TODAY ON REASONED REFLECTIONS:

• Personal finance articles 💰;

• Advice on 401(k)s;

• PPO health plan versus HDHP;

• Quote of the Reflection.

Personal Finance Articles 💰

Time for a bit of R&R

• Choose how to use your 401(k) match

  My Take - I’m indifferent on this new IRS ruling. It would be nice to pay down debt with your employer’s 401(k) match, but I don’t like the idea of missing out on compounding interest. Are you just robbing your future self?

• I do not look forward to buying my next vehicle

  My Take - Car prices have increased so much over the last few years. I still think buying used rather than new is the way to go—I just can’t get over how much new cars depreciate as soon as you drive away from the dealer.

• What to do with cash now that the Fed has started to cut rates

  My Take - The value isn’t in what your cash can earn sitting in a savings account. The value is in the cash being there if an emergency hits.

• Getting the most out of capital gains

  My Take - Tax gain harvesting sounds fun.

• New 529 rule, who dis?

  My Take - Any kids out there that have parents saving for their college expenses with a 529 account just got luckier! Any unused funds in the 529 account can now be rolled into the beneficiary’s Roth IRA (assuming certain conditions are met). Cha-ching!

Roth 401(k) or Traditional 401(k)

Did you miss last week’s Reflection? Wondering which type of 401(k) to contribute to at work? Have no fear, Reflection No. 6 can be found here.

Reflection No. 7: PPO or HDHP

I - Issue: Should I enroll in a Preferred Provider Organization (PPO) health plan or a High Deductible Health Plan (HDHP)?

R - Rule: A PPO health plan generally offers more flexibility in choosing healthcare providers but comes with higher premiums and lower deductibles. An HDHP has lower monthly premiums but higher deductibles, making it more suitable for those who want to pair it with a Health Savings Account (HSA) for tax savings.

A - Analysis: When deciding between a PPO and an HDHP, it’s important first to understand your healthcare needs and financial goals.

With a PPO health plan, you can see specialists or out-of-network providers without having to get a referral from your primary care doctor. This feature of the PPO plan allows you easy access to a wider range of healthcare options without an extra hurdler. However, this convenience comes at a cost—higher monthly premiums. You’ll pay more each month but benefit from lower out-of-pocket costs at the doctor’s office or pharmacy, which could make sense if you or your family members have regular medical appointments or prescriptions.

On the other hand, an HDHP is ideal for those who don’t expect to need frequent medical services. While the premiums are much lower than a PPO, you’ll face significantly higher out-of-pocket costs before your insurance kicks in because of the high deductible. However, HDHPs have a significant advantage: eligibility for a Health Savings Account (HSA). An HSA allows you to set aside pre-tax dollars to pay for qualified medical expenses. The money in an HSA can be invested, grow tax-free, and even be used in retirement, providing both short-term and long-term financial benefits. If you’re healthy, prefer to save on monthly premiums, and like the idea of building up tax-advantaged savings, an HDHP might be the better option.

Employers increasingly offer HDHPs to reduce healthcare costs, but many employees still opt for PPOs for immediate flexibility and reduced out-of-pocket expenses. You should also consider your family’s healthcare habits. For instance, if your family includes members who need regular specialist visits, ongoing treatment, or frequent prescriptions, the PPO’s higher premium may be worth it for the lower out-of-pocket costs throughout the year.

For those unsure about their healthcare usage or anticipate low medical needs, the HDHP could be a smart financial move. But there’s a caveat—if you end up with unexpected healthcare costs, such as a severe illness or accident, those high deductibles can hit hard. The high deductible is why some people hesitate to choose an HDHP unless they have enough saved to cover the deductible in an emergency.

C - Conclusion: The best plan depends on your healthcare needs and financial priorities. A PPO may be a safer option if you value provider flexibility and expect regular healthcare costs. If you want to save on premiums, benefit from an HSA, and anticipate low healthcare usage, an HDHP could be the better choice.

Time to Reflect…

Choosing between a PPO and an HDHP can significantly impact your healthcare experience and finances. A PPO provides flexibility and predictable costs, which can be a relief if you expect regular healthcare expenses. In contrast, an HDHP paired with an HSA offers savings potential with lower monthly premiums and the opportunity to grow tax-free funds. Ultimately, your choice should align with your current healthcare needs, financial goals, and how you want your health expenses to work within your broader financial picture.

Quote of the Reflection

Thanks for reading! That’s all for today, but if you enjoyed this Reflection, the best thing you can do for me is to share it with those in your network. Referrals are the sincerest form of flattery 😀 

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