Health Insurance Costs to Rise Sharply in 2011: How to Cope

(MoneyWatch)  Well, there's one area where deflation will definitely not be at play in 2011: health insurance. A survey of large businesses reports that employers expect their health care insurance costs to rise by an average of 8.9 percent in 2011. And to help cover those rising health insurance costs, more than six out of 10 employers also expect to raise their employees' share of the premium cost. Given that the average salary raise for 2011 is expected to be in the vicinity of 3 percent, it's likely many Americans are going to see any bump in their compensation eaten up by having to pay more for health insurance.

As Derek Thompson laid out in a post last week at The Atlantic we may need to get used to that sad fact. Thompson highlighted this 2009 chart from the President's Council of Economic Advisers:

Source: CEA

Yes, the chart was ginned up pre-health care reform, but the final legislation pretty much punted on health care cost containment, so there's no reason to expect the trajectories in the chart will change anytime soon.


Paying More for the Less Coverage
According to the National Business Group on Health survey, paying more of your overall premium is just one extra cost you may face in 2011; out-pocket maximums and bigger in-network deductibles are the next two "most popular" options employers will enlist to share the pain of rising insurance coverage.


A Coping Strategy for the Healthy
With open enrollment season just around the corner, this may be the year to consider a high deductible health insurance plan that you can then pair with a Health Savings Account. More firms are offering these plans; if you are in relatively good health, you can reduce your premium by opting for a high-deductible plan. For this year that means a family deductible of at least $2,400, or $1,200 for an individual policy.

Once you enroll in a qualifying high-deductible plan you're then eligible to contribute to your own HSA. You get a tax break on contributions into the HSA and withdrawals used to pay for medical expenses are not taxed. The maximum family contribution to an HSA this year is $6,150. ($3,050 for individuals.) The maximums for 2011 have yet to be announced; they probably won't budge given the low general rate of inflation.

You can also let the money sit in the HSA and grow; unlike a flexible spending account there is no "use it or lose it provision." Your balance can be used for future medical expenses decades from now. Or once you turn 65 you are free to use your HSA balance for anything. though you will owe income tax on your withdrawals. Just like with a Traditional IRA.


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