Choosing Health Insurance: Why the Right Choice Matters More Than You Think!

I learned a long time ago that figuring out what health care plan is best for my situation is worse than a trip to the dentist. The options, the terminology and the numbers — it all makes my head spin. Do you feel the pain, too? Whether you’re digging through your employee benefits or making a choice on an exchange, choosing healthcare is the root canal of life tasks.

But here’s the novacaine, if you will: this choice you make each year, if made well, can actually have a big impact in building your wealth over time.

How can my health insurance choice build wealth?

Simple. Our health is sometimes unpredictable, but we can make conscious choices to save on cost. This article by Richard Thaler outlines how many Americans are paying more for healthcare without realizing it. Instead, we could be taking advantage of the tools for saving money that are available to us.

Here are some questions to consider:

How healthy are you? What stage of life are you at?

If you are a relatively healthy individual or family, and most of your needs are preventative or dealing with the common illnesses, then your healthcare is pretty straightforward. If your health needs are more complex, then attention to detail becomes even more important. Are you expecting a baby? Will you be retiring soon? The answers to these questions might change which plan you choose.

What are your ongoing health costs?

Do you see any providers regularly, like a therapist or specialist doctor? Or is your care mostly preventative? Tally up your costs and see if it even makes sense to lower your deductible or choose an out-of-network plan. You may realize that paying for “better” insurance doesn’t get you much.

How much are you paying for that lower deductible?

Let’s say you are offered two options: Plan A with a $1,500 deductible and Plan B with a $2,500 deductible. Plan A costs $300 a month and Plan B costs $200 a month. Plan A will cost $3,600 per year and Plan B will cost $2,400 per year. Simple so far, until you consider one fact: you’re paying an extra $1,200 a year to lower your deductible by $1,000. Is the trade off worth it? Maybe not if you are in relatively good health and never get close to using it up. But if you know you’ll spend past your deductible pretty quickly, it may be a no-brainer.

What is your worst-case health scenario?

As you compare plans, look at the deductibles, the total annual cost, and the out-of-pocket maximums. These numbers will show you the potential financial risk you have when it comes to your healthcare each year. How do the numbers compare to how much you make a year and how much you have in savings? If you can stomach a higher deductible because you have extra cash to pay an unexpected expense, it may very well save you money in the long run.

Can you use a Flexible Spending Account or fund a Health Savings Account?

I know it doesn’t make sense at first: why would you want to start a spending or savings account for your health? Isn’t that what insurance is for? But these two vehicles for healthcare are actually secret weapons in building wealth and saving money — so don’t pass them by!

Flexible Spending Account

A Flexible Spending Account is a savings vehicle only offered by your employer. It’s a “use it or lose it” plan where you can spend pre-tax dollars to pay for your out-of-pocket medical expenses. If you fund it with $1,000 and then spend $1,000, in some states like New York, you could wind up saving upwards of $300 in taxes by paying for those expenses. Sometimes an employer will contribute money to it too. But bottom line: if you are going to spend on something anyway, might as well do it tax free.

Health Savings Account

A Health Savings Account is a terrific, and often overlooked, option for long term savings. Each year, you can put up to $3,500 into the account pre-tax, and then let the account grow. If you need to use for medical expenses, you can without penalty; but if not, leave it alone and watch your wealth accumulate!

HSA can be used by any one employee or freelancer; the only condition is that your current health insurance has a high deductible plan (i.e. a $1,350 individual deductible per year). I’ve written a more extensive post on Health Savings Accounts here.

While there are lots of angles to consider, I want you to know that it’s worth taking the time to figure out which health plans and options make sense to you. When you find the right health plan, the benefits can help your health and your bank account.

Interested in learning more about working with me? Check out my financial planning services.