By In Do the Math, High-Deductible Health Plan (HDHP), Money-Saving Tips

HDHP: Managing Your Costs Before Meeting Your Deductible

With car insurance, deductibles are relatively straightforward — anything not related to damage of some kind, i.e. any maintenance or services, is not covered. You get your oil changed, you pay for it. You get your car washed, you pay for it. You get in a wreck and your car is totaled, your insurance pays for all costs over your deductible. Simple as that.

With high-deductible health plans (HDHPs), it’s almost the opposite. There are a number of preventive care services that you can have covered at no cost to you, provided they are “in-network,” meaning the doctor or healthcare provider you choose much be “covered” by your insurance. That’s lesson 1: even though you’re paying out of your own pocket for most things, if you want your insurance to pay for something before your deductible it met, you have to follow their network rules.

These preventive services are things like an annual check-up or physical, as well as screenings and diagnostic tests frequently associated with an annual physical, and other tests like cancer screenings. These services are mostly mandated to be free under the Affordable Care Act, but some employers have “grandfathered plans,” which means the plans were exempted from ACA regulations on the premise that they would remain cheaper than ACA coverage (something that hasn’t proven to be true, but I digress…).

The best thing for you to do is to find your plan details or request them from your company’s HR/benefits manager or directly through your health insurance provider. My family is currently on an individual ACA plan and I found my information pretty easily through the site where I bought my insurance, HealthSherpa (full disclosure: I do consulting work for HealthSherpa but don’t get paid to post the link I just posted — I just think they’re a great company if you qualify for ACA coverage), as well as through my health insurance provider site, SCBlues (full disclosure: I don’t consult for SCBlues 😜).

Anyway, take a look at what pre-deductible services you get for free and take advantage of the ones you think you need or that a doctor recommends for you.

Now, lesson 2: Even before the deductible is met, you want to pay attention to your expenses, because they will impact your overall costs. How? Well, sadly, pre-deductible costs are not created equally, nor are qualifying expenses.

Say you tweak your knee skiing. You need an x-ray, so you call around to some places (always ask the price!) and get the costs. You will likely find, as I have multiple times, that there is a huge difference between the “covered” pre-deductible cost for the service and the “cash” cost. It’s not uncommon for covered costs to be double that of cash costs. That seems like a no-brainer to go with the cash cost, right? Well, here’s the kicker: If you opt to pay the cash cost (not “cash” per se but rather the listed “cash cost,” because you can pay the “covered cost” with cash), that amount DOES NOT COUNT TOWARD covering your deductible. Sadface.

I don’t know why it’s done this way and I wish a law will be passed that will outlaw this “network cost” practice, but in the meantime you need to be mindful of the consequences of cash vs. covered.

While there is never a guarantee, if the service you need is relatively minor with little or no need for follow-ups (read: no additional costs), you may be better off paying cash to save the money right there and then. It seems like a smart move if the covered cost is, say, $500 and the cash cost is $250, which is a realistic scenario. If you think that there’s no way that you’ll cover your deductible without some kind of catastrophic accident happening, then pay cash — sort of like paying cash for a minor ding to your car rather than going through the hassle of filing a claim.

Now, you may end up having more costs and then you will want to shift to paying the deductible cost, but that would seem to make sense only if you truly expect to exceed your deductible by a large margin. (As a reminder, once you cover your deductible, you pay $0 for any additional services through most HDHP arrangements.)

Obviously this scenario doesn’t apply for people with chronic conditions or planned medical needs like childbirth. But for those minor scratches and dings, always ask the price and decide on your own whether cash is best or you want to make sure you’re paying down your deductible. YMMV.

And yes, take advantage or your free preventive care! Not just because you can, but because keeping track of your health could save you a ton of money AND give you a happier, healthier life in retirement, early or otherwise.

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By In Taxes

It’s Tax Day. Yay! Bleh.

I’ve been noticing that pretty much every day has some kind of designation now. Sibling day. Work-from-home day. Pizza day. Pie day. Laundry day?

But April 15 is and always will be Tax Day. Well, maybe not always but I’m a realist and don’t see any circumstances that might cause such a change in the tax system that we wouldn’t have an annual day to declare our income and figure out how much we get back/owe.

I know that it’s a big goal for some in the community to not pay taxes. I respect the goal but, while I’ll stop short of saying I’m a fan of paying taxes, I generally subscribe to Harold Pollack’s personal finance philosophy of supporting social safety-net programs. Those programs are paid with taxes, so there you have it. Maybe it’s too much to ask that we celebrate Tax Day but there is a silver lining to it.

But with that said, we also don’t want to overpay, right? Of course not.

Here are just a few things to remember for this Tax Day:

  1. There’s still an Individual Mandate: You may have heard that the individual mandate was “repealed.” Technically, it wasn’t — the tax that applies to the Individual Mandate was just set to $0, which basically means that even though you’re supposed to have health coverage, nothing’s gonna happen to you tax-wise if you don’t. Either way, that doesn’t kick in until the 2019 tax year, so you still need to provide a 1095-A, 1095-B, or 1095-C tax form. What’s the difference?
    1. 1095-A forms are for those who have coverage through a state or federal marketplace — Obamacare plans.
    2. 1095-B forms generally come from your health insurer if your employer is “fully insured,” which is most small businesses.
    3. 1095-C forms generally come from your employer if they are “self-insured,” which is the majority of large companies (like 1,000 or more employees).
  2. Even though you’re probably not going to have to pay for not getting health insurance, you still need good health insurance. Don’t bet on your invincibility and don’t buy bad insurance!
  3. If you have an HSA (or medical savings account, AKA MSA) and you’ve used the funds, either for qualifying medical expenses or not, you need to report that amount on your taxes. You should get form 1099-SA from your HSA bank. You may also need form 8889 to itemize your HSA funds for which you “took a distribution,” to determine how much you owe in taxes if any of it was not a qualifying medical expense and to prove to the IRS that you don’t owe additional taxes if the expenses qualify. Here’s more information from TurboTax.
  4. If you don’t have an HSA or you aren’t taking a distribution (i.e. paying for medical expenses) from your HSA, you can still deduct medical expenses equaling up to 7.5% or your adjusted gross income. (This amount goes to 10% for the 2019 tax year and beyond.) There are a lot of different types of things you can deduct that look a lot like the qualifying expenses list for HSAs and FSAs. Here’s a helpful link from H&R Block.

So there you have it. Just a few quick tips to get through Tax Day with a yay instead of a nay. Don’t leave any money on the table, people!

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By In Around the Web, Do the Math, General Benefits Knowledge, Health Insurance Utilization, Health Savings Accounts (HSAs), High-Deductible Health Plan (HDHP), Participating Provider Organization (PPO) Insurance

How to Make the Most of How Much It Sucks to Make the Most of Health Insurance

Tanja Hester at Our Next Life wrote a fantastic, comprehensive piece on the limitations and downsides of health savings accounts (HSAs) and high-deductible health plans (HDHPs). Before you dig deeper into this post, you should head over there and read it, because it’s chock full of awesomely useful information.

OK, see you back here when you’re finished…

Welcome back!

The Bottom Line

Now that you’ve read her post, you know that HSAs aren’t the magical “triple-tax-advantage” savior some might claim. Yes, there are definite benefits to HSAs if your circumstances are right (more on that in just a moment). But as we’ve said many times, HSAs are a contextually good idea attached to a pretty bad one — HDHPs — and you have to really lean in to avoid letting that bad idea drive your future more than the contextually good one.

Here’s the bottom line: Our “best in the world” health care system puts a great deal of pressure on us as individuals to make the right decisions about our health without giving us much to go on. It’s a system wrought with tradeoffs, and no one type of plan or solution it right for everyone. While HDHPs aren’t doing what they were meant to do, which is to make us better healthcare consumers, older plan designs like PPOs and HMOs aren’t doing that at all, and in fact could end up costing you more than an HDHP, with no added tax benefits and without drastically improving your health and longevity.

The TL;DR message is this: if you’re young and invincible or old and rich already, you can get an HDHP without much further consideration. For the other 99%, read on about some of the challenges we face as “consumers” of healthcare, with an HDHP and without one.

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By In Around the Web

Monday Reading: HDHPs, Health Expenses, and Student Loan Debt Paydown

It’s Monday. Yay! Time to take on the world…or maybe just procrastinate until lunch. Here are some quick reads for your FIRE brain while you’re processing the coffee.

First, a super-awesome and informative piece by FIRE pioneer blogger Tanja Hester about how, as we’ve said here on The Benefits of FI, HSAs can be great for planning but the HDHP you’re required to have with your HSA can be lousy. In particular, Hester shows how HDHPs can keep you from getting the medical care you may need. Great advice and I plan to write some additional thoughts later this week because it’s that important!

Second, a follow-up to our piece from last month about how much you might need in retirement to pay for health care expenses. Fidelity’s annual report is out and the new number is $285,000. That’s an even spicier meatball! In addition to saving with an HSA, it provides additional insight on how to be ready for these sizable expenses in retirement. (Spoiler alert: if you retire early, you’ll need more than $285k!

“How to Plan for Rising Healthcare Costs,” Fidelity Investments

Finally, a review of a newish idea — or perhaps just the oldest idea reinvented to sound new — for paying off student loan debt: equitization. The Lambda School doesn’t charge tuition and instead takes a percentage of earnings for the first several years. A big catch is that, if you don’t find work, you don’t pay for tuition. Other educational institutions have tried something similar. Is it a good idea? Maybe while the economy is doing well but maybe not so much when it’s not. What do you think?

“A new wrinkle on student debt: Pay-as-you-earn,” BenefitsPro

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By In Health Insurance Utilization, Health Savings Accounts (HSAs), High-Deductible Health Plan (HDHP)

Know Your HDHP’s Preventive-Care Benefits

If you have an HDHP, you may be working from the assumption that your insurance won’t cover anything before you meet your deductible. While the insurance company may wish that was the case, HDHPs are able to (and, in some cases, must) cover certain kinds of preventive care. These services can add up to hundreds or even thousands of dollars in essential services every year, so be sure to read the fine print on your plan before and after you choose it, and also to ask your company’s benefits administrator for these details if you can’t find them on your own.

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By In General Benefits Knowledge, Health Insurance

When it Comes to FIRE-ology, U.S. Health Insurance Is Different from Other Kinds of Insurance

As I’ve reading through blog entries and comments in the FIRE community, two things have come to mind:

  1. Y’all are some smart mofos! Seriously, reading what everyone is saying about how they consider their benefits in relation to their income, savings and wealth is endlessly entertaining and rewarding. People are taking the time to really think about what they’re doing, learning by trial and error, and experimenting with strategies that work for them based on where they are in their lives and, often, where they are in the world. Keep it up, people!
  2. It’s human nature to think of your health insurance in the same way that you think of other kinds of insurance, like your auto or house insurance (“P&C”), or life, disability and other accident indemnity insurances. It works to an extent, but be careful not to think of them as interchangeable. That’s what today’s post is about.
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By In Around the Web, Flexible Spending Accounts (FSAs), Health Financial Accounts, Health Savings Accounts (HSAs)

Yep, Amazon Has an HSA Store

Last week, I wrote about the best places to buy things with your HSA/FSA funds if you want/need to use that money rather than just maxing out your account and investing the money — or, alternately, you don’t have access to an HSA but do have an FSA and want to ensure you use all of the funds as wisely as you can. Welp, I found out today that Amazon now has an HSA/FSA store, which means they have a place where you can enter your debit card number and then shop exclusively for items that are account-eligible and still apply your Prime account for free delivery.

Giddyup!

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By In Around the Web, Health Savings Accounts (HSAs), Taxes

Advice on Handling HSAs on your Tax Return

Here’s a thorough article from the New York Times “Your Money Adviser” column on how to handle health financial accounts like HSAs and FSAs on your income tax return. It includes details about annual limits and what you need to claim expenses. My one criticism is the “But Beware the Paperwork” in the headline. If you are paying for medical expenses on your HSA card, your HSA sponsor bank will mail you a ready-to-submit form, just like a W2 or 1099. If you are tracking your expenses yourself, it is more work but not too cumbersome if you create a manila folder and just make sure to save your receipts. Either way, definitely don’t leave money on the table for medical expenses come tax time!

From the New York Times: “Health Saving Accounts Can Reduce Tax Bills. But Beware the Paperwork.”

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By In Do the Math, Health Financial Accounts, Health Savings Accounts (HSAs), Retirement Income, Retirement Investment Accounts, Savings

Doing the Math on Why You Should Max Out Your HSA Contribution

Here are The Benefits of FI, we talk about HSAs as a savings vehicle for retirement in the same vein as a 401(k) or IRA. That’s because it has the same basic features of enabling pre-tax savings to be invested and thereby grow at a significantly higher rate than post-tax dollars in a standard checking or savings account.

What some of you, especially those who have just started you FI journey and have neither started a family of your own nor seen your own parents get to standard retirement age, may be thinking is that since you’re saving the money for retirement, it’s retirement income that you’ll get to spend on fun stuff. Hopefully that will be true (although you’ll get taxed on it), but odds are that you’ll use it for medical expenses, which are never as fun but almost always a factor.

Research by Fidelity Investments, reported by Money, shows that the average couple currently reaching retirement age will incur $280,000 in medical-related expenses in retirement. As homer Simpson would say:

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By In Health Insurance Utilization, Prescription Drugs

Another Example of Why You Should Always Ask the Price

My wife went to the pharmacy the other day to refill a prescription. We changed insurance on January 1, so when they told her the first time she got the it filled three weeks ago that our plan didn’t cover the prescription we needed for one of our kids, it didn’t seem out of the ordinary. In fact, the pharmacy was nice enough to give us a discount through GoodRx — something I talked about in this post.

Well, it turns out that the discount was a whole lot more than we should have paid, anyway.

When the pharmacist told my wife our Rx would be $152, she texted me just to commiserate about the high cost and ask if it was because of our new insurance. I said yes but that they gave us a discount to get it down to $90 and that she should be sure to ask if they can give it to us again. That ask set off a series of events that blew our minds.

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