As medical and health insurance costs in the United States continue to rise, it is important to have a plan on what health insurance plan is right for you on your way to FIRE, while you’re still employed.
Types of Health Insurance Plans in the USA
- POS- Point of Service
- No referrals required to see specialists
- Moderate freedom to choose your health care providers
- Minimal paperwork and NO coverage if you see out-of-network providers
- POSs typically have a moderate premium (monthly cost) – lower than PPOs, a deductible, and flat copay/coinsurance, plus you pay FULL COST if you see an out-of-network provider
- PPO- Preferred Provided Organizations
- No referrals required to see specialists
- Moderate freedom to choose your health care providers
- Lots of paperwork and high cost if you see out-of-network providers
- PPOs typically have a premium (monthly cost), a deductible, and flat copay/coinsurance, plus additional cost if you see an out-of-network provider
- HMO- Health Maintenance Organizations
- Require referrals from your doctor to see a specialist
- Limited freedom to choose your health care providers (must be in-network)
- Paperwork is minimal compared to other plans
- HMOs typically have a premium (monthly cost), a deductible, and flat copay/coinsurance
- EPO- Exclusive Provider Organizations
- No referrals required to see specialists
- Moderate freedom to choose your health care providers
- Minimal paperwork and NO coverage if you see out-of-network providers (other than emergencies)
- EPOs typically have a premium (monthly cost), usually no deductible, and flat copay/coinsurance
- HDHP- High Deductible Health Plan with access to an HSA- Health Savings Account
- A HDHP plan can be a part of any of the above health insurance options (POS, PPO, HMO, or EPO)
- HDHPs have have out-of-pocket costs (i.e. high deductible), but once you hit your maximum out-of-pocket, the plan pay 100%.
- Maximum deductible for 2020 is $6,900 for an individual and $13,800 for a family- however many plans have a lower amount and it varies by provider.
- HDHPs have the HSA (health savings account) benefit to help pay for the medical care
Since the HDHP insurance is best suited for those who are relatively healthy, it should be the clear favorite when selecting a plan because of the overall monthly cost savings.
Additionally an HSA provides unique tax advantages that should be utilized to maximize your savings and provide with an additional safety net in retirement.
Here are the benefits of HSAs (Health Savings Accounts)
- Money saved in an HSA can (and should) be invested in index funds
- Because you can invest HSAs in index funds, they will grow like any other investment.
- Money Contributed to an HSA is not taxed
- The money you put in- for 2020: Max is $3,550/year for individuals & $7,100/year for families, is not taxed.
- Money withdrawn for health related expenses and qualifying withdrawals is not taxed
- You can withdraw your money in your HSA when you are 65 or older for medicare and medical expenses, otherwise you can withdraw it for any reason, but you’ll be hit with a 20% penalty
- When/if you retire earlier than 65, you can reimburse yourself for past medical expenses years later. Keep and document your receipts.
- Lastly, if you retire early, you can withdraw the money at anytime, but you will be hit with a 10% federal penalty and a state penalty (if applicable).
- HSA Earnings are not taxed
- Money you earn in an HSA account is not taxed. If your family contributes the max of $7,100/year for 15 years and your investment gets on average a very conservative 7%/year- your money will grow into $188,000, $81,000 of that being tax free growth.
If you are able to max out your HSA, you should do so, it is a triple tax advantaged account- no taxes on contributions, withdraws, and earnings.
Financial Free Runner 