It’s that time of the year again when your choice of health care insurance plans comes to the fore – Open Enrollment (OE). During OE you can change your health care coverage and flexible spending allowances for the year ahead without penalty or a qualifying “life-event”. With health insurance premiums on the rise (8% this year), it is even more important to spend the time to understand the options available to you in order to maximize your health coverage for the lowest possible price. While every company has its own plans, most are with the major providers like Aetna, Kaiser Permanente or Blue Cross-Blue Shield to name a few. If you are not covered under an employer sponsored plan, looking for a new plan or if you just want to do more research check out this leading insurance comparison site
Before embarking on reviewing health plans it is important to understand the terminology used. So here are the key terms, costs and principles you must know when it comes to health planning and choosing the right option.
Contributions: This is your health insurance premium/payment deducted from your pay check on a pre-tax basis each pay period. Depending on your plan, you may have separate contribution amounts for medical, dental and vision coverage.
Co-payments (Copays): A flat dollar amount you pay at the time of a doctor’s visit or the amount you will pay for prescription drugs at the pharmacy. Generally the more expensive the health care plan (i.e. the more you contribute) the lower your copay. For example, if you have a $15 copay, this is the amount you will pay for a doctor’s visit no matter the other charges. To see specialists the copay is generally higher.
Deductible: The amount you pay before benefits kick in. Normally deductible applies only to hospital visits or surgical procedures. Whereas Copay is for Doctor’s visits and prescription drugs. A $500 deductible means that you must be billed more than $500, before your insurance picks up additional costs
Coinsurance: The amount you pay for certain coverages is a percentage of the cost versus a flat dollar amount. In other words this is the percentage of the bill you will pay after the deductible. An 80% coinsurance means you pay for 20% of costs (after the deductible). So for a $1000 hospital bill, you would owe $600 made up for $500 (deductible) + $100 (Co-insurance).
HMO vs PPO vs HDHP: There are different types of health plan types but the most common are HMO (health-maintenance organizations) and PPO (preferred-provider organizations). HMOs are the least expensive but also the least flexible. They require that you select a primary-care physician. and you must obtain pre-authorizations and referrals in order to see specialists. PPOs give policyholders a financial incentive – in the form of reasonable co-payments – to stay within the group’s network of practitioners, although you can usually visit out-of-network specialists without pre-approval. Put simply, a PPO gives you more choice and greater flexibility for a higher cost. You need to decide if this flexibility is worth the cost. If you are new to an area or are looking to change your doctor then a PPO plan is the way to go. High deductible health insurance plans (HDHP) with HSA accounts allow an account holder to deposit and invest funds that can be withdrawn and used for any number of different qualified health care related expenses. They generally have lower premiums, but higher deductibles until certain limits are reached. Then they work like PPO plan
Flexible spending accounts (FSA): are a benefit plan that allows companies to give their workers the opportunity to pay for their out-of-pocket health and dependent care costs on a pre-tax basis, which – over time – lowers payroll-related taxes for both the employer and employees. You can deposit pretax money – typically $2,500 to $5,000 for health-care FSAs, $5,000 for dependent-care accounts – to pay for out-of-pocket expenses in these areas. If you’re in the 28% tax bracket, contributing $3,000 saves you more than $1,070 in federal and other taxes. However, if you don’t use the money you’ve set aside by the end of the year (or March 15, depending on the plan), you lose it. So look back at what you spent in 2008 to determine your contribution for the year ahead. Add 20% to all your estimates.
Out-of-pocket maximum: Know what the maximum amount you could be hit for in a single year. Ideally you would want your emergency fund to be able to cover this amount.
10 Tips for Choosing the Right Plan
1. Lower Contributions/Higher Co-pay and Deductible : Trying to find the most cost effective mix of contributions you pay versus the potential cost when you go to the doctor or hospital is the key decision you will have to make. This is where your and family health history, future expectations (e.g. new baby) and current health needs come into play. Most of us would like to choose the cheapest option (average family cost $3000 a year) so as to minimize our contributions throughout the year, particularly if you have hardly used a number of your coverage options. However, my advice from personal experience is to err on the side of caution. If you are new to corporate health plans or have a variable family health history, it is better to take a more expensive/higher coverage plan because if you end up in hospital the out of pocket deductible and coinsurance could cost you much more than what you would pay in additional contributions.
2. Read the Health Care Plans/Brochures your company sends out. Many of us glaze over or ignore the annual open enrollment brochures and end up waiting to the last day to confirm our plan. In most cases no action will mean your current plan will continue, at the increased premiums of course. However, apart from higher premiums, there are always other changes in your coverage which may have adverse impact on you. You may also be able to save money by moving to a lower cost plan if coverage options change in your favor (like preventive treatments which a number of plans are now covering at 100%). So take the time to read the materials sent out to you ahead to time and don’t scramble to determine the best options for you and your family at the last minute.
3. Young Children = More Doctor/ER visits: If you have young children go for a plan that gives you more coverage because statistics show you are likely to have many more doctor and hospital visits. In the unfortunate event that you are in hospital with a young child the last thing you want to worry about is health insurance and potential costs to you. The costs of going more than twice to the ER in a year will most likely eat up any contribution savings a cheaper plan could have provided.
4. Shop Around and Research: Like this post there are a number of useful resources available on the web when it comes to choosing the right health plan. You can find spreadsheets, advice and even scenario calculators to help you make your decision. Just let your fingers do the walking.
5. Flexible Spending Accounts: A must have and if you plan well and spend the budgeted amount you can get some serious tax savings. Most are now automated so no paperwork or manual submissions to deal with. Just remember to spend the allotted amount before the end of the year or cut off date. I had about $100 last year left in my account and used it to buy $100 worth of medicines that I knew I would use during the year (cough/cold, anti-allergies etc). So you can always find a way to spend the amount.
6. Knowing your company contribution to your health insurance premium and CORBA: Most company health plans subsidize employee health insurance premiums, which makes them affordable for most workers. For my company the ratio is 75/25, where the company pays 75% and I pay 25%. If you ever lose your job, you are eligible to be covered by CORBA, but means that you will most likely be paying 100% of the insurance premium. So understanding the company subsidy percentage (75%) is important to understand the full cost you could be paying should you lose your job.
7. Don’t buy too much insurance: Most company sponsored plans offer some level of free Life Insurance and Accidental Death & Personal Loss Insurance. These are normally expressed a multiple of your salary. If you are young and healthy or have no dependents then in most cases the free insurance could be sufficient to meet your needs. Conversely, if you have health problems, lots of dependents or have had complications in the year past it may be a good idea to get the maximum life and accident insurance you can get at the discounted company plan rates.
8. Keep Receipts: I learned this the hard way. My wife had a flexible spending account through her job and when she had a health credit card that she could use which directly billed the FSA. However, she never bothered to keep the receipts assuming that the card would keep a track of the purchase. It did, but the company still required receipts and at year end when we were sent an audit letter for 5 items, we had no receipt so ended up having to pay for them. Total cost = $200. Also, keeping track of your expenses is a good way to predict future costs and can allow you select a realistic FSA budget for the year ahead.
9. Fill out the health-risk questionnaire: This year most mid to large companies will ask employees to fill out a survey or questionnaire covering stuff like weight, cholesterol, exercise patterns and family history. Generally the forms are used to determine what wellness programs might help you. However most have an added benefit like discounted premiums or a cash reward just for completing the form. When this “free money” is on offer take it. It is unlikely these surveys will have any impact on your premium.
10. Know your doctor’s participation status: For those who have a choice of health plans, the most important factors are price and whether the family’s doctors participate in the plan’s network. So before changing or choosing a new plan make sure the doctor(s) you like participate in the selected plan to ensure your visits to them are covered.
The more informed you are about your coverage options and their costs, the more equipped you will be to make the best choices for you and your family for the coming year.