A little knowledge can go a long way toward helping you choose a health insurance plan and account that are right for your situation.
Your health insurance plan will include certain expenses that you'll need to pay for with your own money. These expenses typically include deductibles, coinsurance, and copayments for covered healthcare services plus the costs for services that aren't covered by your plan. Before making a decision about which plan or account to enroll in, it's important to look at your plan options and understand your liability for each of these out-of-pocket expenses.
Let's break this down further.
The good news? Your health insurance plan most likely has a cap (a.k.a. out-of-pocket maximum) associated with out-of-pocket expenses. This is important because it limits the total amount you pay for healthcare during the plan year including copays, deductibles, and coinsurance. Once you reach the out-of-pocket maximum for your plan your health insurance provider will step in and pay 100% of the allowed amount for covered services.
As a rule of thumb, health insurance plans with lower monthly premiums (the amount you pay for your health insurance each month) have higher out-of-pocket limits, while plans with higher monthly premiums have lower out-of-pocket maximums.
Now that you understand what is meant by out-of-pocket healthcare costs, you may be asking yourself how you can minimize these expenses. Opening and funding a tax-advantaged benefit account – such as a health savings account (HSA) or flexible spending account (FSA)– allows you to save up to 30% on expenses not covered by your health plan. In a nutshell, these accounts provide the option to set aside money, tax-free, to pay for out-of-pocket healthcare expenses– helping you reduce your taxable income and stretch your dollars further.