How to Bring Down the Cost of Your Health Insurance

By Carla Fried

Fall is the official season for benefits enrollment at work. And once again you could be facing the not-so-fun news that your health insurance premium will be heading higher next year. A national survey says average health plan costs will rise by more than 7 percent in 2012, and more than half of the surveyed firms say they expect to hit up workers to shoulder some of that increase.

If that’s making your blood pressure rise, perhaps it’s time to take a look at a High Deductible Health Plan. Many employers now offer these plans; it’s anticipated that by 2013 more than 75 percent of businesses will have it in their lineup. If you and your family are in good health, an HDHP can be a smart way to lower your health insurance premium costs. Moreover, once you’re enrolled in a high-deductible plan you’re eligible to contribute to a health savings account (HSA) with pre-tax dollars deducted from your salary.

Money you set aside in your HSA can be used to pay for most out-of-pocket health care costs, including your deductible, co-payments and any other standard medical costs. Using pre-tax dollars to pay your out of pocket costs is another smart money saving move.

In a healthy year when you don’t need to tap the account, you just leave the money in your HSA. In fact, you can leave the money growing for decades if you want. In retirement, any withdrawals for approved health care costs will be 100% tax free. And in a neat twist, your HSA can also moonlight as an ancillary IRA as well. You can withdraw money from your HSA in retirement and use it for anything-a vacation, a car repair, you name it-and there is no penalty, though just like a traditional IRA you will owe income tax on withdrawal amounts that are not used for health-care expenses.

Here’s how to think through whether a high-deductible plan might be a good move for you in 2012:

• Can you handle the high deductible? In 2011, for a plan to be considered “high deductible” it must impose a minimum deductible of at least $1,200 for individuals and $2,400 for families. (The rules for 2012 will be out in October; ask HR if the limits have been raised.) These plans work best for healthy employees who have a good chance of not coming close to hitting their deductible. But you still want to make sure that in the event you did have high medical expenses you could handle the high deductible.

• Can you handle the annual out-of-pocket maximum? In 2011 the most you would have to pay is $11,900 for a family and $5,950 for an individual. Those aren’t exactly small sums. So think through how you could handle the “worst case” scenario.

So with those two big hurdles, you might be wondering what’s the advantage. Well, for starters, your annual share of the premium will be a lot lower than with a traditional plan. You’re trading off that cost for assuming more cost if you in fact do need care. And a powerful kicker is the aforementioned HSA account offered by many plans. (Some employers opt instead for what is called a Health Reimbursement Account-HRA-in which your company sets aside money in an account for you to use to pay medical bills.) In 2011 you could set aside as much as $6,050 in an HSA account for a family plan, or $3,050 for individual coverage. (Again, just in with HR for the 2012 limits.)

As mentioned above, money you contribute to your HSA can be rolled over into subsequent years. There’s no use-it-or-lose-it provision as with your flexible spending account. (Note: HRAs work differently; it’s up to your employer to set the ground rules for what happens with unspent funds from year to year.) That’s a nice way to set aside some money for future health care expenses. Or best case scenario, you don’t need the money now, and can tap it – tax free – to cover medical costs in retirement.