How to cope with rising health insurance costs
On Thursday I wrote about why your health insurance costs keep rising. Whether you buy coverage on an exchange or from your employer's plan, your health insurance premiums for 2015 and the next several years will be rising significantly. And the increases for 2015 are staggering, ranging from 20 percent to over 60 percent.
Now that you know why health insurance premiums are rising, here are some strategies to help you manage these higher costs.
Bronze is cheaper than gold
The lowest-cost plans available in the health insurance exchanges are called bronze plans. While the costs can vary depending on your state, these are typically priced so that they cost about the same as the federal subsidies that lower income folks can qualify for. Bronze plans limit out-of-pocket costs to $6,350 for individuals and $12,700 for families, but they can lack coverage for things like dental and vision care.
While the prospect of getting low-cost health insurance sounds good, you need to consider a few things first:
Health needs: If you regularly need dental and vision care, their costs can really add up over the year. Consider paying a few bucks more for a silver plan, which includes these benefits.
Health issues: If you have conditions that require more frequent visits to a medical professional and or/prescription drugs, consider a plan with lower out-of-pocket limits, co-pays and deductibles.
Risks at work and home: If your work requires significant physical activity, such as lifting, climbing ladders, working on scaffolding, etc., and/or your lifestyle includes things like hiking, bicycling, etc., then you may be exposed to more risks of injury or trips to the emergency room. Paying a few dollars more for a health insurance plan with additional coverage and lower out-of-pockets costs can be the wiser move.
High-deductible plans
To help to manage cost increases, many employers have rolled out options with higher deductibles, also called high-deductible health plans, or consumer-directed plans. Some employers, including JPMorgan Chase (JPM), Wells Fargo (WFC) and General Electric (GE), have made these the only option for their employees.
Because they come with a higher deductible, the premium can be significantly lower than for plans with lower deductibles. For example, in a recent comparison between several bronze and gold plans, the annual premium savings can be about $1,700 for a bronze single plan or $4,700 for a family plan -- about 40 percent less than a gold plan.
But be very clear about your potential out-of-pocket expenses. While you can save on premium costs with a high-deductible health plan, you'll pay for everything until you reach an out-of-pocket limit. The bronze health plan in this example has a $4,000 deductible for single coverage and $9,000 for a family plan versus the more costly gold plan's deductibles of $250 for singles and $500 for families.
Health savings accounts
If you enroll in a high-deductible plan, you should also contribute to a health savings account, or HSA. You can claim contributions to an HSA as an adjustment to income on the front of your tax return (called an above-the-line deduction.) The maximum HSA contribution allowed for 2014 is $3,300 for individual coverage and $6,550 for family coverage. In 2015, these limits rise to $3,350 and $6,650. Also, if you're 55 or older, you can add an additional $1,000. If you already have an HSA-qualified plan this year, you have until April 15, 2015, to set up an HSA and make a contribution to it in order to claim this deduction on your 2014 tax return.
And here's a really important point: The pretax money you put in an HSA is valuable because not only does the money in these special accounts grow tax-deferred, but withdrawals from an HSA can be completely tax-free when used for qualified medical expenses. If you can use money from other savings for out-of-pocket costs, it's a great strategy to leave the money in your HSA untouched and invest it in a growth mutual fund. That way you can let the account grow for your future health care costs in retirement.
Tax deduction for health insurance premiums
If you're self-employed, you should be able to take a tax deduction for the premiums you pay for medical, dental and even qualifying long-term care insurance for you and your family. This deduction is in the form of an adjustment to income and is taken on form 1040's line 29, which is another above-the-line deduction. So, like the deduction for HSA contributions, it's available to you even if you don't itemize deductions, or your other deductions are limited. This can lower your adjusted gross income, or AGI, which helps lessen the AGI-related phase-outs of other deductions such as those that apply to itemized deductions you claim on Schedule A.
