insurance: Saving Money on Individual Coverage
You can cut costs on individual plans in three ways:
1. You can reduce your coverage and the insurance company will give you a direct premium credit.
2.You can put money into a health savings account (HSA) combined with an approved high-deductible health plan (HDHP).
A HDHP is a highdeductible major medical policy that meets the requirements of the IRS for use in conjunction with an HSA. (See “Saving with health savings accounts,” later in this chapter, for more information).
3. You can opt for a higher deductible when your health and self-care are exceptional but when the insurance company has no way of lowering your premiums.
Changing your coverage
You can save money on your insurance by cutting out unneeded coverage.
For example, if your individual policy currently includes coverage for maternity, and you know you’re not going to need it, you can drop that coverage and save money on your insurance premium.
You can also cut back on doctor choice — by switching to an HMO from a PPO, for example. Socking away money in a health savings account An HSA operates like an individual retirement account (IRA) coordinated with an IRS-approved high-deductible major medical health insurance plan (HDHP). The big advantage of an HSA is that it allows you to pay for your major medical deductible as well as elective medical and dental expenses with pretax dollars. For most people, that’s equal to a 25 percent to 30 percent savings on their medical and dental bills!
Here’s how an HSA works:
1. As with an IRA, contributions are income tax deductible.
2. Earnings on the account are tax sheltered.
3. The maximum contribution per year is set annually by the government.
For each person age 55 and older, an additional “catch-up” contribution is allowed. To find out what the current allowable amounts are, as well as anything else you want to know about health savings accounts, go to www.ustreas.gov and click on the Health Savings Account link.
4. In order for the HSA contributions to be tax-deductible, you must also have an IRS-approved high-deductible health plan (HDHP). The HDHP must include options for a minimum deductible and a maximum deductible set by the government each year. There usually is a cumulative family deductible amount for policies insuring two or more people in the family.
There is no coverage under the policy until the entire family reaches the family deductible in a calendar year. (Be careful when choosing your family deductible!) There generally is an option for 80 percent coverage as well as 100 percent coverage after the deductible is satisfied.
Choose the 100 percent option. After you’ve satisfied the high deductible in a calendar year, you’ll have peace of mind knowing that all covered expenses will be 100 percent paid, for the rest of the year.
5. From the HSA, you can pay your deductibles and most other medical and dental expenses that your health plan doesn’t cover (such as laser eye surgery, glasses, contact lenses, hearing aids, and dental work).
Because the HSA money has never been taxed, you’re paying those bills with pretax dollars — a huge advantage.
6. If you’ve stayed reasonably healthy, you can leave unused funds on
deposit and either use them in future years or save them as supplemental retirement dollars. If you don’t use them for medical bills, withdrawals are taxed much like traditional IRAs when you do retire.
You can set up an HSA wherever you can establish an IRA — banks, savings and loans, investment houses, insurance companies, and so on. Because of the need to write checks to pay doctors and buy prescription drugs, I’ve found that banks work best — that way, you can have an account with both checks and a debit card.
You can make your life a lot easier when using an HSA to pay deductible expenses and other expenses by following these simple suggestions:
1. Don’t pay any medical bill or pharmacy charge until your insurance
company has reduced the cost to its negotiated discount pricing.
2. Fund the account early in the year so you have plenty of cash available if medical bills are sizable in the first quarter of the year.
3. Keep all your receipts for all services you’ve paid through your HSA
(medical bills, pharmaceutical bills, dental bills, and so forth) in a medical folder in case you ever get audited. For a complete and current list of IRS-approved medical and dental expenses, go to www.irs.gov and search for Publication 502, or call 800-829-3676 to have it mailed to you.)
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