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5 steps to maximize the value of your health care coverage

The average family paid almost $18,000 for their health coverage in 2016. With costs increasing, it's important to know how to get the most out of your health care. (Thinkstock)

WASHINGTON — The rising costs of having health care coverage for you and your family are all too real.

According to eHealthInsurance.com, an online insurance resource center, an unsubsidized customer — meaning someone who does not get preferred rates through an employer or other subsidies from the government — paid an average premium of $3,852 per year for individual coverage, and nearly $10,000 per year for family coverage in 2016.

Add to that an average annual deductible of $4,385 for individuals and $7,983 for a family plan, the average family paid almost $18,000 for their health coverage in 2016. With costs already high and increasing every year, it’s wise to consider how to get your money’s worth. Because a new year of coverage is beginning, now is a great time to consider some of these quick and easy action steps.

1. Have non-emergency procedures early in the calendar year

If you have one of the popular plans that qualify for health savings accounts (HSAs), your annual deductible will be a minimum of $2,700 for family coverage. While healthy families might not approach that spending level, non-emergency procedures can push your costs over the annual deductible.

If that’s the case, and assuming you have some control over the timing, consider scheduling these elective procedures early in the calendar year. Doing so increases the chance that you’ll exceed your deductible, so expenses later in the year will be shared or covered by the insurance company. If you require expensive procedures, scheduling in the early months also might increase the chance of meeting the federal threshold for writing off your medical expenses. Based on recent tax reform, the threshold for writing off medical expenses remains at 7.5 percent of adjusted gross income in 2018, but increases to 10 percent of AGI in 2019.

2. Audit all your bills

Statistics show that medical bills often include errors and that they contribute to a significant number of bankruptcies every year. For these reasons, it’s important to audit your medical charges. Fortunately, if you don’t have the time to wade through bills (i.e., you’re recovering from major illness or surgery), there are bill-paying companies who can assist you in confirming that all the charges are warranted.

3. Maximize available tax savings

HSAs can be powerful for building funds to use on medically related expenses, either in retirement or in years when cash flow is tight. (Read: 7 Things You Need to Know About Health Savings Accounts.)

Less flexible, but also helpful in reducing total costs, are flexible spending accounts offered by employers. Determining the availability and the best way to participate in these accounts can be as easy as contacting your employer’s human resources professional. Oftentimes you can set up payroll deduction for your contributions, which is a convenient way to save money by paying for health care with pretax dollars.  

4. Anticipate midyear events that may impact your coverage

All of these ideas are great ways to increase the value of the dollars you spend on health insurance. However, you may be prevented from taking full advantage of them if your coverage changes during the year. When that occurs, deductibles are set back to zero, premiums change, and the costs of seeing your regular doctor may change, too.

5. Consider special circumstances

Of course, many life events cannot be predicted, but if you find yourself in any of these circumstances, you’ll want to educate yourself on special considerations when selecting a new health plan.

Suddenly single

One of the biggest decisions women in transition need to make immediately following the death of a spouse or divorce is how to obtain health insurance. Once divorced, the law requires that you be taken off your ex-spouses’ health insurance. Fortunately, your children can remain on his or her plan if it’s cost effective. Of course, if you qualify for coverage under your own employer, that may be the best option, if you can utilize the doctors you wish and have your prescriptions or procedures covered.

If you don’t have access to your own employer plan, one option to consider is COBRA coverage. While this is usually an expensive option, it may be helpful as an immediate stopgap while you work out the details of an estate or divorce settlement.

One thing to keep in mind here is that COBRA is a temporary solution: In the case of death, separation, or divorce, it can only last up to 36 months. More importantly, we suggest you check directly with the health insurance company, because some of them view a legal separation as the equivalent of being divorced. If that’s the case, you’ll need alternative coverage sooner than you think. If your ex’s company employs fewer than 20 employees, then state laws may apply regarding COBRA coverage.

Equally important is complying with rules regarding notification of the insurance company within 60 days of your divorce. Missing that notification deadline can make you ineligible for COBRA coverage. All that said, COBRA can be a good solution for short-term coverage, especially if you don’t want to restart your deductible because you’ve already met it for the year. Divorcees going back to work may gain access to insurance through a new job, and can use COBRA to cover any gaps in coverage.

Graduate students

Health insurance can be a challenge for graduate students. That’s because they may be too old to be covered by their parents’ policy, but many aren’t yet working full time, so they don’t have coverage through work. This is often the first time the student has had to think about how to obtain health insurance.

Under current law, students under age 26 are eligible to be covered under their parents’ health care plan. Parents can add a qualifying child under age 26 during open enrollment, or at another time, if they qualify for a special enrollment period. In making this decision, families will want to consider whether out-of-state students will have access to network providers and, if not, whether higher out-of-network costs are manageable.

If you’re 26 or older, you are no longer eligible to continue on your parent’s plan and will have to obtain your own health care coverage. Visit HealthCare.gov to learn about your options through the Affordable Care Act. Once you know your options on the state exchange, you should also check with your school, as most colleges have a health plan available for graduate students.

The quality of these plans varies widely, and you’ll want to be aware of any limitations, like having to use only the doctors available through the student health center. Don’t forget to factor in the cost of prescription drugs if you take any medications on a regular basis. You’ll want to consider the potential impact of pharmacy costs as you compare plan options.

Working past age 65

Americans are increasingly working past the age of 65, and the Bureau of Labor Statistics expects this trend to continue. Their prediction is that by 2024, 36 percent of 65- to 69-year-olds will be active participants in the labor market. That’s up from just 22 percent in 1994. This trend means that more aging Americans may have to decide whether to begin coverage under Medicare or to delay in favor of their employer coverage.

If you are nearing age 65 and expect to have employer health coverage beyond that birthday, there are various factors to consider when deciding whether to enroll in Medicare. We suggest you begin by contacting your employee benefits administrator. Some employers will require you to sign up for Medicare Part A, even if you have work coverage. Your benefits and coverage could be impacted if your employer changes your health benefits once you enroll in Medicare.

One lesser-known rule is that, even if you previously qualified for an HSA account under employer coverage, you cannot make any more HSA contributions once you enroll in Medicare. Doing so subjects you to a tax penalty for those contributions, although you still can use money already in your HSA account for medical costs. It’s important to have a clear understanding of all of your options and any requirements, because not enrolling in Part A can result in premium penalties if you don’t follow the rules.

Enrolling in Medicare Part B also hinges, in part, on the size of your employer, because the rules differ if your company has fewer than 20 employees. In that case, it’s usually best to enroll in Medicare Part B as soon as you’re eligible, because Medicare typically serves as the primary insurer for employees of these smaller companies.

If your employer has 20 or more employees, the impact of enrolling in Part B is more expensive, because you will pay a monthly premium for both Part B and the employer plan premium. If you keep employer coverage with a larger-size employer, then that coverage typically serves as primary and Medicare is secondary. If you delay Part B enrollment, you’ll want to sign up during your special enrollment period once your employer coverage ends, or you may be subject to a penalty. You usually have eight months after employment ends to enroll in Part B without paying a penalty.

For prescription coverage provided by Medicare Part D, enrollment is voluntary. However, you may pay a late-enrollment penalty should you decide that you want this coverage, but don’t enroll as soon as you’re eligible.

There are exceptions to this rule, however, and having qualifying employer coverage may help you avoid the penalty. To qualify, your employer-sponsored prescription drug coverage must be at least as comprehensive as a standard Medicare stand-alone Part D prescription drug plan or Medicare Advantage prescription drug plan. Your plan should send you a notice of creditable coverage each year informing you whether or not it is creditable under the law.

One of the reasons these decisions are so important is that if you don’t enroll when you initially become eligible, you may be subject to late-enrollment penalties. There are grace periods to enroll once your employer coverage ends, but the timeframes differ, and rules can get complicated. In the end, it’s really a matter of calculating the total potential benefits from all Medicare plans and comparing that with your employer coverage to see which plan best meets your health care needs. Make sure to include coverage of preexisting conditions and costs for prescriptions when reviewing your options.

Health care is one of the most important benefits you and your family have. If you manage the costs and maximize their value, you may save tens of thousands of dollars over your lifetime.

Dawn Doebler, CPA, CFP®, CDFA® is a senior wealth adviser at The Colony Group. She is also a co-founder of Her Wealth®.


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