Choosing the health plan that is best for you and your loved ones is a decision that deserves some undivided attention. While most Americans are used to having traditional health insurance coverage (with up front office visit and prescription benefits), many are turning to catastrophic-only health plans to open up their budget.
For some people, making the move from a traditional plan to a catastrophic plan will prove to be an effective way to save hundreds, if not thousands of dollars each year. For others, it will cause them to spend more on medical care than they already do. The goal is to determine if you are a good candidate for this solution.
So am I a Good Candidate?
Catastrophic health plans work well for people who are relatively healthy, don’t over-utilize their health insurance benefits, don’t have chronic conditions, or have expensive medications. This is where switching to a catastrophic health plan gets exciting. Why? Because as long as the insured remains healthy, and avoids serious medical bills, the insured will likely realize ample savings each year.
Who Should Avoid this Solution?
On the other hand, your situation may not make you an ideal candidate. Switching to a catastrophic plan could actually hurt your financially if; you have chronic health conditions that require ongoing treatments or care, you take expensive prescription medication, and/or you utilize your health benefits often.
Tax Benefits & Health Savings Accounts (HSA’s)
According to America’s Health Insurance Plan, an advocate for public policies on health insurance, health savings accounts are growing in popularity by two million people per year. The popularity of HSA’s is directly correlated with the popularity of catastrophic health plans, since one of the requirements to open a health savings account is to be insured through a qualified catastrophic health plan.
Qualifying for a Health Savings Account
While some catastrophic health plans do not qualify their owner to open a health savings account, most will. Ask your insurance agent or the insurance company you’re considering, whether or not their catastrophic health plan is “qualified” to be used with a health savings account. If it is, you’ll have the option of opening your own HSA and reaping tax the tax benefits of this solution. If it’s not a “qualified” plan, and you want the tax benefits, keep searching until you find one that is.
Health Savings Account Investment Options
One of the great things about a health savings account is that you can invest your balance. Investment options include, but are not limited to; mutual funds, stocks, bonds, certificates of deposits, and exchange traded funds. Your balance rolls over from year to year. It’s not a use-it-or-lose-it account, like a cafeteria plan through an employer.
You can grow your balance and use the money to pay for qualified health expenses, tax free. If you still have a balance in your HSA when you turn 65, you can use the money to supplement your retirement income, pay for Medicare product premiums, long term care insurance, and more. It’s a flexible account, and it’s the only account like it available to Americans; pre-tax on the way in, and tax-free on the way out. Compare that to your IRA’s and 401k’s!
There’s a reason behind why more and more American’s are turning to catastrophic plans; People want quality health insurance at an affordable price. While catastrophic health plans don’t have all the bells-and-whistles that many Americans are used to from decades past, they do provide a real, quality solution to the problem of high health insurance costs. With insurance prices rising at a rate of between 8% and 12% per year, for many it’s a welcome option.
The bottom line is, if you remain healthy through the medium or long-term, you’ll have a good nest egg to show for it; something to further your investment portfolio, emergency savings, or other financial endeavors. A catastrophic health insurance plan could be another arrow in your quiver of financial tools.
This was a guest post by Jared J. Balis is an insurance agent in the state of Utah. In addition to spending time with his family, photographing lightning, and drinking coffee, Jared also runs a motivational blog with personal and professional productivity tips.