At some point in your life, you’re going to need to select a health care plan. Whether it’s because you’ve got: a first job, a new job, or kicked off your parents’ insurance, you’ll need to determine which plan is best for you. Usually, you need to pick one of two things: a high deductible health plan or one with a higher premium.
For most single, young adults you should seriously consider a high deductible plan. While I wouldn’t tell everyone to take this plan right away, it can work in your favor if you understand the variables. There are two major variables. What does your health currently look like? What do your savings look like?
In an ideal world, a young adult would want to look into a high deductible health plan and contribute to their health savings account. If these terms don’t sound familiar, don’t worry. I’ll break them down so you can make the best decision possible.
Why Choose a High Deductible Health Plan?
If you’re young and healthy, you might go years without any type of major medical procedure. With a high deductible plan, you’ll see less money coming out of your paycheck each month. If you go the entire year without any big procedures, you’ll end up saving a considerable amount of money when compared to plans with higher premiums.
High deductible health plans typically give coverage to “preventative care.” Your yearly check-up will be covered, but not an unexpected event.
Eventually, you will need a non-routine appointment or procedure. You go to the doctor and follow his recommendation; an x-ray would be a common example. That x-ray is going to look a lot more expensive when the bill comes back. This is because your monthly premium is low, and as a result your insurance subsidized much less of the cost.
Your deductible for the x-ray is $500 instead of $75, which seems extreme. Keep in mind, you’ve only been seeing $125 come out your paycheck for the last twelve months as opposed to $350. In the longterm, you’re still doing better. Plus, you should have money in your HSA to help cover that bill.
What If You Have a Lot of Health Expenses?
You get your x-ray and it reveals your leg is injured. You’ll need surgery and physical therapy on top of the x-ray and doctor appointments. The bills are accumulating quickly, but you shouldn’t fear too much. Eventually, you will start paying coinsurance. This means you’ve satisfied your health plan’s deductible and your coinsurance will cover a greater percentage of the costs associated with medical treatments. Often, this is a 80/20 split.
Your deductible resets at the start of each year, but if your surgery happens in July, you’ll have five full months with lower costs for medical expenses.
What is an HSA?
A health savings account, or a HSA, is one way to prepare for these bills and medical necessities. This allows an individual to contribute to a fund pre-tax. Of course, this fund is reserved for medical expenses such as glasses, dental work, or that expensive x-ray you just had. When you use it, it won’t be taxed either.
If you’re a human, you should be aware that you’ll have medical- related costs. So, if you don’t have to pay taxes on them, you shouldn’t. The money you don’t spend will roll over to the next year. This is your money, you can’t lose it, and it’s a great way to prepare yourself for the possibility of a medical emergency. Even if you change jobs or insurance policies, you keep your HSA. If you truly never need it, you can access this fund in retirement.
Of course, pre-tax money is too good to be infinitely true. The IRS caps the amount you can contribute each year. In 2020 it was $3,550 for an individual and in 2021 it will be $3,600. Some people are lucky enough to have their employer contribute to their HSA. As great as this it, it doesn’t extend your limit.
Why Would You Pick a Higher Premium Plan?
For some people, a higher premium might be beneficial. If you have routine treatments or a chronic condition, this plan will make budgeting much easier. If you know you’ll be visiting the doctor frequently, you might want to opt for a higher premium plan, often a PPO.
Families may also benefit from this plan because kids tend to go to the doctor more often. With more people in the family, the medical bills are going to collect more quickly. This may lead a family to opt for the more consistent payments even though they may be higher each month.
Ultimately, consistency and security are the main factors for opting into a higher premium plan. If you end up not going to the doctor for non-preventative treatments in a given year, you will spend a lot more on insurance than you would have with a high deductible health plan.
The Best First Health Plan
No one can tell you the best option for your health plan other than yourself, but a high deductible health plan is a good option for most young adults. Just make sure some of the savings go toward your HSA, ideally the IRS maximum. This will give you a source of funding if you ever get hit with a high bill.
Health insurance is a necessity. You can curse the health care system in the United States if you want; I’ve been there. Once you realize you need to be protected and want the potential to save money, opt for a high deductible health plan. Then, max out your HSA.
This is the optimist’s health plan: perfect if you hope for the best but prepare for the worst. With your HSA, you never lose the money. If you keep contributing and never need to spend the money, you’ll just watch your HSA grow. Someday this could allow you to afford laser eye surgery, or be of assistance when you reach an older age. Regardless, you are insured. If you’re blessed and never need to use your insurance you still have the peace of mind. If you do have a bigger procedure, you won’t be paying more. You’ll just be paying more in a single transaction.
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