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Stop-Loss The Hidden Key to Health Insurance Savings?

Many employers provide or share the cost of health insurance, for their employees.  This is a wonderful benefit.  Since many receive it as part of their benefits package they often are not knowledgeable about plan provisions, costs and benefits.

For people contemplating retirement, prior to age 65, the cost of health care and insurance can be a big obstacle.  This process also continues once they are eligible for Medicare.

Gaining some skill in the health insurance arena can be very beneficial.  This can be manifested in both cost savings and peace of mind.

Most would agree reading insurance plan benefit statements of multiple companies would not be the most interesting use of time.  Many volumes could be written about how to best structure coverage.

Today we will focus on the Stop-Loss provision.

If you are in good health and take few medications real value can be found by understanding a few key provisions: Deductibles, Copays and Stop-Losses.  Deductibles refer to the amount of money you pay prior to the coverage taking effect.  They range from zero to thousands of dollars.  The lower the deductible the higher the premium.  Copays refer to your share of the cost of a medical procedure.  They range from zero to high dollar amounts depending on the policy (or procedure), they could also be a percentage of the cost such as 20% (you pay 20% the insurance company pays 80%)  The Stop-Loss is the maximum out of pocket expense you pay before the insurance company picks up 100% of the balance.

You will be happy to know that this article will not subject you to any additional policy provisions.  Rather we will focus those few key concepts.

We will began by utilizing an example.  The policy information for this sample was gathered from the Covered California website.  The particulars are for a male, age 55, residing in the 92128 zip code.  You can look up the information for your age and zip code by going to: www.coveredca.com.

The policies are arranged like Olympic medals Gold, Silver and Bronze with an additional category of Platinum.  Bronze are the lowest level of coverage and Platinum the highest.  If cost was of no concern we would all take Platinum.  Yet if we are paying the premium ourselves, out of our retirement resources, it is a big concern.  Of course, we all fear the result of having poor coverage and facing a huge expense.  Due to this fact many people purchase something in between balancing cost and benefit.

If you have made it this far I am about to let you know a little secret.  The Stop-Loss provision may be the sources of significant savings.

For our example cited above, the premium for the Bronze, Sharp Health Care plan (there are many other insurance company plans this one was chosen randomly) is $432 per month and the premium for a Platinum plan is $717 per month.  This represents a difference of $285 per month or $3,420 per year.

The premium savings can be used to pay the out of pocket costs each year.  How does this work?  Suppose our person has a good year health wise.  They go for an annual physical and they go to the doctor a couple of times.  Using the Bronze plan they would pay nothing for the physical exam and they would pay $60 for each doctor visit.  So they would pocket $3420 minus the $120 expense for a net saving of $3,300.  That would be excellent!

Yet what if they have significant medical event and subsequent health care costs?

This is where you need to understand the Stop-Loss provision.  The intent of this article is general advice.  For specific advice you need to contact your own advisors.  You should not make any decisions without their assistance.

My understanding of the Stop Loss provision is that once you’ve reached the dollar limit outlined in your policy coverage, your insurance company then picks up all cost, after that point and there may be exceptions so read your own policy for details!  For additional information visit: http://www.moneyrelationship.com/insurance/health-insurance-coinsurance-stop-loss-provisions/.

Back to our example the Stop-Loss for the Sharp Health Care plans are as follows: Bronze $6,250 and Platinum plan is $4,000.  The difference between the two is $2,250.  Let’s assume you had a catastrophic medical event that and an associated $200,000 bill medical bill.  What would happen?  Both policies would pay the entire bill less the Stop-Loss amount which you would have to pay.  In this case you would meet the out of pocket maximum in both policies.  In the Bronze plan you would’ve spent $6,250, with the Platinum plan $4,000.  The $2,250 higher cost from the Bronze plan would be offset by the premium savings of $3,420.  The net result was a saving of the difference or $1,170 savings.  A win-win!

In addition more savings are to be found by combining high deductible plans with a Health Savings Accounts (HSA).  If you are not familiar with an HSA it works similar to Individual Retirement Account (IRA) for more info visit http://www.investopedia.com/university/retirementplans/ira/.  You may be able to deduct the contribution from your income and thus reduce your taxes, for even more savings.  The money deposited into an HSA is available to pay most medical expenses.  Some accounts give you a check book and debit/credit card to make this process simple an example would be www.hsabank.com.  Individuals can contribute up to $3,350 dollars and families $6,650, for 2015.  For those over age 55 there is also a $1,000 catch up provision.  More information is available at: http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx

In summary most health insurance plans today have modest stop loss amounts.  If you are in relatively good health and have some cash resources there are good opportunities to save significant sums of money.   Money saved and not used for health care expenses can be withdrawn like any IRA and used to enhance your retirement.

If you would like more information or would like to discuss your situation we encourage you to seek out a CFP® fee-only financial planner.  Such planners do not sell insurance and can be a good source of advice.

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