Build health costs into your financial plan now

Employers are preparing to reduce benefits even further.

A new survey of business executives finds nearly 90% assert that the cost of providing health care coverage will be "unsustainable" in the next five to 10 years. And, no surprise here, they're contemplating raising the amounts employees have to kick in to remain covered.

The Kaiser Family Foundation, a nonprofit, independent research organization, teamed with the Purchaser Business Group on Health to survey 300 execs at big businesses (at least 5,000 employees).

Nearly half the executives in the survey said they were "considerably" or "highly" likely to shift a larger percentage of health care costs to employees.

And it's not exactly affordable right now. The most recent government report says health care expenses ate up 8.1% of household spending in 2018, up from less than 6% in 2004. Of the total average household cost of nearly $5,000, around 70% is just for the insurance itself (premiums, deductibles, copays, etc.).

As a way to contain their costs, employers increasingly offer high-deductible health plans (HDHPs). One in five single adults with an HDHP had a $3,000 deductible in 2020. For families with an aggregate deductible for all members, 56% had a deductible of at least $4,000.

A way to counteract the higher deductible is for employees to set aside money in a health savings account (HSA) that offers valuable tax breaks. You need to be enrolled in a qualified HDHP to be able to have an HSA.

In 2020, less than half of plans that offered an HDHP with an HSA made an employer contribution. And among those that did, the average contribution (around $740 for single coverage and $1,400 for family coverage) still leaves enrollees on the hook for what can be quite high deductibles.

To be clear, HSAs offer terrific tax breaks (even better than Roth IRAs), but if you're not getting any help from the boss, it's on you to cough up the money to save.

For all the attention on the upfront known cost of premiums and deductibles, what too often is overlooked is what your household faces if someone actually gets sick or injured.

If you stay in-network, your plan will likely have set an annual out-of-pocket (OOP) maximum that you are expected to pay.

Just one in 10 single enrollees in a workplace health care plan had an annual out-of-pocket maximum below $2,000 last year. Nearly one in five had a maximum of $6,000 or more. Family maximums run higher.

To the extent possible, you want to work toward having enough money set aside in emergency savings (or an HSA if you are enrolled in a HDHP) to be able to handle a year (or two) where you hit the limit. One in three people who have an unpaid credit card balance (running up high interest charges) say it's because of medical bills. That's the system we're currently stuck with: The more you need health care, the more at risk your financial health becomes.

A coming tax refund can be a great way to jump-start your out-of-pocket protection fund. Or if you are in line to receive monthly child tax credit payments starting in July, perhaps a portion can go toward boosting your emergency savings. Or take a serious spin through your current spending to see if there are places you can nip and tuck to free up more money for savings.

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