You'll need to make sure that the healthcare plan you choose will fit your family's budget. It's important to look past the "sticker price" and consider the likely total cost of your annual medical needs. (ddp)

Generally speaking, there are three main types of health insurance: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point of Service (POS).

You'll also need to make sure that the healthcare plan you choose will fit your family's budget. In doing so, it's important to look past the "sticker price" and consider the likely total cost of your annual medical needs.

Health insurance costs have several components:

  • The premium is the amount that you pay for insurance each month or each pay period.
  • The deductible is the initial amount of covered expenses that you must pay out-of-pocket before your plan begins to share the costs with you. Once you have covered this cost, you and your health insurance will share the burden of costs covered under your plan for the remainder of the year.
  • The coinsurance percentage is the portion of covered expenses that you'll be responsible for once you exceed your deductible. This is different from copays, which are fixed amounts that your plan may require you to pay for covered medical services.
  • The out-of-pocket limit is the maximum amount of approved out-of-pocket costs that you'll be responsible for during the coverage period. Once you exceed this amount, your plan will cover 100% of covered costs for the remainder of the year.

The IRS segments health insurance plans into two categories: If a plan has a 2022 deductible of at least USD 1,400 (individual) or USD 2,800 (family), it is a high-deductiblehealth plan (HDHP); if not, it is a low-deductiblehealth plan (LDHP).

While plans with higher deductibles usually come with lower monthly premiums, the higher deductible means you'll have to pay more dollars before the plan begins to share your healthcare costs with you.

Since most of us won't know how much medical care we'll actually need in the future, it's impossible to determine whether a high- or low-deductible health plan will end up being cheaper for you.

To address this uncertainty, it's important to consider the potential costs you may incur for care throughout the year:

  • If you are single and healthy, your annual medical costs may be fairly minimal. In this case, if it's unlikely that your medical costs will exceed your deducible that year, then an HDHP may help you to keep more of your paycheck (because there will be a lower monthly premium) while still giving you coverage in the event of a big-ticket emergency medical bill.
  • If you and your family have several recurring medical costs each year, you may expect your medical bills to exceed the deductible. In this instance, an LDHP plan may make more sense because, although you'll be paying a higher premium, the health insurance plan will pick up a share of the costs sooner, reducing your out-of-pocket costs.

Next steps

  1. Use a Flexible Spending Account (FSA) for annualout-of-pocket medical costs. If you are in a low-deductible health plan and are looking for funds to help you cover current healthcare costs, FSAs' “use it or lose it” rule makes them an ideal source of funds, and thus considered a part of the Liquidity strategy.
  2. Save and invest for long-term growth usinga Health Savings Account (HSA). If you are in a qualified high-deductible health plan and have access to an HSA, save as much as you can (up to the annual contribution limit) in your HSA and invest the assets for long-term growth. While you do have the option to use HSA assets during your working years, we generally recommend against it. Keeping those assets invested can help you make the most of the HSA's triple-tax advantaged compounding growth potential.

Read the report A checklist for your work benefits 27 September 2021.

Also download the one-page checklist to help you to navigate your work benefit decisions.

Main contributors: Ainsley Carbone and Justin Waring

This content is a product of the UBS Chief Investment Office.

UBS Wealth Way is an approach incorporating Liquidity. Longevity. Legacy. strategies that UBS Financial Services Inc. and our Financial Advisors can use to assist clients in exploring and pursuing their wealth management needs and goals over different timeframes. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved. All investments involve the risk of loss, including the risk of loss of the entire investment. Timeframes may vary. Strategies are subject to individual client goals, objectives, and suitability.