For Your Benefit – HumbleDollar

For Your Benefit Richard Quinn  |  November 3, 2020

ONE OF MY SONS has to choose health insurance for the year ahead—and his employer provided a 95-page pamphlet. Let’s face it: If you need that amount of information to make a choice, something is wrong. The pamphlet describes three medical options, plus dental options and vision coverage. Two options get you an employer health savings account contribution—or it is a health reimbursement account? There are three levels of deductibles and coinsurance and, of course, premiums. The premiums for the same option vary by four levels of salary, and by whether the employee and spouse smoke. If they participate in wellness activities and tests, premiums are modestly reduced.

My son turned to me for help. I spent almost my entire career working in employee benefits, but it took me several hours to figure it all out. As I was reading the pamphlet, it reminded me of a mutual fund prospectus, with all the caveats and legal boilerplate. And as with a fund prospectus, I suspect few people will read it.

Unfortunately, making decisions about health care coverage is complicated and getting more so. It’s about money—lots of money—but our choices are often driven by emotion. In my opinion, many people have an unrealistic fear of health care costs, perhaps because they don’t realize that the risk of large expenses is modest.

Half the population accounts for just 3% of annual health care spending, equal to $276 per head, and their out-of-pocket costs are about $20 a year. Meanwhile, people age 65 and older account for 36% of all health care spending. How do you make a sensible choice?

The key decision that people must make is balancing premiums against potential out-of-pocket costs. This applies regardless of where you get your insurance. Paying a higher premium doesn’t mean better coverage or a better financial deal. Premiums are a fixed expense—if you opt for coverage with high premiums you know you’ll have high health care costs for the year—while out-of-pocket costs are variable, but they shouldn’t exceed a plan’s out-of-pocket limit.

Here are six questions to ask:

How much can you afford to pay in out-of-pocket costs? That’ll be partly driven by the size of your emergency fund—and it’ll perhaps prompt you to add to it.

If you have coverage through your employer, are premiums paid on a pretax basis? If so, you can afford to pay more, with less impact on your net pay.

Is there a health savings account (HSA) available? This is the best way to handle out-of-pocket costs, but it means opting for a high-deductible health plan.

Does your employer contribute toward a health reimbursement account (HRA)? The account helps pay out-of-pocket costs, including services not covered by your insurer.

Can you contribute to a flexible spending account (FSA)? While an HRA is funded by employers, an FSA is usually funded by employees.

Does an employed spouse have other coverage available? Your employer may apply a surcharge if you enroll a spouse who has coverage available through his or her employer. On the other hand, if you coordinate benefits from two employers, you could end up with very low or zero out-of-pocket costs, but are the additional premiums worth it?


Source: For Your Benefit – HumbleDollar


  1. My wife and I, retired now from Hawaii state jobs, have very good health insurance. I wish everyone had such a deal.

    My wife had atrial heart fibrillation and almost died in the hospital before getting a defibrillator implanted in her chest, while I had rectal cancer, and spent 10 days in the hospital for an LAR operation, followed by 6 weeks of radiation and chemo therapy. The only thing we ever paid for this were small co-payments for some drugs. Our pension system pays all our insurance premiums — Medicare, and supplementary policies for medical, drug, vision, and dental expenses.

    Why doesn’t every retired person have such a deal? Beats me.

    Liked by 1 person

    1. Because in the real world outside government this level of benefits is unaffordable. Public employees and retirees, especially at the state level generally have benefits far above the private sector … and that difference is not offset by lower cash compensation. This is especially true for retiree benefits. Taxpayers have no idea what they are paying for. Check out your states unfunded liability for retiree health benefits.

      Liked by 2 people

  2. There is one more factor I look at and that is how claims are processed. After reading the “mutual fund prospective” and what a great term for the vague and legalese information, I try and figure out what is covered.
    Are my doctors still in-network, and are all my pre-existing conditions still covered? If I stick with my old plan, I have a working knowledge of how the plan works, the hoops I must jump through to get treated and how the bills are paid. I use this past experience to gauge how I think some unknown medical issue will be covered in the future. It took me many years to figure out when to go to urgent care vs emergency room and primary care doctors. It is not like we go to urgent care every month or know exactly what our local urgent care can do and cannot do. I had two different knee injuries 15 years apart. The treatments were basically the same but the healthcare hoops were different (same company, different plan). Sometimes it is not all about saving a few dollars but the piece of mind you get knowing how to play the game. It is hard enough to guess how I will use a plan in the future but the last thing I want is to fight with an insurance company everyday or months after the fact if I am being treated for something like cancer. The problem with all insurance like car and health, you never really know what is covered and how the claims are processed until you use it. No one makes claims everyday so the learning curve takes years. Mistakes are very costly too. High cost does not equal better plans, better treatment, or better claim processing. But the cheapest plans are cheap for a reason too.

    Liked by 1 person

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