Picking health insurance for 2022? Check this guide to avoid a common mistake
You’ll thank yourself later if you open a tax-free account or save in other ways for next year’s health costs.
No matter what kind of health insurance you have, it’s probably time to start picking your plan for next year.
Open Enrollment is also a great time to avoid a costly mistake that many people make: not using this moment to plan how you’ll pay for next year’s health expenses.
This is an important time to sign up for special tax-free savings accounts designed just for health costs. Not everyone has access to these kinds of accounts – it depends on what insurance plan you choose, or what your employer offers. But even if you can’t use a tax-free account, it’s still important to save up for health costs.
Why should someone open a special account just for health costs?
The short answer: Because more insurance plans are asking their members to pay more out of their own pockets for the care they seek.
Tax-free accounts for health costs give you a way to save and spend dollars from your paycheck, without paying taxes on that money. That means every dollar stretches further. You must use that money for approved health purposes like doctor visits, tests, medicines and supplies for managing your health at home.
A recent National Poll on Healthy Aging report shows that many people over 50 haven’t opened these accounts. It also shows that the people using these accounts least are those who probably need them most – people with lower incomes, who might have less money in their general savings, and people with more health problems, who likely have more health-related costs.
The poll shows that less than 1 in 3 people over 50 save money specifically for future health costs, whether it’s in a special account or a regular savings account. Another 1 in 4 said they thought they would have enough money on hand to pay for their health costs.
About 1 in 6 older adults say they’ve already skipped or delayed health care because they couldn’t afford the cost. About the same number said they had had trouble paying for their medical, dental or other health care bills in the past.
“As health insurance plans ask people to pay for more of their health care out of their own pockets, such as through high deductibles, both tax-free accounts and regular savings accounts can help people avoid getting surprised by a sudden health care expense or having to choose between health care and other demands for their dollars,” said Jeffrey Kullgren, M.D., M.P.H., M.S., an internal medicine physician at Michigan Medicine and the VA Ann Arbor Healthcare System who helped design the poll and has studied health costs and savings accounts for years.
“If you qualify for a tax-free account, Open Enrollment is a key time to find out how to open one. And if you don’t qualify, this is still a good time to make a plan for putting away money for future health costs you anticipate, perhaps by setting up an automatic deduction from your paycheck that goes directly to a savings account,” he added.
He also notes that insurers have started requiring their members to pay their share of COVID-related care, after having special exemptions since early 2020. But prevention through the COVID vaccine, which offers strong protection against severe cases of the disease, is still free.
Here’s a guide for making smart decisions about health costs:
If you choose a health insurance plan with a high deductible:
More and more people have health insurance that makes them pay a certain amount out of their own pocket before their insurance kicks in, just like car insurance often does. This is called a high deductible health plan or HDHP.
Enrolling in an HDHP means you’re going to have to pay at least the first $1,400 of your health costs in 2022 if you only cover yourself, or the first $2,800 if you cover other people too. Some plans may ask you to pay even more.
There are two ways to get an HDHP, which may have lower monthly costs than other plans:
Many employers offer HDHPs as one of the options – or the only option -- for employees and their dependents. In fact, about one in three people with job-related insurance have an HDHP.
You can also get HDHPs if you buy your own insurance on Healthcare.gov or another source. You’ll be able to see the plans for 2022 in late October; Open Enrollment starts November 1.
Here’s the key thing to know: Many people who are enrolled in an HDHP can open a Health Savings Account (an HSA, for short) to save money for their deductible and other costs ahead of time, without paying taxes on those dollars. If you get your HDHP through your employer, they might offer information on setting up an HSA. Or you can do it yourself through a bank or credit union.
But the recent U-M poll showed only about half of people with an HDHSP had an HSA. And Kullgren’s own research shows that many people who open one never put money into it.
So after you set yours up, don’t leave it empty! Set up an automatic deduction from your paycheck or bank account so you don’t have to remember each month.
Even if you put only a few dollars into your HSA each month, it keeps growing for when you need it. You can put up to $3,650 a year into your HSA if you cover just yourself, or $7,300 if you cover other people.
If you’re over 55, you can save an extra $1,000 a year in an HSA. And if you’re close to Medicare age, you can keep spending any money in the account on health costs even after you get covered by Medicare, though you can’t add any new money in.
If you don’t spend all the money in your HSA in 2022, the leftover cash stays in the account for you to use on health costs in future years.
And even if you have a high deductible, you don’t have to pay out of your own pocket for certain tests and screenings under the Affordable Care Act.
For instance, if you’re due for preventive care like mammograms, vaccines, or tests to see if you have diabetes, high blood pressure or high cholesterol, you don’t need to pay for them. But you may have to pay for the cost of follow-up care.
If you get health insurance through work but it doesn’t have a high deductible:
Many employers offer a kind of health-related account called a Flexible Spending Account, or FSA for short. This lets employees save money tax-free for health costs in the coming year.
During Open Enrollment at work, find out if you can open an FSA. (If you can’t, skip to here.)
If you had one this year, you have to start a new one for 2022. If you’ve never had one, now is the time –the window of opportunity may close when Open Enrollment ends.
Why should you open an FSA?
It’s a tax-free way to put aside money for all those costs that your health insurance company asks you to pay, like co-pays for appointments, prescription medications, ER visits and hospital stays.
Plus, you can use money from your FSA to pay for things many health insurance plans won’t cover – like non-prescription medicines and supplies you buy over the counter in a store, as well as dental care, eye care or mental health care.
All of these costs can add up, especially if you have a health crisis or emergency. So opening an FSA if you can, and adding money to it at the start of the year or each month, makes good financial sense.
The biggest catch is you have to predict what you might spend on these things next year. Because at the end of the year, the FSA closes and you lose any money that’s left in it.
If your employer doesn’t offer an FSA:
You can still save for future health care costs, but without the tax advantage. You could set up a separate savings account with your bank or credit union, and arrange for an automatic payroll deduction to go into it each month. That way you have peace of mind that there will be money there when you need it.
If you have high health care costs and you itemize when you file your taxes, you may be able to deduct some of your costs from your total taxes – but you must be able to show what you spent. So keep those receipts!
Some employers now offer another kind of group health plan where they put aside money for you to spend on health costs, in what’s called a Health Reimbursement Arrangement (HRA). While any money you don’t spend can roll over from year to year, it belongs to the employer, not you, so you can’t keep spending it if you leave that company or enroll in Medicare.
If your employer offers an HRA, make sure you understand what kinds of costs qualify and how to use the money.
If you buy your own health insurance plan:
The Open Enrollment period on the national Healthcare.gov marketplace, and other individual health insurance marketplaces, opens November 1.
If you choose a plan with a high deductible, you can open a Health Savings Account – see this section above for more information.
Unfortunately, people who buy their own insurance and choose a plan without a high deductible can’t open a Flexible Spending Account like people who get their insurance through their job. But it’s still important to set aside money for the health costs you’ll face in 2022, in a regular savings account.
You should also choose your plan wisely by looking beyond just the monthly premium cost. Explore what the plan will cover and what it won’t, how much your co-pays for visits and medicines will be, and more. Paying a bit more of a monthly premium may actually save you money in the long run if you use your insurance a lot.
If you need help choosing a plan for yourself, Michigan Medicine’s Patient Financial Counselors are trained to offer free help, even if you’re not a patient of Michigan Medicine. Call (877) 326-9155 between 8 a.m. and 5 p.m. Monday-Friday or send email to PFC-Counselors@med.umich.edu.
If you have Medicare:
Open Enrollment for Medicare just started, and continues through December 7. You can see your options here, and compare the potential costs so you can anticipate them and start saving for them.
Michigan Medicine research recently showed that out-of-pocket health costs drop a lot after people reach the Medicare age of 65. But even so, nearly 6% of people over age 66 spend 40% or more of their disposable income on health care costs.
Medicare doesn’t cover every type of care, either. Nearly half of people over 65 don’t have dental insurance, according to the National Poll on Healthy Aging. And one in five older adults said they delayed going to the dentist in the past year, most of them because of cost.
Most Medicare plans also won’t cover hearing tests, hearing aids, eyeglasses or contact lenses. National Poll on Heathy Aging reports have shown that cost often keeps older adults from getting their eyes checked or their hearing tested. So putting aside money for these costs, a little at a time, makes sense.
If you had a high-deductible health plan before you joined Medicare, and you opened an HSA during that time, you can still spend any money that’s left in it even when you have Medicare coverage. But you can’t add more money or open a new HSA.
If you choose a Medicare Advantage plan, instead of traditional Medicare, you may have access to a Medicare Medical Savings Account Plan. While these are not offered everywhere in the United States, you can see if one is available to you on the Medicare plan finder.
These are plans that may have lower monthly costs but a high deductible and a tax-free account that the plan puts money into, for you to spend or roll over to the next year. But if you have health costs beyond what the account contains, you’ll still need to pay for it yourself until you reach your deductible amount.
If you don’t have health insurance:
Going without health insurance puts you at real financial risk if you get sick or get injured in the coming year.
If you think that health insurance is too expensive, you should look at Healthcare.gov starting November 1 and look at the options for 2022. You might be surprised – a special program put in place as part of national COVID-19 recovery means that final costs are lower than before for most people.
Here’s a quick checklist to help you prepare the information you’ll need to apply for coverage and get information on what each option will cost you. If you find a plan with a low monthly cost, keep in mind that it may have a high deductible. Learn more about what this means and how you can use a tax-free account to save the money to pay your health costs in an HDHP.
You can find a trained local person to help you explore your options here. Michigan Medicine’s Patient Financial Counselors are trained to offer free help, even if you’re not a patient of Michigan Medicine. Call (877) 326-9155 between 8 a.m. and 5 p.m. Monday-Friday or send email to PFC-Counselors@med.umich.edu.