A Guide to Health Insurance

There are more health insurance plans in California than models of new cars for sale. Would you buy a new car without first doing research?

If you are like most Californians, your household will spend more on health insurance over the next five years than on car payments.

Health Insurance Fundamentals

Premium, Deductible, and Maximum Out of Pocket

The chart above represents the costs of health insurance. You pay your monthly premium even if you do not have medical expenses.

The deductible and maximum out of pocket become important if you have claims.

Lowering Your Premium

Stop paying for services you will not use.

Insurance premium is a fixed cost. You pay it whether you are healthy or sick.

Remember, deductible is the amount of claims you pay before insurance starts helping out.

Generally speaking, as your premium decreases, your deductible increases. A higher deductible is not such a bad thing, because it often can be compared to dollars saved in premium cost.

You may never need to spend those deductible dollars, unless you have medical expenses. At the very least, you are assured to get something for your money.

Paying for Claims

Consider paying for small expenses out of pocket to save on health insurance.

The purpose of insurance is to protect yourself from large, unexpected expenses. The following table outlines what you should consider paying out of pocket, and what types of large expenses (in red) that insurance is meant to cover.

Doctor Office Visits
Generic Prescriptions
Diagnostics (X-Rays, Blood)
Complex Diagnostics
Cancer Treatment
Some Brand-Name RX

The items in blue above are the most common uses health insurance and the most inexpensive.

Health Savings Accounts

Set aside cash for future expenses. Keep the money you save.

There are two ways to pay for insurance, either prepay for claims upfront (premium), or pay for medical expenses as they arise (out of pocket). Consider the following chart. In case A, the insured has lowered his monthly premium and put the savings in an HSA account.

The money in the HSA account can be used to pay for out of pocket expenses as they occur. The money is also tax free, so an employer can contribute the same way as toward your premium.

The money you add to your HSA account is there when you need. If you do not use it, you gain interest.

Any HSA money not unspent, you get to keep.

Conversely, money spent toward premium is gone forever.

Compare Health Accounts

HSAs, HRAs, and Flexible Spending

There are several account types which allow you to pre-designate money for medical expenses. These accounts are often tax exempt and can be funded in a number of ways.


Health Savings Account

Health Reimbursement Arrangement

Flexible Spending Account
Payer both employer employee
Tax Free yes yes yes
Funds Rollover optional yes no
Maximum Contribution $3,000 / $6,000 N/A $5,000

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Further Reading

Articles on Health Insurance