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How to tame runaway out-of-pocket medical costs

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If you're like most people, you're paying more for your health care -- and stressing about it, too. Average annual out-of-pocket costs for people in the workforce have increased almost 230 percent in the past decade, reports Kaiser Family Foundation.

Out-of-pocket costs are the main reason for the increase in underinsured Americans -- people with medical bills that are more than they can afford. More than 30 million people are in that category, according to the Commonwealth Fund 2014 Biennial Health Insurance survey. Half of them reported problems with medical bills or debt, and 44 percent reported not getting the care they needed because of the expense.

No wonder 66 percent of consumers rank planning for out-of-pocket health care costs as the most challenging and stressful aspect of managing their health care, benefits firm Alegeus reported in a survey it released Wednesday.

Not only do consumers find paying for health care stressful, they also find it confusing. Nearly 60 percent of those surveyed said they found it difficult to understand the difference between benefit options, while 45 percent said the same about calculating what each option would cost, according to the report. "As we see a continued increase in premiums and deductibles, more of the health care cost burden is on consumers," said Steve Auerbach, chief executive officer of Alegeus. "But they're not prepared."

What out-of-pocket health care costs are you likely to face? Here's a brief rundown.

Premiums and deductibles. Your premium is how much you pay each month for your health insurance coverage. Usually, you pay higher premiums for more comprehensive health care coverage. Employers usually cover a good portion of premium costs, but employees also chip in to the tune of $89 per month on average, according to Kaiser Family Foundation.

In a rare exception to this cost-sharing formula, Ed Mitzen, CEO of Fingerpaint, a marketing firm based in Saratoga Springs, New York, with 150 employees, announced that the company would pay 100 percent of employee health care premiums starting July 1. Beyond this outlier, however, Auerbach noted that employees' share of premium costs are generally rising.

As a result, one way employees lower their premium costs is by choosing a high-deductible health care plan. With these plans, insurance doesn't help cover your medical bills until you cover your deductible, usually somewhere between $1,500 and $6,000.

Employers have been pushing these plans for the past decade or more as a way to keep their health care costs down. In many cases, a high-deductible plan is the only choice employers offer. On the health care insurance exchanges, plans with the most affordable premiums also come with high deductibles.

One important thing to keep in mind: Under the Affordable Care Act, preventive care such as your annual physical, mammograms and other routine screening tests are 100 percent covered. You don't pay out-of-pocket costs for those no matter how high your deductible. By the same token, the cost of those treatments cannot be counted against your deductible.

Co-pays and co-insurance. This is the portion of doctor's visits, lab tests, hospital stays and other provider fees that you pay whenever you seek treatment. Often used interchangeably, these two terms are very different when it comes to the hit on your wallet. Co-pays are usually a flat fee, say $10 per doctor's visit. Co-insurance is the percentage of the total fee that you're responsible for.

So if a doctor's visit is $200 and you have a co-insurance rate of 10 percent, you'll pay $20. Co-insurance can add up fast if you need hospitalization or extensive treatment such as chemotherapy.

Not all insurance plans require co-pays or co-insurance. Often, if you're part of an HMO or other network, you skip this as long as you stay within your insurer's provider network.

Out-of-network costs. Insurers negotiate discounted prices with a network of physicians, labs, hospitals and other providers. With these plans, if you go to a provider who isn't part of this network, you'll pay a larger portion or even all of the bill. Staying in-network usually works fine for routine doctor visits and treatments.

But extra costs can happen when you least expect them. Consumers often unwittingly use specialists, ambulance services, emergency rooms, urgent care clinics and labs that are out of network without realizing it until they get the bill.

Even when patients go to an in-network hospital and use an in-network surgeon, other providers such as the anesthesiologist or respiratory therapist may not be in-network, you wind up paying their full fee.

"There's that story people like to tell about the patient who takes a sign in with them going into surgery saying don't touch me if you're not in my network," Auerbach said. "That's the extreme, of course, but this is a problem," he added.

What can you do to reduce your out-of-pocket medical costs? Auerbach and other experts offer the following advice:

Calculate your premium versus out-of-pocket costs. When it comes time to pick an insurance plan either from your employer or a state exchange, you'll need to do some math. If you have an illness or chronic condition, you may find that paying higher premiums for more comprehensive coverage is actually more affordable. Young, relatively healthy people who rarely visit the doctor, on the other hand, will likely find high-deductible plans more affordable.

Take a look at all of your health care costs for the past two years to help figure out what's best going forward. And check with your employer's benefits departments. More companies are offering interactive online tools that help employees pinpoint the right health insurance policy for their needs.

Starbucks, for instance, offers partners (as it calls employees) a private health care exchange with five types of insurance plans from up to six carriers with a range of deductibles. But because too much choice can be confusing, the company also offers an interactive tool in which employees can enter their specifics and see which plans other people like them chose.

Consider a Health Savings Account: An HSA allows patients in high-deductible plans to save pretax dollars to pay for health care costs. Earnings on your savings in the account also accumulate tax-free, and withdrawals for qualified health care expenses aren't taxed.

For 2016, the maximum contribution allowed in an HSA is $3,350 for individuals and $6,750 for families. (People age 55 or older can add $1,000 in catch up contributions.) An insurance plan's deductibles must be at least $1,300 for individuals and $2,600 for families to qualify for an account.

As an incentive for employees to sign up for the lower-premium high-deductible plans, many employers administer HSAs and even contribute to employees' accounts. Fortunately, the account is portable and moves with you if you leave your job.

What's more, you can use the HSA money to pay for qualified health care expenses at any time. So if you can afford to pay current out-of-pocket health expenses, an HSA can become a good savings vehicle for medical bills in retirement.

Talk to your doctor: A recent study in the journal Health Affairs found that miscommunication between patients and physicians caused plenty of missed opportunities for lowering consumers' out-of-pocket health care costs. Doctors and other providers aren't accustomed to talking about price. But that shouldn't stop you from asking your doctor and your doctor's billing expert about lower-cost alternatives for your treatment.

In addition, your doctor and staff can help make sure you stay in-network if you need a specialist, lab test, hospitalization or other care.

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