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okay so if you just got that dreaded
open enrollment email from your employer
you've come to the right place today i'm
going to give you an in-depth breakdown
of the different types of health care
plans phil you went on that healthcare
lingo what is the deductible anyways and
then try to help you walk away knowing
which plan might be best for you
now i'm not saying this will be the most
exciting topic but i am going to give
you some crucial information to use when
thinking about your overall financial
situation healthcare can have a massive
impact on this i mean for many of us
medical emergencies might be the most
expensive purchase you make in any given
year so if you want your finances to
stay on track
don't let a medical emergency derail you
keep watching this video
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okay so first off what is open
enrollment this is the time when you
have to decide which health care plan
you're going to choose for the following
calendar year and it's typically
november 1st through january 15th and
once you choose that plan you're pretty
set for the next year unless there's
some major event like a new job or child
so it's really important you do a bit of
extra research right now to choose
something that might you might be stuck
with for a full year okay but what are
the different plans out there
the main options are hmo health
maintenance organization
ppo preferred provider organization and
hdhp high deductible health plan there
are other types of plans available
especially for those using non-employer
group plans but today we'll just cover
these but before we get in the details
we gotta cover some of this basic
healthcare lingo
first off what is a premium this is what
you'll pay each year just to have
insurance usually this will come out of
your paycheck and employers typically
cover some portion of this expense like
around 70 to 80
i mean this is basically your payment to
have insurance
now what is a deductible this is the
amount of money you need to spend on
health care not including your premiums
before your insurance starts to chip in
keep in mind that preventative care is
generally covered in full before you hit
your deductible so when talking about
the deductible we're really talking
about the additional care you need
beyond those standard checkups what is
coinsurance
this is the percentage of healthcare
costs you pay after hitting your
deductible but before you hit your
out-of-pocket max
many plans will require you to pay about
10 percent of co-insurance for example
after you hit that deductible so what is
out of pocket max mean
this is the maximum amount of money you
will spend out of pocket on health care
in a given year this includes your
deductible but not your premium
after you hit this maximum your
insurance covers a hundred percent of
your health care costs
so
once you hit that out of pocket max you
can go ham on health care costs i mean
don't really do that what is a copay
short for co-payment this is a fixed
amount that you pay for covered medical
services the remaining balance is
covered by the insurance company a
common scenario with this is like when
you go to the doctor and do a 20 copay
every time you see that doctor but then
you don't pay anything after that just
that flat fee all right so now that we
got that basic lingo out of the way
let's get into the details about the
different types of plans and we'll start
with the hmo the hmo requires patients
to choose a primary care physician who
then handles all the recommendations and
referrals to other specialists for
additional care if needed the premiums
tend to be lower for hmo plans because
they have special agreements with
certain healthcare providers but they
also have more restrictions as well
because you have to start with that
primary care physician to really do
anything else
a big thing to consider here is how much
you care about flexibility
with that healthcare option
do you want to be able to see a
specialist without having to first get
an appointment with that primary care
doctor every single time
if so it might be worth paying more for
the next plan i'm going to talk about
the ppm
so the ppo preferred provider
organization
is the most common type of health
insurance plan by enrollment and it
allows you to see in-network health care
providers including specialists without
any type of referral the key with this
plan is to stay in network dub because
if you go out of network with any
provider you'll likely end up paying
much higher costs and spend way too much
of your time going back and forth
between the health insurance company and
doctor
it's just a headache and in my
experience you want to try to stay in
network trust me generally ppo plans
have higher premiums but much lower
deductibles
now ppo plans typically require the
insured to pay a copayment each time
they visit a provider or they must meet
a deductible before the insurance covers
that claim now the deductibles are
typically lower for ppos so it doesn't
usually end up being a huge cost to
cover these initial visits before the
insurance company starts covering those
costs ppo plans are also more
comprehensive regarding coverage
including many services that other
health insurance programs might exclude
so you may end up getting to see a wider
variety of health care providers in this
type of plan it kind of makes sense why
it might be more expensive in that case
right so what is an fsa
an fsa is a tax advantage account that
you can use for healthcare expenses that
typically comes with a ppo or an hmo
this account is offered through your
employer and you contribute pre-tax
dollars straight from your paycheck to
be used on medical expenses throughout
the year the important thing to know
about an fsa is that you have to decide
during open enrollment so right now how
much you want to contribute for the
whole year and it's a use it or lose it
so once you change jobs or when the year
ends any money you contributed but
didn't use it's gone
now estimating a whole year of
healthcare expenses and knowing you have
to remember to use it might stress you
out but with a little planning and a few
helpful spending hacks you can easily
make an fsa work for you
i'll talk more about this in a bit so
just stay tuned now
hdhb the high deductible health plan has
higher deductibles and lower premiums
but typically offers the ability to
utilize an hsa health savings account to
pay for qualified medical expenses using
pre-tax dollars this kind of similar way
that fsa does
this plan is the second most common type
of health insurance plan after ppos and
they're similar to ppos in that you can
generally see in network specialists
without a referral but the networks for
hdhp plans tend to be higher so you tend
to have more options for what's
considered in-network according to the
irs rules a plan is considered to be
high deductible if it has a deductible
of at least 1400 for an individual plan
or 2800 for the family plan
also the out-of-pocket max is capped at
7k for individual plans or 14k for
family plans now these type of plans
tend to favor those who have fewer
medical expenses like someone who's
generally healthy and doesn't visit the
doctor very often because you pay lower
premiums and then don't end up worrying
about the high deductible if you never
see the doctor
however
it's always hard to anticipate medical
expenses for the upcoming year so you
kind of have to bank on not having too
many issues for that following year
but you could save hundreds or even
thousands of dollars by choosing this
plan when there's a good chance you'll
have very little to no medical expenses
what is an hsa
nhsa is a health savings account that is
only available if you have a high
deductible plan and it allows the
participant to save for healthcare
expenses this can be offered through
your employer or you can open your own
hsa as long as you have an eligible high
deductible health care plan and you can
contribute pre-tax dollars straight from
your paycheck to be used on future
medical expenses and it's not a user to
lose it like the fsa now it's tax
advantage and that contributions to hsa
are withheld from your paycheck pre-tax
so it lowers your taxable income a bit
and any earnings within the hsa are also
not taxed when used on eligible medical
expenses most hsas also offer the
ability to invest your contributions as
well
not all hsas give this option but it has
become more common this is a great way
to build some long-term savings for
healthcare expenses that you may have
late in life health care expenses are
typically the number one expense later
in your life so if you can start putting
away some savings now and then let them
compound over the next 30 plus years or
so this can really add up some experts
say that the average american couple
will need about three hundred thousand
dollars to cover out-of-pocket expenses
for health care and retirement that's a
lot the irs does put a limit on how much
you can contribute to an hsa so for the
year 2021 you can only contribute a
maximum of 3 600
that may not sound like much especially
when you think about ira limits of 6k
and 401k limits of like 19 500 however
when you add in the investment option
and therefore the power of compounding
with the tax-free withdrawals you can
really start putting away a lot of money
for future healthcare and unlike the fsa
hsa contributions and earnings can roll
over each year so it's not a use it or
lose it they can just keep adding up
assuming you max out your hsa
contributions each year for 20 years
through monthly contributions of 291.67
and assuming a seven percent annualized
investment return you could end up with
over a hundred and sixty thousand
dollars and if you were to still
contribute the same amount each month
but let it sit and cast just making
let's say 0.10
you'd end up with around 80k so this
means by simply investing your hsa
contributions and assuming a seven
percent return you could double your
future savings now this does assume you
max out your contributions for 20 years
but it's just a great way to illustrate
the power of compounding and if you've
watched any of my previous videos you
know i love the power of time and
compounding so how do you know which
plan is right for you right you should
probably break it down into three main
factors
premium deductible and then out of
pocket max
the premium is that monthly cost to you
right whether your employer covers it or
not so a lower premium will typically
mean a higher deductible
the deductible is the guaranteed cost if
you have healthcare needs so you need to
make sure you're ready to cover this
amount
for example if you have the high
deductible health plan you'll pay lower
premiums but if you have to get a blood
test for example you might end up paying
for the full amount of that test as you
must hit your deductible first before
the insurance really starts covering
costs often a lower cost to you each
month can mean a higher deductible and
out of pocket max and vice versa so you
have to weigh what makes sense more for
your needs maybe you get more peace of
mind from knowing that you're paying
more each month without having to worry
about you know covering a high
deductible for instance on the flip side
if you rarely go to the doctor you may
just want to save on the monthly premium
costs and risk the higher deductible
with the high deductible health plan
if you can really build up that hsa as
well this could be a better plan for
those that are young and saving and
don't anticipate a lot of medical costs
now for that third factor the out of
pocket max
this is the max that you'd have to cover
if you really have really big health
care expenses for the year so you want
to keep this in mind now i've only dealt
with this number one time and that was
when we had our child during 2020 a
birth and then subsequent nights at the
hospital can be super expensive so we
ended up meeting this out-of-pocket max
pretty early on if we had chosen a
different health care plan that had
lower out-of-pocket costs we could have
saved thousands of dollars
however if this plan has lower
out-of-pocket costs it likely has other
downsides like a lack of flexibility for
in-network providers there is also
another factor worth mentioning here
kind of a fourth factor which we can
view as the bonus factor
employer hsa contributions
if your employer contributes a decent
amount to your hsa which some do you
might want to consider this plan
this typically doesn't require you the
employee to even contribute to the hsa
so if your employer is going to give you
free money through these contributions
to use for future health care expenses
this may be the deciding factor similar
to 401k match contributions if you can
take advantage of this free type of
money it's always worth considering all
right but how do you even estimate your
medical costs this is a big one right
how does anyone really know how much
they'll spend on this like
we'll never be able to get you to that
exact number but there is a decent way
to do this and how to think about this
and it starts with your recurring costs
first so if you really want to put this
number on paper start with those costs
that you know for sure you're going to
regularly have over the next year
this includes multi-prescriptions
contact lenses
dental visits you know typically twice a
year ride those co-pays and are there
any regular visits that you're going to
make
now if you regularly visit your primary
care physician for health care checks
you can also add in this cost depending
on which plan you're looking at
it is worth mentioning that preventative
care is usually covered 100
but there might be some cases where
these checkups don't actually qualify
for that
if you might need physical therapy this
is another recurring cost that you can
account for who doesn't have that
nagging injury that they keep putting
off to get checked keep in mind that if
you overestimate your costs and then use
the fsa
at the end of the year you may be
scrambling to use what's left in the
account right you might be surprised
that an fsa can be used for things like
sunscreen over-the-counter medicine like
tylenol and amazon even has an hsa fsa
page where you can start looking at
what's eligible
you might be surprised to find out how
easy it is to use these funds last
minute so once you put together those
recurring costs then think about the big
ticket costs like surgeries or maybe
even starting a family
many people are surprised that you're
probably going to have to pay thousands
of dollars out of pocket for those
birthing costs like we talked about
it's definitely not free for most
healthcare plans to even have a baby my
wife and i thought we had this one cover
but ended up getting overwhelmed with
the amount of bills coming our way even
12 months after our son was born and in
some cases you have to visit an
out-of-network hospital that then has to
build the insurance company and then
it's just a mess you're kind of the
go-between i simply suggest that you
consider the high-end your out-of-pocket
max and what you might end up having to
pay if your in-network plans change
nhsa or fsa is one of the nice ways to
help prepare for this so i hope that
breaks it all down and it gives you a
better understanding of kind of what to
do over the next few weeks or even
months during open enrollment
it's a really important decision don't
fret over too much
hopefully your employer has simplified
this a bit lays out your plans in a
pretty understandable way and you can
use this video as a guide to kind of get
going and make that important choice i'm
tony from wealthfront thanks so much for
joining i'd love for you to subscribe to
our channel have a great day
