Health Insurance 101 - Including HSA Accounts

Hey, what's going on everyone and welcome to the School of Personal Finance. My name is Rich McCormick. In this video, we're going to be talking health insurance. We're going to cover the most popular options that are available along with what is known as the holy grail of investment vehicles. So when it comes to healthcare and health insurance, this country is messed up. There's constant rumors about repealing Obamacare. There's the skyrocketing costs of all of our social programs. It really is a disaster. So much so that three of the most powerful people in the world are joining forces and coming together, trying to see if they could come up with a solution to this problem. Hopefully they do. The first thing that I wanted to do in this video was go over some of the terms and definitions that I'm going to be using, so you know what I'm talking about. So the first one is the premium. And the premium is basically just the amount that you pay for the privilege of having insurance. So if your insurance plan costs you $500 a month, that is your premium, the monthly payment to have the insurance. The second term is the deductible. So a deductible is the amount that you have to pay out of pocket before the insurance will pay anything. So when you hear the term a high deductible health plan, what that means is that you have to pay a large amount before the insurance will pay you anything. So not only do you have to pay that nice fat monthly premium, but you're also on the hook for this high deductible before you get any kind of insurance benefits whatsoever. The third term that you've probably heard is co-pay. And the co-pay is just the flat fee that you pay anytime you have a doctor's visit. So if you have to go to the doctor because you're sick and you have a $50 co-pay, then you got to pay 50 bucks to go see the doctor. And you might have to pay more beyond that, but the co-pay is the flat amount that you pay every time you have a doctor visit. The next term is co-insurance. So what co-insurance is, is after you've met your deductible and now you're starting to receive benefits from your health insurance, you might have to pay a percentage. You might have co-insurance. So for example, maybe you have 20% co-insurance. So if you had a $3,000 deductible and you met it, you went to the doctor, you had that much in costs already. So now you're actually receiving benefits and you go to the doctor and it costs $1,000 and you have 20% co-insurance, you would have to pay $200 of that $1,000 bill. The insurance company will pay 800. You'd have to pay 200, which would be your 20% co-insurance payment. Another term is out-of-pocket maximum. So when you hit your out-of-pocket max, that means that everything from that point on is going to be paid for 100%. So my personal plan, my high deductible health plan that I have, my out-of-pocket maximum for me is $6,500. So if I get into a car accident and I have to go to the hospital and I have $15,000 in healthcare costs and bills that I have to pay to the hospital, once I've paid $6,500, my health insurance will now pay 100% of that. So once you hit your out-of-pocket max, you are no longer responsible for any more payments for the rest of that calendar year. So another term that you might've heard of is an FSA account, which is a flexible spending account. And these are accounts that are offered through your employer, usually paired with either an HMO or a PPO account or plan. And you're able to put a predetermined amount in 2019, you can put up to $2,700 into this flexible spending account. And any money you put in there is tax favored. So you get a tax deduction when you put it in and you use that money for qualified medical expenses throughout the year. Now this is one of those plans where if you don't use it, you'll lose it. So you have to use it before the end of the year. That's why at the end of the year, you see people scrambling to use up the funds in their FSA account. So me personally, I was never a huge fan of these accounts just because there's no flexibility. I don't want to have to go buy things at the end of the year just to use the money that's in my FSA account. It kind of negates the benefit for me. So if you have planned things that you know you're going to need to buy every year, then it might make sense for you. You could plan around that. You could determine how much money you want to put in throughout the year. And you know that you're going to be using that money for something throughout the calendar year. But to just put money in there and then be forced to spend it at the end on things that you don't really have a great use for, it's not a great idea. So I personally did not use an FSA account. And then the next term that you're going to hear me talking more about in this video is the HSA, which is a health savings account. Now, these accounts have been called in the financial planning world, the holy grail of investment vehicles. And that's because of their unique tax advantages. It's really the only account in the world where you get a tax deduction upfront. The money that you have in there, it grows tax deferred. And then as long as you use it for qualified medical expenses, it comes out tax free. It's very flexible. You don't have to use it in the year that you make the contributions to it. You can carry the money over year after year. You could save receipts. I'll get into that one more. But that's the HSA account, which is becoming very popular. All right. So now let's talk about the three most common types of health plans. So the first one is an HMO. With an HMO, that stands for health maintenance organization. This is the plan where you need to stay in network. So you need to have a referral. Everything goes through your primary care physician. They're really the quarterback for this whole thing. So if you need to go see a specialist, you have to go to the primary care physician first, and they will refer you to a specialist that is in network. So not as much flexibility as some of the other plans, but the cost is going to be a little bit less than a PPO plan, because everything is within network and you have these agreed upon rates within the network. If you do need to go out of network, then you have to pay the bill for that. So you really want to stay in network so you have the benefits that are able to be applied. The second type of plan is the PPO. Now with a PPO, you have a little bit more flexibility. So you don't have to stay in network. You could go to an out of network specialist, but you are going to pay more for that. You might actually have two different deductibles. You might have a deductible for the in network doctors and specialists that you see, and then have a separate deductible for the out of network doctors and specialists that you go to see. Typically with a PPO plan, you have a higher monthly premium, and you could have a higher deductible or a higher copay than with an HMO. So it does cost more than an HMO, but you're paying for that flexibility that you're going to have by choosing the PPO. Then the third type of plan is the high deductible health plan. So with the high deductible plan, you're going to have lower monthly premiums. So the cost for the insurance each month is going to be lower than with an HMO or a PPO. But the reason for that is because you are on the hook. You have to pay this high deductible before any of the insurance will kick in. High deductible health plans are becoming more and more popular because you have lower monthly premium, and you have the health savings account that you can pair with it. So the two of those together are making it an attractive option, especially if you're a healthy individual or family that does not go to the doctor very often. And even with a high deductible health plan, regular physicals and preventative visits are covered at 100%. They're not subject to the deductible. So when I had my annual physical, I didn't have to pay anything out of pocket. When my wife had a mammogram, she did not have to pay anything out of pocket. So for those preventative visits and physicals, those are covered. So let me give you the quick rundown why a health savings account is starting to explode in popularity. Now, the only way that you could have a health savings account is if you have a high deductible health plan. So if you have a plan through your employer that is not classified as a high deductible health plan, then you could not open an HSA account, a health savings account. So the reason they're becoming so popular is the tax trifecta. So you get the tax deduction up front, the money grows tax deferred. And then when you take it out, as long as it's for qualified medical expenses, then you don't pay tax on it at that time either. So you could actually open up an HSA account. They have investment options inside. So you could invest the money into mutual funds, into the stock market. You could let it grow in there. You don't have to take the money out year after year. So you could continue to contribute year in and year out. In 2019, for an individual, it's $3,500 that you could contribute. For a family, it's $7,000 that you could contribute. So if you have a healthy emergency fund or cash on hand, and you have medical expenses that come up, you could pay out of pocket for those medical expenses and let your HSA account continue to grow. So by doing this, what you're doing is you're actually accumulating a nice little pool of tax-free money that you could take out later in life to pay for health expenses. And something you could do is you could save receipts. So for example, if I had to have a surgery this year, and it cost me $10,000, and I decided to not use the money in my HSA, I instead pay for it from my emergency funds. I could save the receipts for all the money that I paid out of pocket. And I could decide a decade later, 15 years later, to take money out of that HSA account tax-free to pay for these things that I have receipts for from 15 years ago. So it can make a lot of sense to save all of your receipts, all of your out-of-pocket expenditures that are qualified. And then later on in life, you have this big pool of money that you could take out tax-free. If you take money out in non-qualified medical expenses. So if you take distribution before the age of 65 for non-qualified medical expenses, then you're going to pay, I believe it's a 20% penalty plus income tax on it. So you don't want to do that, but it's a great savings vehicle because what you could do is you could start saving now for the uncertainty that lies ahead, you know, 20 years from now when you might not have, you know, health insurance through your employer anymore. You might be on Medicare and you could have this pool of money that you could use for your medical expenses at that time saved up and have all these years of compounding and of investment gains in this HSA account that you could pull from. All right, that's it for health insurance. Thanks for watching. Hopefully I wasn't too painful. If you enjoyed this video, please hit that like button. If you haven't subscribed yet to my YouTube channel, please hit that subscribe button as well. Check out schoolofpersonalfinance.com. There's my dog Cooper over there, Golden Doodle. He's a good dude. Now I lost my train of thought. Thanks for watching. Subscribe to my email list as well. 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