Financial Planning Considerations During Open Enrollment

Health Insurance Plan Types

Health providers’ plans will vary in flexibility, services offered, and cost. Understanding the basic features can help you select the best option for your family’s medical needs.

HMO

A Health Maintenance Organization (HMO) plan can provide a wide range of health care services, but you must choose from physicians and other providers who work for or have a contract with the HMO. In return, you may pay lower monthly premiums and out-of-pocket costs. Typically, a referral from your primary care physician is required for you to see a specialist. Visits to a physician outside the HMO network will likely be your financial responsibility, with exceptions for medical emergencies.

An HMO also may allow each patient only a certain number of annual visits, tests, or treatments.

PPO

A Preferred Provider Organization (PPO) plan offers more flexibility to see physicians out of network and specialists without a referral. This flexibility comes with a price: generally higher monthly premiums and out-of-pocket costs. In some cases, you may have to pay directly for out-of-network services and file a claim to be reimbursed, though there may be exceptions for medical emergencies.

POS

A Point of Service (POS) plan is an HMO/PPO hybrid, offering cost savings for using in-network providers yet also covering an out-of-network specialist at in-network pricing if your primary care physician provides a referral. Medical emergencies are covered regardless of network. Monthly premiums may be higher than for either HMO or PPO plans.

HDHP/SO

A High Deductible Health Plan with Savings Option (HDHP/SO) typically saves the most in monthly premiums, but as name suggests, the insured will have to pay more for health care costs before the insurance company starts to pay its share.

For 2023, the IRA classifies an HDHP as any plan with an annual deductible of at least $1,500 for individuals and $3,000 for a family. Total annual expenditures—such as deductibles, copayments, and coinsurance—cannot exceed $7,500 for individuals and $15,000 for a family.

This may be an attractive option for relatively healthy people who do not use a lot of medical services and who would benefit from access to a triple-tax-free savings account, the HSA.

HSAs

Health Savings Accounts (HSAs) are a unique financial planning tool as they offer a triple tax advantage. Contributions are tax deductible, appreciation is tax-deferred, and spending is tax-free, if used for qualified medical expenses. Also, your account has the potential to grow through investments in stocks, bonds, ETFs, mutual funds, or other options. Spouses can each have an HSA, but both cannot contribute to a single account.

Money that is not used in a calendar year can be rolled over indefinitely without penalty. And at age 65, the money is eligible for non-qualified medical expenses, though the withdrawal would be subject to ordinary taxes.

As such, an HSA can be a compelling long-term savings vehicle. But it is available only to those enrolled in an HDHP.

As of mid-2023, about 36 million accounts held $116 billion in HSA assets.

HRAs

Health Reimbursement Arrangements (HRAs) are another option with high-deductible plans. An employer provides fixed dollar amounts for employees per year, and employees are reimbursed tax-free for qualified medical expenses. Funds remaining at the end of a year can be rolled over to the next year.