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Six strategies for cutting health insurance costs

by Tony Novak, CPA, MBA, MT
,last updated on 11/21/2011

Individual consumers and employers alike struggle to maintain affordable health insurance. Price increases of more than 10% per year for more than two decades lead many buyers to wonder how high health care prices can go and when this cycle of hyperinflation will end. In the past, when prices increased by unacceptable amounts, health plan members simply switched to a less expensive competitor. Now there are fewer reputable health insurance companies in business than in the past, so there is less price competition in the health insurance market and fewer choices available to consumers.

There are six primary strategies that businesses and healthy individual shoppers¹ use to cut health insurance costs:

1. Buy shorter-term coverage². A policy that expires after 3 years is about 35% less expensive than a permanent insurance plan, and 97% of purchasers of health insurance change plans voluntarily in less than a year anyway. Taking a plan with a shorter duration of six months can cut the cost another 25%.
2. Shop online. Web sites like Freedom Benefits make it easy to compare benefits and prices of many plans side-by-side. Most plans allow for immediate online enrollment, saving time and eliminating the need for follow-up appointment with an enrollment representative.
3. Use PPO network discounts. Preferred Provider Organization (PPO) discount pricing have log been used to lower the cost of health insurance. Most health insurance policies include this feature for covered medical bills, but may not include the discounts for dental or prescription benefits. Stand-alone PPO plans that are available without insurance are now so affordable to lower the cash price for out-of-pocket health care costs that are not covered by health insurance. The Web site www.ehealthdiscountplan.com offers reputable PPO discount plans priced at $100 to $250 per family per year with a 30-day money-back satisfaction guarantee. Of course, the lower the price of the PPO plan, the more the net savings. Savings average about 20% of medical bills. (Do not be misled by greater savings claims by some marketers). Generally, a family with a combination of more than $1200 out-of pocket health care costs not covered by insurance would save money by adding a PPO discount plan to their health insurance.
4. Maximize tax savings. Health Savings Accounts (HSA), Flexible Spending Arrangements (FSA), and Healthcare Reimbursement Arrangements (HRA) can be combined with less expensive health insurance to save some money at tax filing time. These do not cut health insurance costs directly; they just make more of the out-of-pocket expenses deductible. This reduces taxes to help offset insurance costs. HSA plans can be set up for free or at minimal cost at www.healthsavingsaccount-hsa.com for anyone who is enrolled in a qualifying high deductible insurance plans. High quality HSA-qualified insurance plans are available to individuals and families in most states from Celtic Insurance at www.celticenrollment.com. When an employer is providing coverage, HRAs and FSAs offer more liberal benefits than HSAs and do not limit the insurance choices. These plans cost only $60 per year for a typical small business employee at www.FreedomBenefits.org.
5. Separate the family. When shopping for family coverage, the best deal available to the husband is different from the best deal for the wife and even different from the best health plan for the children. Families need to be creative and flexible in piecing together the combination of health insurance plans that results in the overall best value for the members collectively. Do not settle on a health plan just because one family member is not eligible. Mix and match plans for family members for greater savings and coverage.
6. Buy less coverage. When the price for traditional coverage simply becomes too much to handle, some are forced to buy less than full coverage. There are two ways to do this: 1) with any high deductible insurance, or 2) with a limited benefit plan. One fast-growing low cost health insurance plan of this type is Basic Health Insurance at www.basichealthinsurance.net. This plan is available in most states to individuals, families and businesses. While this is not a comprehensive medical policy, it provides a starting level of coverage with no deductible or co-payments. Other insurance companies will be introducing limited benefit policies in the near future.

Footnotes:

¹These strategies do not apply to individuals who need coverage for pre-existing medical conditions. Open enrollment insurance plans that provide coverage for pre-existing medical conditions are now handled by each state under federal HIPAA guidelines that are not addressed in this article. It is generally not possible for a person with a significant pre-exiting medical conditions to find coverage under a low cost health insurance.

²Residents of New Jersey, New York, Massachusetts, and Vermont do not have access to short term health insurance due to restrictions on minimum health insurance requirements under state law.

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