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Death and Deductibles: Sure Things That Happen to Good People

They say only two things are certain: death and taxes. Add a third: deductibles.

Particularly when it comes to health insurance, long gone are the days when insurance covered nearly every expense, and disappearing quickly are the times when a deductible was simply a nuisance, a couple hundred bucks that had to be paid out of pocket before your health benefits kicked in.

Today’s deductibles are big and UGLY. More than one half of all insured households have a deductible that is larger than the amount they have in cash-ready savings. Deductibles of $10,000 – once laughed off as “not even insurance,” are now commonplace.

The role of the “health care consumer” has evolved dramatically since the Affordable Care Act (ACA) became the law. The process of buying health insurance used to be fairly simple. Your employer told you what your health plan covered, and the amount (if any) you would pay. Or maybe he or she gave you choice of one to three plans, usually at least one had a relatively high deductible, and you selected the one that best your family’s budget. If you were self-employed, you bought a plan recommended by your insurance agent. Hopefully, you did not have any pre-existing condition. If you did your premium would be “rated up” or a certain condition would be “ridered” or not covered. In short, consumers thought some – but not too much – about the cost of insurance, but hardly at all about the cost of health care.

Today the health insurance marketplace has more choice, and, true, no one can be denied coverage, but costs are much higher. And the deductible is the biggest cost of all. Suddenly consumers have to think about the cost of care. With technology, broader access and medical advancements, costs for care have escalated tremendously. To balance rising costs, health insurance companies have placed more responsibility for costs on the consumer in the form of higher deductibles, copayments and coinsurance. The days of only having to pay for the monthly premium and a small-ish medical deductible are gone.

In 2015, the average American worker had a 4% increase in their monthly health insurance premiums, but only saw a 1.9% wage increase. If you bought your own insurance your costs went up more – about 8%. This dichotomy leaves many with few options to pay for their medical bills. The options they do have either involve dipping into emergency savings, or stealing from their 401(k) or other retirement savings to avoid medical debt.

Taking money from a retirement account is never a good idea. (1. There is a penalty, 2. It is taxed as immediate income; and 3. Because it raised your income, your premium tax credit, which is cost assistance to lower your monthly rate, may go down – a triple whammy!) But for many it has become an unfortunate reality when feeling pressed to stay out of a crushing deficit. However, there are two pre-emptive strikes you can take in advance of medical debt mounting.

1. Comparison shop your health insurance plan

Even if your employer only gives you a couple of options for health insurance, resist focusing on monthly cost and do the math. If you have a chronic illness, or anticipate having a baby or getting major surgery done during the year, look at the plan with the lowest deductible. While the monthly cost of a lower deductible plan might seem high, your overall out-of-pocket costs during the year could come out lower than the cheaper plan alternative with a high deductible. When lining plans up side-by-side, focus on each plan deductible total out-of-pocket responsibility, plus copays and the total coinsurance you are responsible for. Using HealthValues’ preferred partner, Healthcare Bluebook, you can get price estimates for upcoming care to budget for the year ahead, and determine how much you can expect to pay with either high deductible Plan A, or lower deductible Plan B. If you pay for your own health insurance, do some free, no obligation comparison shopping on sites like www.healthcare.com.

2. Buy a supplemental insurance policy to cover your deductible

Supplemental insurance is an affordable way to get “insurance for your insurance.” Instead of gambling on not getting sick during the year or getting diagnosed with an unexpected illness, you can plan accordingly should a sudden life event occur. Supplemental health insurance is a cash benefit that pays for a covered accident, a critical illness diagnosis, and offers a daily hospital benefit and accidental disability income, should you not be able to return to work. I recommend supplemental insurance to young families with active children, and to adults over the age of 40. With $5,000 in coverage, many can pay their medical bills not covered by their health insurance company. As a member of HealthValues, you automatically have some coverage that enhances the value of your regular health insurance – filling in the high deductible gap if an accident or critical illness takes place.

Like many life circumstances, health insurance deductibles are unavoidable. But with smart planning, you can protect yourself from unnecessary costs and unexpected medical bills.

Do you want to ask Jeff a question about health insurance? Email him.