Health insurance has made the headlines more times than anyone cares to count. Lately, with the recent rollout of the insurance exchange, it is making headlines even more. People realize that insurance is becoming more expensive as the years go by, but what many do not realize is that the cost of health insurance is outpacing the growth in earnings. I am not talking about the cost of health care, but the cost of health insurance.
The Kaiser Family Foundation puts out a survey each year. In that survey they ask employers, with three or more employees, about how much they pay for their insurance, and how much the employee pays for the insurance. The studies have found that while premiums over the past decade have increased 80%, the amount that employees are responsible for has increased 89%. The added costs have put quite the strain on families. You can read about the results of the survey, as well as see the graphical representations of the increases, on the Kaiser Website.
Lately we have heard a lot about the Affordable Care Act (popularly known as Obamacare). The law is supposed to help lower the costs of insurance for everyone. Through the insurance exchange that just opened, and with government rebates, the costs for health insurance are supposed to drop. Many critics of the law argue that the costs are actually going to go up, and unfortunately only time will tell the true effect it has on families.
What the increasing costs of insurance, and the new healthcare law, mean for you is that you should be able to find health insurance for less than you previously were able. While it may be true that a basic plan can be found cheaply, sometimes a basic plan does not have very good coverage. They have high deductibles and high out of pocket maximums (often over $10,000 per year). But there is a way to hedge against the high costs of insurance.
In order to hedge your insurance costs, you will first need to open a savings account (which will later be rolled into a Health Savings Account). This savings account will be earmarked for healthcare costs only; you don’t touch it for anything else. With your slush fund in place, you pick a plan with a lower deductible. Your monthly costs will be more, but you will spend less out-of-pocket if you have a major illness or injury. As your savings account grows, you raise the deductible on your insurance. The savings will offset any out-of-pocket expenses, and you will benefit from lower monthly premiums. Once you have a plan that is considered “high deductible” then you can convert your savings into a Health Savings Account and experience the tax deductions that go along with contributions to this plan. Keep in mind there are annual limits on how much you can put into your HSA.
In order to build up that savings account, and help pay for premiums, you really should start a side hustle. Earning an extra $200 to $500 per month will go a long ways toward offsetting those insurance and healthcare costs.
There are ways to structure your finances so insurance is not a big deal. Of course, the best way is to find a job that pays for your healthcare 100%, but as insurance becomes more expensive, those jobs get rarer. If you are not so lucky as to be employed by a large company (the US government has a great healthcare plan), then you should earn more on the side to provide your own benefits. The Affordable Care Act isn’t perfect, but it is a start and hopefully the kinks will be worked out of it in the next few years.
I love the advice for getting an HSA, which is maybe my favorite account ever. You get to save pretax and use the money on health expenses like it’s post tax money!
My health insurance went up 7% this year at my employer and my raise won’t be anywhere near that much. Luckily I do have a side hustle that more than offsets that cost.