Open Enrollment Headache? Educate Yourself Now to Pick the Right Medical Plan

James Stovall

If you receive health insurance through your job, your last benefits open enrollment period has probably faded to a distant memory. Instead of forgetting about your benefits until the next enrollment window, start educating yourself now to ensure you have and will pick the plans that best meet your needs.

It’s no easy task to figure out which plan is right for you, so here’s a quick guide to help you out:

ENROLLMENT

If you receive benefits from your employer, you generally need to enroll during an annual open enrollment period, typically in the late summer or fall. Outside of open enrollment, you may only be able to enroll or change your elections if you experience a qualifying life event, such as a marriage or divorce, the birth or adoption of a child, or a loss of coverage. Many open enrollment periods last less than three weeks, which is why it’s important for you to think and learn about your benefits throughout the year.  Start planning now so that you’re better prepared to choose the plans that best meet your needs.

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Pro Tip: Keep Track of Your Benefit Usage!
At the beginning of every benefit year, start tracking and examining your benefits usage, bills, and requirements. When it comes time to re-enroll, you’ll have a far better understanding of the benefits you really need!  

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ASSESS YOUR NEEDS

Selecting the best plan means making an informed choice and knowing your personal need and priorities. Is budget most important? Which benefits do you really need?

Consider the following questions.

Who will be covered under this plan? Yourself and your dependents?  Ask yourself: does anyone in your family have other coverage options?  Does your employer give you money if you waive some or all benefits?  In some cases, you may actually be able to save money by covering different members of your family separately under two or more plans. Do the math!  

Do you maintain a significant savings cushion or do you live paycheck to paycheck? If you don’t maintain a cushion of funds in the bank, you may want a health plan with a lower deductible. If you do keep a savings cushion large enough to afford a higher deductible, you may prefer a plan with lower monthly premiums.

How often did you visit the doctor last year? If you visit regularly, it may make sense to pay a higher monthly premium in order to keep your office visit co-payment and deductible low. If you rarely visit the doctor, a plan with higher co-payments may cost less per month.

How much did you spend on healthcare last year? It’s important to know what you spend on healthcare and if you expect to spend at the same pace. If these are recurring costs (prescription drugs, for example) make sure that the plan you select covers these services at a level that’s affordable for you.

Are any specific benefits necessary or irrelevant? If you’re a regular user of prescription medication, make sure you find a plan that covers prescriptions at a co-payment level you can afford. If it’s possible you or your spouse could become pregnant, pay close attention to how much you would need to spend from your own pocket for maternity care.

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Did you know?

Benefit offerings can indirectly increase your total compensation by as much as 35% on top of your regular base salary!
If you’re job hunting, be sure to ask for detailed information about benefit offerings.  Rich benefits can sometimes shed valuable light on how much employers really care about their employees.  Instead of comparing base salaries, be sure you understand what you’d be paying for benefits- that could make one offer with a lower salary but better benefits more attractive than an offer with a higher salary and skimpy benefits.

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FOUR MOST COMMON HEALTH PLAN TYPES

Employers usually offer a few different types of plans and it’s important that you understand the basics of how they differ from one another.

HMO

HMO stands for “Health Maintenance Organization.” HMO plans offer a wide range of health care services through a network of providers that contract with the HMO, or who agree to provide services to members. Members of HMO plans typically need to select a primary care physician (“PCP”) to provide most of their health care and refer them to HMO specialists as needed. Health care services obtained outside of the HMO are typically not covered, except in an emergency.

An HMO plan may be right for you if:

  • You’re willing to play by the rules and coordinate your care through a primary care physician
  • You want to save every dollar possible; many HMO plans typically have lower monthly premiums than comparable

PPO

PPO stands for “Preferred Provider Organization.” Persons covered under a PPO plan get their medical care from two sources:  (i) doctors or hospitals within the insurance company’s network of providers (e.g., “in-network coverage”), or (ii) doctors or hospitals outside of the insurance company’s network of providers (e.g., “out-of-network coverage”).  It’s your responsibility to make sure that you know whether the health care providers you visit are “in-network” or “out-of-network.”  This is important because services rendered by out-of-network providers may be paid at a lower level.   In other words, you’ll usually pay more for services handled by an out-of-network provider.  That said, while services rendered by out-of-network providers may cost you more, you do have the freedom to choose any provider, even if it is out-of-network.

A PPO plan may be right for you if:

  • Your favorite doctor does not participate in your employer’s healthcare plan and you don’t want to switch
  • You want some freedom to direct your own health care, especially if you are nervous that a future health care provider you may need or want will be out-of-network

EPO

EPO stands for “Exclusive Provider Organization.” EPO plans are similar to PPO plans but are usually more restrictive when it comes to the network of doctors and hospitals. EPO plans typically do not provide any out-of-network coverage, except in emergencies. EPO plans are becoming more popular with health insurance shoppers, and health insurance companies are offering more of them as well. You’re generally not required to select a single primary care doctor with an EPO plan.

An EPO plan may be right for you if:

  • You don’t mind getting your care through a specific network of doctors and medical providers
  • You prefer not to coordinate your medical care through a primary care doctor

HSA

HSA plans are usually PPO plans with higher deductibles, designed especially for use with Health Savings Accounts (“HSAs”). Similar to a flexible spending account (FSA), an HSA is a special bank account that allows participants to save money pre-tax to be used specifically for medical expenses in the future. Unlike FSAs, the money in an HSA rolls over every year and can also earn interest. By pairing a qualifying high-deductible health plan with an HSA, participants can save money on health care and earn a tax write-off.

An HSA-eligible plan may be right for you if:

  • You would like to pay for health care expenses with pre-tax dollars (up to an annual limit)
  • You’re relatively young and healthy and don’t often visit the doctor
  • You prefer a cheaper monthly premium even if it means having a higher deductible in case of unexpected injury or illness

 

UNDERSTANDING TAX-ADVANTAGED SAVINGS ACCOUNTS  

Health Savings Account (HSA). A tax-advantaged savings account designed to be used in conjunction with certain high-deductible health insurance plans to pay for qualifying medical expenses. Contributions may be made to the account on a tax free basis up to an annual limit. Funds remain in the account from year to year and may be invested at the discretion of the individual owning the account. Interest or investment returns accrue tax-free. Penalties may apply when funds are withdrawn to pay for anything other than qualifying medical expenses.

Flexible Spending Account (FSA). Like an HSA, employees contribute pre-tax dollars for medical expenses to this account via payroll deductions. While an HSA can only be used with an HDHP, an FSA is compatible with any type of health plan. But unlike an HSA, any money over the maximum rollover amount left over in an FSA expires at the end of the year and reverts to the employer.

Health Reimbursement Arrangement (HRA).  Commonly referred to as a health reimbursement account, a HRA is an IRS-approved, employer-funded (usually), tax-advantaged employer health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums.

 

5 TERMS YOU NEED TO KNOW

Premium

Your premium is the amount you pay to the health insurance company each month to maintain your coverage. When trying to understand the cost of a health insurance plan, the premium is the first thing to consider. But make sure to balance it against other costs, such as co-payments, deductibles and coinsurance.

A good rule: Choose a lower premium/ higher deductible plan if you are relatively healthy and want to save money upfront. Choose a higher monthly premium/lower deductible plan if you want lower costs when you actually receive medical services.

Co-Payment

Your co-payment, or “co-pay,” is the specific dollar amount you may be required to pay up front for a specific type of medical service.

A good rule: If you make frequent doctor’s office visits, choose a plan with an affordable and consistent co-payment.

Deductible

Your annual deductible is the amount you may be required to pay out of pocket before the insurance company will begin paying for your covered medical claims. Keep in mind, your monthly premiums and copayments will often not count toward your deductible. Not all plans require a deductible, but choosing a plan with a higher deductible can keep your monthly premiums lower.   

A good rule: Keep your deductible to no more than 5% of your gross annual income if possible.

Maximum Out of Pocket Costs

Pay attention to this amount when considering a new health plan. Your maximum out-of pocket cost sets a limit to your annual financial liability. Once you have paid out of pocket (typically through deductibles, co-payments or coinsurance) to the “maximum” amount, the insurance company pays the full charges for any additional covered medical services rendered that year. Your monthly premium will not count toward your maximum out-of-pocket costs.

Coinsurance

Coinsurance is the amount that you may be obliged to pay for covered medical services after you’ve satisfied the deductible required by your health insurance plan. Think about it this way: the insurance company may limit coverage for certain services to, say, 80% of charges. So, for example, if your insurance benefits cover 80% of x-ray charges, you will need to pay the remaining 20%, even if your annual deductible is already met. That 20% is considered your coinsurance percent.