Five Ways to Manage Skyrocketing Health Insurance Premiums

photo-1437936251057-dfbf79980ce5There are no polite words to describe my reaction to the recent announcement that health insurance premiums for over 300,000 Minnesotans would increase by up to 49%. For many families this premium increase will add up to hundreds of dollars of additional insurance premiums every month.

KSTP- TV interviewed author, Brian Freeman, who said his health insurance premiums will exceed his house payment when the rate increases go into effect in 2016. After adding in the deductible, the annual premium for Brian Freeman and his wife may be as much as $20,000 per year. If he has kids, the bill will be even higher.

The cost of health insurance is sky high and continues to rise. By my estimation a family of four will likely see premium increases of $400 a month or more this January.

Following are five ways to manage skyrocketing health insurance premiums.

Work with a professional. Health insurance is expensive. There is just no way around it. However, working with a professional who specializes in health insurance can help. If nothing else, they can help you find the best type of policy for your needs and one that is the best fit for your family. Best of all, these services are often available at no additional cost to you. You pay the same premium whether you buy your health insurance through an agent or directly from the insurance company. At least, that’s the case here in MN.

Review your deductible. For healthy people a high deductible policy may be one of the few ways to control your premium expenses. These policies typically offer lower monthly premiums in exchange for a higher deductible amount. Of course, this strategy can backfire if you have unexpected medical expenses that equal or exceed your deductible amount, but most of the time a high deductible plan will allow you to pay less for health insurance. Be sure to do the math to see which deductible + premium combination works best for you. If you have the cash on hand to pay your deductible, this may be the way to go.

Consider a Health Savings Account or HSA. A Health Savings Account is a tax-deductible medical savings account that is paired with a high-deductible health insurance policy. Premiums tend to be lower because of the high deductible, but the main benefit is that the insurance policy deductible is also a tax deduction on your federal income tax return. A family with an HSA can deduct up to $6,650 from their taxable income in 2015; $6,750 in 2016. What’s more, distributions for qualified medical expenses are tax-free as well. In some respects, an HSA may be even more tax-efficient than a Roth or Traditional IRA.

Understand the tax rules. Certain medical expenses are deductible on your federal income tax return to the extent that they exceed 10% of your Adjusted Gross Income. For example, if your AGI is $100,000 and your medical expenses are $12,000, you may deduct $2,000. The 10% rule applies to most of us, but if you or your spouse was born before January 2, 1950 you may deduct expenses that exceed 7.5% of your AGI. The tax rules regarding medical expense deductions are complicated and have changed in recent years. Be sure to talk to your tax professional or make yourself familiar with IRS publication 502 before making any tax related decisions.

Keep your income low. Subsidies for health insurance premiums are based on your income, not your net worth. If you can, keeping your income below certain threshold amounts will help lower your insurance premiums significantly. This may be difficult to do while you are working, but in retirement it may make sense to create a retirement income plan that keeps your taxable income as low as possible. Taxable accounts that pay interest and dividend income, tax-free Roth IRAs, and health savings accounts are just some of the ways you can create an income stream that will meet your needs but also keep your taxable income relatively low. To get a checkup on the income limits for health insurance subsidies check out www.healthcare.gov or if you are a Minnesota resident, www.mnsure.org.

Health care costs will continue to gain altitude. Use these five strategies to help manage the rising cost of health insurance for your family.