Which health insurance plan should people choose if facing the choice during open enrollment season: An indemnity plan or a high-deductible health insurance plan?
Yahoo Finance's Molly Moorhead joined Robert 'Bob' Powell on Decoding Retirement to answer this question, discuss open enrollment season, and provide her thoughts on the importance of HSAs.
Indemnity plan (decoded)
An indemnity plan, also known as a fee-for-service plan, is a health insurance plan that pays a set amount for qualified medical services. The plan pays a fixed amount, regardless of the total bill for the service. The insured pays the rest of the bill, which can vary depending on the provider's charges.
HDHP (decoded)
An HDHP is a high-deductible health insurance plan. This means that you pay more out-of-pocket for medical expenses before your insurance kicks in. However, HDHPs typically have lower monthly premiums than traditional insurance plans. HDHPs can be combined with an HSA. This allows you to save money tax-free for medical expenses. For this reason, HDHPs are often called HSA-eligible plans.
Folks, during open enrollment season there, face with the decision to either get an indemnity plan or a high-deductible health plan, do you have any thoughts about how someone go about making that choice?
Well, I mean, that that's the problem with these with HSAs being tied to your current health plan because when you're making that choice, you're thinking what are my health expenses gonna be in the coming year. And that's really kind of disconnected from what your health expenses are going to be in retirement. So I think, you know, the ideal to me would be pick the plan that serves your needs the most right now. Uh, you know, if you have young kids or uh, you know, health conditions, then maybe you want like a PPO that's going to cover more of it and not leave you with the big deductible, not have to pay a big deductible. Um, but like I at one point, I had a high-deductible health plan and when I like really caught on to what HSAs can do, I I had that plan and I put money in the HSA and just didn't touch it. And if you can do that,
you're you're saving for the future.
Right. So is it possible that you could sort of mix and match when you're young and have no obligations, no children, etc, etc., you use your high-deductible health plan, but maybe when you're older and have children, you might use the PPO because you know you're going to have
You're gonna go to the doctor a lot. Yeah.
And you don't want to necessarily tap into your HSA, which could be used for years later.
Years later. Yeah. Yeah.
And and and the other interesting thing is you've seen the studies from Fidelity and other sources where healthcare expenses and retirement are in the hundreds of thousands of dollars.
Yeah.
They go up after you retire. Yeah.
Right. So, I mean, do you sort of look at it and say, um using an HSA allows me to maybe pay for some of those extraordinary expenses that I'll face in retirement. People need to sort of put that sort of front of mind as they think about
Oh, absolutely. Yeah. And and you can kind of back that money out of whatever else you have saved for retirement. So, you know, you won't be tapping your IRA, you won't be tapping your pension that you need to live on because you've got this money set aside specifically for healthcare.
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"That's the problem with HSAs being tied to your current health plan. Because when you're making that choice, you're thinking, what are my health expenses going to be in the coming year? And that's really kind of disconnected from what your health expenses are going to be in retirement," Moorhead says. "So I think the ideal to me would be pick the plan that serves your needs the most right now."
Yahoo Finance's Decoding Retirement is hosted by Robert Powell, and produced by Zach Faulds.
Find more episodes of Decoding Retirement at http://goldberglawma.com/?id=videos/series/decoding-retirement.
Thoughts? Questions? Fan mail? Email us at yfpodcasts@yahooinc.com.
Editor's note: This post was written by Zach Faulds.
Check out more Decoding Retirement:
Retirement planning: What to know about financial advisers
Aging in America: The most common misconceptions about aging
Top three keys to retirement planning, importance of HSAs