impact on your overall spending.
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Livia Kelly is the author of UNMARRIED and DEBT-FREE. She provides basic, sound and useful information about achieving financial success on your own. Click on the HOME button at the top of this page to learn more.