General Motors recently announced that they are moving towards higher deductible insurance plans. Such things wouldn’t normally be news worthy. But here we are in the middle of a government controlled health care battle. Every piece of health care news seems to have an impact.
So, should you consider moving to a high-deductible plan, if given the option? Odds are if GM (who traditionally has “Cadillac” insurance plans…pun intended) is moving towards higher deductibles, your company will be too. Therefore, you should likely be ready to make this decision for yourself when the time comes.
Below I’ll present an example of someone who’s making the move. I’ll also provide some things to consider when deciding whether it’s right to make a similar change.
Moving to a High-Deductible Plan: An Example
I have a friend who’s current health insurance plan (covering him and two kids) is costing him $614.63/month with a deductible of $500 and a $20 copay. He’s considering a new policy: $278.08/month with a deductible of $5,600. His tax bracket is 25%.
He calculates that the savings on his monthly premiums will be $336.55/month, which is $4,038.60 in a year. That’s incredible savings on the premiums alone! He’s considering using a Health Savings Account (HSA) to stash the difference in plan costs.
Policy
Deductible
Monthly Premium
Yearly Cost
Old
$500
$615
$7,380
New
$5,600
$278
$3,336
SAVINGS
$4,044
But he knows he can’t stop the analysis there. He factors in estimated usage: best case, he says his medical cost for all three people including dental and prescriptions would be $2,000. He’s a young guy, so I’m sure that’s fair.
Under the new plan, he’d have to pay all of this $2,000 out-of-pocket, or out of his newly opened HSA. So the $4,038.60 in premium savings minus $2,000 actual medical cost plus $500 in tax savings using the HSA equals estimated savings of $2,538.60 per year. Pretty good, right?
He says the worst case scenario would be that he has $5,600+ in medical expenses. He gets 25% tax savings, so of the $5,600 deductible, he would only spend $4,200. His other deductible was $500, so to compare he can subtract $500 from the $4,200 to get $3,700. Which compared to $4,038 (saved above) would give him an actual difference in yearly cost of $338.60 to his advantage. Basically, even if he pays his entire deductible, he comes out ahead.
My friend goes on to say,
“Even in the 15% bracket, my worst case would be that I paid $221.40 more a year than I would have with the other plan, which I believe is worth the risk when the savings are so big. Plus I can roll over from year to year and could get an interest-bearing Health Savings Account.
As long as I keep it funded correctly (paying the difference in premium to the HSA until I have it where needed, it should be a great financial situation for me. Once I get it fully funded, I can take the money that I was spending to fund the HSA and put into savings, a Roth IRA, etc.”
Factors to Consider When Thinking of Moving to a High-Deductible Plan
Okay. Let’s extract from my friend’s example some of the key points he used to help make his decision:
Will you save on premiums? In the example above, the answer was “yes”, and in a big way.
What’s your estimated usage? I like the way my friend used an average and then compared it to the maximum estimated spend. It might be prudent to break out last year’s actual costs to provide some more perspective.
Should you be trusted to setup the HSA and contribute? My friend seems to think that would be a easy thing for him. And I agree. The fact that he’s even taking the time to make this calculation shows he’s got the initiative to make the savings happen. And he’s obviously had the money each month if he’s been making that kind of payment. There are some eligibility rules for HSA you should know about. I may discuss that in a later post. Shop for insurance plans with health savings accounts.
But what are some other things to consider?
Are You Getting Similar Coverage with the New Plan? My friend didn’t mention a couple of things when discussing his old plan vs the new one. The maximum annual out of pocket allowed and the difference in the actual coverage of the plan. If he didn’t already, he should go back and factor those things in.
Are you healthy enough? If you’re already maxing out your current plan and you have some serious health issues that require prescription drugs, odds are a high-deductible plan isn’t for you.
Are you about to try to get pregnant?
Do you have pre-existing conditions? On an employer plan, pre-existing conditions aren’t a problem. Moving to a high-deductible plan will create a re-start in your coverage and the insurer is likely to charge you more for those pre-existing conditions.
What’s your take? How do you feel about the analysis done above in my friend’s example? Have you or are you considering a move to a high-deductible plan? Share your experience below…
I’ve created a download-able version of my most popular post, 52 Ways to Make Extra Money. This book is available for download right now.
But this isn’t just a rehash of the old post. With the help of some friends I was able to provide much more detail for selected ideas (around 15). The guide also includes 2 bonus ideas, extra money tips, and quotes. Plus, it was beautifully designed by my friend Ryan, of HillThread.com.
Thanks to these friends for their expert contributions to the expanded sections:
Update on the Saving to Give e-book: A week or two ago I mentioned I was writing an e-book focused around the idea of saving more to be able to give more. That e-book is still in the works. I’ve written it. I just need to determine the best way to format it and present it to you. Those that originally signed up with the PT Money Newsletter in hopes for a preview copy will get one soon.
Remember 7th grade and the science experiments? Ah, good times. Well, today I’m not going to make you dissect a frog. We’ll be looking at more of a monetary experiment.
Just a few more days till the end of the month, right? I’ll get paid and we’ll have a little more breathing room in the budget. You see, Mrs. PT and I have been saving aggressively over the past few months for some upcoming goals. We do our saving automatically, a few days after we get paid. That way we have the rest of the month to spend the remaining funds on whatever. This month, however, our aggressive saving and spending finally got the best of us. Now we’re running a bit low. So, instead of dipping into our savings or using debt, we are challenging ourselves to not spend any money this week.
One exception: If we earn extra money by selling something or by returning something and getting a refund we get to use that money however we like.
Because of the exception above, I made some moves over the weekend. I grabbed a few items around the house that we didn’t need anymore and listed them on Craigslist.org. Two have sold so far, giving us $38 dollars. We also brought some of our old clothes by a consignment store, which gave us an additional $10. That’s almost $50 to spend this week without having to dip into savings. And if a few more items sell, we’ll have even more cash. Sweet!
More thoughts going into this week:
I don’t pretend to think that this is going to be easy. We’ve gotten into the habit of spending when we feel like it. Especially dining out for lunch or dinner. So, believe it or not we normally spend a lot more than $50 on food in a week. It’s our biggest frivolous expense, you could say. Plus, we have all the other normal expenses to avoid: groceries, personal care, and convenience items. Although, I think the groceries will be easy since we have so much in our cupboard already.
I know some of you guys are a lot smarter with your spending, do this sort of thing all the time, and are probably laughing at me right now.
Hopefully we can do it successfully and get more in tune with our needs vs wants. I see it as a chance to get back to the basics.
I’ll report back on Friday and let you know how we did.
If you’d like to take on this experiment with me, let me know in the comments below. You can also follow along on Twitter for more timely updates.
If you’re tweeting too, use the hashtag #weekwithoutspending
Welcome to the October 26, 2009 edition of the Carnival of Money Stories. Who doesn’t love a good story? And who doesn’t love some Halloween candy? I actually prefer to skip the candy corn and go straight for the chocolate. What about you? What’s your favorite kind of Halloween candy? While your thinking of that, check out these scary money stories, delicately interspersed with some great Halloween treats. Alright, I’m off to go make a “balloon boy” costume.
Intelligent Speculator presents Take that Call posted at TheCreditToolBox.com, saying, “Whenever I see a number I don’t recognize on my telephone, I tend not to pick up. For reasons beyond my understanding, I broke that rule the other day. As it turns out, the phone call was nowhere near as disastrous as I first thought it might be.”
Carrie Bradshaw presents My Finances Weren?t Always This Good: The Finale posted at Carrie…On The Cheap, saying, “This week on my blog, I did a “My Debt History” series. I started my blog after getting out of debt and I wanted to show my readers that I’ve been there before! It was a great experience for both me and my readers (I hope!) because I was able to reflect on how much I’ve learned and share that with my readers.”
freefrombroke presents Ten Things I Learned Moving And Tips posted at Free From Broke, saying, “We recently moved and it was a crazy, whirlwind experience for us. Here is some wisdom we’d like to pass on!”
April presents Which Comes First: The House or the Nest Egg? posted at Get Rich Slowly, saying, “April from Get Rich Slowly offers up her own personal dilemma about whether to prioritize a house or retirement. Do you think it’s a good strategy to build a down payment if it means compromising your retirement savings for a short period of time?”
The Dough Roller presents A Buyer’s Guide to Rent to Own Homes posted at The Dough Roller, saying, “This experience has taught me two things: (1) tenants make major mistakes when entering into a lease purchase agreement; and (2) some landlords take advantage of tenants who don’t understand how to approach a contract for a rent to own house.”
Joe B presents What Annoys Me posted at The Financial Blogger, saying, “I decided to write about all the little things that tend to annoy me, perhaps you will at least rejoice knowing that you are not alone”
Allan Inocente presents Building Rich Money Habits 101: My personal finance story posted at Rich Money Habits, saying, “The blog post shows how to build rich money habits to achieve financial freedom. It tells about my personal finance story of learning my money habits, getting into credit card debt, being able to pay it up, build an emergency fund and get started in learning how to be financially free!”
That concludes this edition. Submit your blog article to the next edition of carnival of money stories 2 using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.
What should you do when you have unpaid debt in your name that’s not exactly your debt? I recieved this email from a reader and thought I’d share with you guys (my emphasis added):
“I went to work for a man 5 years ago and he wanted me to have a credit card but the bank couldn’t set it up so that he was on the card and have me, a non-relative, as the secondary on the card, so I got the card in my own name and he was supposed to pay it off each month. He did not do so. It now has a balance of $4800 even though I have not worked for him for 2 years. He rarely makes a payment. I have never made a personal charge or personal payment on this account as this was not to be a personal card, only for doing business in his name. I was the nanny for his three girls for three years.
Before I left his employ we did get him added to the account as someone with equal responsibility but then Bank of America would not release me from the account because I have excellent credit and he has bad credit.
The account goes to collections at the end of November. Bank of America says that they will reduce the account to $2400 if someone pays it off before it goes to collections.
I have all the paperwork and his signatures and copies of letters to and from Bank of America showing his taking responsibility for the debt and letters showing that they won’t release me from the debt because of his credit. My desire if for my husband and I to get a home equity loan on our house (which will be paid off in 6 years) in order to redo the kitchen and the bathrooms.
Will the paperwork I have to back up my story allow someone to loan us the home equity money or will it be a detriment to our attempts to get the loan?
If my husband should unexpectedly pass away will my personal credit be so bad that I will be unable to get a credit card or home equity loan under my name?
Do I: A. Continue to ignore it and ignore the collections calls that may come my way? Suffer with a big ding on my credit for 7 years until it is discharged? or B. Make the deal and pay it off myself to save what is left of my credit even though it is not my debt?”
I’m not a legal expert. But I can tell you that if my company (I work for a large software corporation) didn’t reimburse me for my approved business expenses, I’d file suit immediately. This is their debt that I incurred ONLY because I’m trying to do my job.
So obviously, my first thought is to take the former employer to small claims court. The paperwork you have, types of charges incurred, along with the employer/employee relationship will show that he is responsible. I can’t see a reason that a court wouldn’t hold him solely responsible for the debt.
But court will take some time. And BOA has given you until the end of November to settle. It seems like a good deal to me. I’d go ahead and pay them the $2,400 and then take your former employer to small claims court. Sue him for the charges, damage to your credit, and headache. Then, once you’re awarded the judgement. Send that paperwork to the credit bureaus to clean up the dings to your credit. Then you should be able to get that home equity loan, no problems.
UPDATE: I recieved some more info from the reader. This may help clear up some of the questions in the comments.
Thanks for letting me know you answered my question on your blog. I have not paid on the debt yet. I think I’ll call BOA again next week. A few weeks ago I spoke to the man I worked for and he told me again that he would take care of it. Empty words.
While I worked for this man he was sued numerous times. He ignores them. He knows this is his debt. He would just not show up in court. So if he would not show up then what happens?
My understanding from your blog is that if I take him to court, I would have legal, court ordered, proof of my story which I would use to fix my credit.
And if he doesn’t show up to court, what happens to the suit? Do I automatically win? Or is it rescheduled and rescheduled?
Fixing my credit would be a good thing. Paying on the debt just makes me mad.
Right now I am in limbo, leaning toward paying the reduced debt. I don’t want to sue him if it is going to be a long drawn out thing because he will not show up to court.
Thanks so much for taking the time to put this on your blog and send me an email. I really appreciate your time.
I advised her to contact her State’s labor board and pick their brains about moving forward. I told her that they’d likely award her the suit if he didn’t show and she had the proof it was his expenses.
What do you guys think? Do you think the court would award her the money? Should she pay the debt using the deal BOA is giving her prior to going to court? Will she ever improve her credit? Should she expect to do so, given that it was her who actually used her own personal credit card?
Below is my interview with Jason Price from One Money Design about the Money Map:
What is the Money Map?
The Money Map is a tool which helps guide your financial journey to a destination where retirement is funded and you’re in a position to be more generous with time and money. It has 6 destinations before the final destination of financial freedom.
For me, the Money Map served as the answer to financial disorganization for our family. We were trying to accomplish a little bit of everything (emergency savings, retirement investing, getting out of debt, saving for kids’ colleges, etc.). The Money Map ha helped us prioritize and focus where we could finally gain forward momentum in obtaining our goals.
How do they compare to Dave Ramsey’s Baby Steps?
Both approaches are similar and are excellent tools. I actually came across the Money Map before the Baby Steps. One notable difference is the approach for building the emergency savings.
After saving $1000 for emergencies, the Baby Steps recommend paying off all debt (except the home mortgage). The Money Map recommends paying off credit card debt first and then saving one month’s living expenses before paying off remaining debts (except the home mortgage).
The Money Map is based on practical advice as are the Baby Steps, but also provides a Biblical foundation to each destination using Bible verses.
For more information, I recently wrote a series of posts comparing both the Baby Steps and Money Map.
Is the Money Map only for Christians?
Crown Financial Ministries is a Christian Ministry, but the ministry and its tools aren’t just for Christians. The practical tools can be applied to anyone’s financial situation. As a Money Map Coach, I’ve had the pleasure of working with people who are and are not Christians.
Have you seen people have success using the Money Map?
Yes, absolutely. I visit with a lot of people who are overwhelmed by debt and don’t know where their money is going each month. The Money Map has helped them focus on the most important priorities of first saving a $1000 for emergencies and then focusing on paying off credit cards. I think what makes it a successful tool is the ability to keep the destinations and goals visible. We have a mini version hanging on our refrigerator.
How did you get involved with Crown Ministries and the Money Map?
Several years ago I decided to become a volunteer budget counselor to help people organize their finances, get out of debt and learn more about what the Bible has to say about money. My wife and I have taken a Crown small group study and were also leaders for a group. A few years ago I decided to go through the Crown Money Map coach training program and extend my reach of helping people with their finances.
Jason Price is a volunteer financial coach and personal finance blogger at One Money Design. He helps people manage money wisely for everyday life using practical ideas and Biblical financial principles. If you want to get his free money management tips and put your personal finances in order, follow him by Email, Twitter, Facebook, or RSS
When it’s time to take a serious look at your budget and find places to save and downgrade, you probably already know that all the fun stuff like extra shopping, the good beer and wine, and dinners out are the first to get slashed. But when you’ve already cut back on entertainment and are looking for more ways to save, you’ve got to really analyze every tiny aspect of your bills and spending habits. To keep you from going absolutely insane during this process, just continue reading below to find 15 surprising places you can trim your budget without having to experience a jolting lifestyle change.
1. Interest rates: You might be surprised to learn that banks are sometimes willing to lower your interest rates on loans and credit cards if you just call them up and ask. Don’t ask for something completely unrealistic. Just explain your situation and ask for a lower rate that will make it easier for you to pay them back all their money.
2. Dining out: You don’t have to stop eating out altogether. Just choose one night out a week for enjoying a restaurant meal and choose a couple of appetizers instead of entrees to save money. Order water or sodas instead of alcohol, or if it’s a special occasion, head to a BYOB restaurant that lets you drink your own bottle of wine.
3. Groceries: Buy generic groceries and dry goods, and you can save more than a few dollars, depending on how long your list is. Limit your grocery shopping to one trip per week to avoid overspending and buying things just because you’re craving them.
4. Medicine: Buy generic brand drugs, too for major savings on medicine.
5. Pets: Your pet will be happier just playing with you in the yard than eating snacks or getting a new to every day, so limit how much you spoil your pet.
6. Transportation: Ride your bike, carpool, walk or take the bus a few times a week in place of regular commutes or errand running to save on gas.
7. Bar tab: Order domestic beers on tap and bottom shelf liquor at neighborhood hangouts if you’re just dying to get out. A better option is to buy your own bottle at a liquor store and mix drinks at home.
8. Electricity: Unplug your computer every night and turn up the A/C when you leave your house for major electricity savings that don’t affect your comfort or convenience. Open blinds during the day for natural light.
9. Phone bill: Get on the same plan as your family and cancel any phone lines you don’t need, like a landline. Editor note: I use Skype for my long distance. It’s free for computer to computer calls.
10. Clothing: Buy what you need and try to buy on sale or with an online discount or coupon.
11. Gifts: The next time you see a “buy two get one free” sale, scoop up all three and save them for gifts. Send cards if you just can’t afford to buy a gift for every friend or family member’s birthday – there’s no shame in it.
12. Rent: Negotiate with your landlord, especially if you live in a single family home or a duplex, if he or she raises the rent or you want it lowered because of long running maintenance issues, security problems or a bad economy.
13. Food: Buy items in bulk that you can freeze, and follow portion guides to make food last longer.
14. Exercise: Give up your gym membership and find cheaper ways to exercise: organize an intramural football team, go for a run, or buy a couple of workout DVDs that you can use over and over.
15. Laundry: Hand wash delicate items to lighten your regular loads and hang up clothes to dry instead of wasting electricity or quarters on a dryer.
This post was contributed by Rose Jensen, who writes about online courses. She welcomes your feedback at Rose.Jensen28@yahoo.com.
This week I’m busy writing my first e-book. I’m really excited about finishing it soon and sharing it with you guys. It’s going to focus around the idea of saving more of your income, so that you can do more giving. The working title is:
Saving to Give: Learn the 4 steps to improve your finances so you can improve the lives of others.
It will be geared toward those of us with an income and a desire to make a positive impact on the world. The book will hopefully be a quick, easy read full of specific action steps you can follow to help you save more and give more. It will also be free.
Get an advanced copy of Saving to Give. I recently soft-launched the PT Money Newsletter. I’m not done setting it all up, but it will one day include exclusive content and giveaways, video tutorials, access to other projects, and more. If you join the free newsletter now, you’ll be the first to check out the e-book, which I’m hoping to launch within a week.
What are your thoughts about the e-book idea? Do you have any interest in reading it? What do you think of the title? The cover art? I’d love to get your feedback this week as I’m finalizing the draft.
I am NOT a finance professional and no content within this website should be considered financial advice. Please consult a certified financial expert before attempting any of the ideas described in this site. Please read the disclaimer for more information.
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Hi, I'm PT. No, I'm not a millionaire ...yet. But I have a big desire to help you learn to live a limitless financial life. more...
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