We are entering the open enrollment season – the annual period when you have the opportunity to make changes to your employee benefits package. If you are like most employees in the United States, open enrollment may be the only opportunity you will have during the entire year to change your health care benefits.
Health insurance can seem complicated because there are many moving parts. It is helpful to understand the different terms and acronyms you are likely to encounter while reviewing your options. Here are some of the most common.
Any form of insurance coverage includes a premium, which is basically the amount you and your employer pay your insurance company each month for your health insurance. Most employer-based health insurance today requires that you pay a portion of the monthly premium for coverage. Generally, the payments you have to make are deducted from each paycheck.
Many insurance plans include a discount. In the case of health insurance, this is the total amount you have to pay (usually in a given year) before your health insurance bears the costs. For example, a plan with a $1,000 deductible might require that you pay all bills up to $1,000 out of pocket before insurance coverage begins.
This is a fixed amount that you pay each time you use a medical service. For example, a visit to each doctor may require $20. If your insurance plan includes co-contributions, this amount is required even if you meet your deductible for the year.
HMOs and PPOs
These are two different types of health insurance coverage. HMOs are health maintenance organizations, which are often available for lower monthly premiums but come with some restrictions. For example, most of them require coordinating all of your healthcare needs through your primary care physician. With HMOs, you’re also usually limited to services from a specific network of plan providers. PPOs are preferred provider organizations, which tend to command higher premiums than HMOs. With PPOs, referrals from your primary doctor are usually not required and you generally have more flexibility in choosing providers.
Health Savings Accounts (HSAs)
Some health insurance plans come with an HSA feature. This allows you to set aside money on a pre-tax basis to pay for eligible medical expenses. You can use a savings account to cover deductibles, joint costs, and other out-of-pocket medical costs. By using pre-tax dollars, the net cost you incur for these services is reduced. HSAs also automatically pass on any unused money each year for future use, even years from now when you retire.
High Deductible Health Plan (HDHP)
These plans are offered alongside the HSA. HDHPs are often available for a lower monthly premium, but, as the name suggests, require that you carry a higher discount. A large part or all of the deducted amount can come from the funds you have allocated into the HSA account. If you anticipate few major health care needs, HDHP programs can be a reasonable option to reduce your premium costs.
Flexible Spending Accounts (FSAs)
This benefits option allows you to pay many medical expenses out of pocket with tax-free dollars. You can set aside funds in the Financial Services Authority (FSA) with each paycheck on a tax basis. The money accrued can be used to cover participation costs, deductibles, qualifying medications, and some other medical expenses. Most of the money must be used before the year is over, but your employer may allow you to carry it over for a short period to the next year or include a clause allowing you to spend up to $500 in FSA savings for the year in the following year. Be sure to ask your benefits provider if you have questions about the details of your plan.
Making the right choices for your circumstances can result in better coverage than you have today and potentially save you hundreds or even thousands of dollars annually. It is a good idea to review your options carefully and choose the plan that best suits your needs.
Bronwyn L Martin is a certified financial advisor and financial advisor with Martin’s Financial Consulting Group, a financial wealth advisory practice for Ameriprise Financial Services LLC. Based in Kennett Square and Havre de Graces, Maryland, she specializes in fee-based financial planning and asset management strategies and has been in practice for over 22 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.