Reduce Your Health Insurance Costs by Taking These 3 Steps

Some suggestions for the year ahead.

Brian Feroldi
Brian Feroldi, Sean Williams, and Dan Caplinger
Dec 28, 2015 at 12:59PM
Health Care

Image source: TBIT via Pixabay.

The fallout from the Great Recession has helped keep increases in health-insurance premiums at bay, but they could be moving quite a bit higher in 2016. The Kaiser Family Foundation estimates that premiums could rise by 10.1% based on the average price for the second-lowest-cost Silver plan under the Affordable Care Act, but that number could be as high as 30% in a handful of U.S. cities. 

To help our readers who might be affected by those changes save some money in the year ahead, we reached out to our team of Motley Fool contributors and asked them to share a way to lower health-insurance costs. Read on to see if any of their ideas can help you reduce your costs in the year ahead.

Dan Caplinger: One step that can be especially smart for healthier people is to consider obtaining a high-deductible health plan, or HDHP, and combining it with a health savings account, or HSA. The Affordable Care Act (known colloquially as Obamacare) dramatically narrowed the range of high-deductible health plans that are available, because healthcare reform requires minimum levels of coverage that many existing HDHPs didn't provide. Nevertheless, there are some Obamacare-compliant HDHPs in the marketplace, and their monthly premiums are typically less expensive than what you'll pay for more comprehensive coverage. With an HDHP, you can also contribute to an HSA, claiming a tax deduction for the contribution and later being eligible to take withdrawals tax-free for qualifying medical expenses. Sometimes, employers will make additional contributions on your behalf to an HSA, making the strategy even more attractive for workers.

It's important to understand that HDHPs come with high deductibles, which requires that you be prepared to make large out-of-pocket payments before your coverage will kick in for most healthcare expenses. However, if you expect not to have extensive healthcare expenses for a given year, minimizing your premium can be worth the risk of having a large deductible, and often, you'll end up saving a lot more with an HDHP/HSA combination compared to traditional insurance arrangements.

Sean Williams: According to the Milliman Medical Index, prescription drug costs "spiked significantly" by 13.6% from 2014 into 2015. This is up from price growth that averaged 6.8% per year over the previous five years. As drug price inflation picks up, premium inflation and deductibles are likely to rise as well. So how can you avoid having to pay exorbitant amounts of money if you require substantial healthcare? Simple: Pay more to save more. 

Take Obamacare as a perfect example. The initial reaction for consumers was to flock to the cheapest plans available, which are found in the Bronze tier. There's no denying that consumers in the Bronze tier will pay the least amount for their monthly premium relative to other tiers. However, should they need medical care, they'll be on the line for the highest out-of-pocket costs, which are often much higher than what they'd pay in total premiums for the year. 

The solution? If you regularly see the doctor, are older, or perhaps suffer from a chronic condition, you may want to consider stepping up your health coverage to a more comprehensive plan with a lower deductible. It might seem illogical to pay more in premium costs, but insurers love consumers who latch onto low-premium, high-deductible plans because almost all of the initial cost of these plans falls onto the shoulders of the patient. Higher premium plans boast higher monthly costs, but there will be fewer out-of-pocket surprises. It's a smart move for those who'll head to the doctor often, and it could wind up saving you a substantial amount of money over the long run. 

Brian Feroldi: Just like any other type of insurance you can buy, health-insurance premiums move up and down depending on the level of coverage you choose. If you're healthy and don't foresee any major medical expenses coming in the year ahead, one option that might be available that could substantially lower your premium payments is to lower your co-insurance ratio.

A co-insurance ratio represents the portion of a healthcare bill the consumer is responsible for after the deductible is met. A common co-insurance ratio is 80/20, which means the insurer will cover 80% of the cost of medical care, leaving it up to the consumer to cover the remaining 20%. If your plan offers the option of lowering this amount to 75/25 or even 50/50 and you're able to do so, then you could bank a substantial savings on your health-insurance premiums.

Making any sort of tweak to your coverage is a risk, so make sure you fully understand the costs and benefits first. As you may have noted when reading Dan and Sean's sections of this article, the best way for you to save all depends on your individual health situation. But, if you're financially responsible and relatively healthy, this might be a viable option to bring down your health-insurance costs.