It's open enrollment season at many companies. If you're lucky enough to work for a company that lets workers choose from a menu of health care plans, review your options carefully. Though it's easy to stick with what you're familiar with, a lot is at stake, both financially and in terms of the quality of health care services you and your family members may receive.
The first step before diving into the open enrollment materials provided by your employer is to brush up on your health plan jargon. Don't necessarily assume you know what the following words mean:
Deductible. The term "deductible" is generally understood. But some plans may have several deductibles, or varying rules that apply to the basic deductible.
An annual deductible is normally straightforward — after you've paid that amount for health services, the plan picks up the rest. But, you might face different deductibles for in- and out-of-network services. If you're considering a PPO plan that takes that approach and you're comparing the cost of that plan to another, keep any varying deductible formulas in mind.
Also, if you're getting family coverage, determine whether you'll face a separate deductible for each family member. Alternatively, some plans combine the amounts paid for all family members for purposes of calculating the annual deductible.
Co-payment. This is the amount you pay for each health care visit or prescription. Some co-pay formulas are a flat amount. Others vary typically based on a percentage of the cost of the medical service or prescription drug.
Co-insurance. This refers to your share of the overall cost of your health coverage. A recent Kaiser Family Foundation survey puts the average employee co-insurance amount at:
Those averages vary by plan type and other variables. For example, in the Kaiser survey, those percentages were 19% and 31%, respectively, for PPO plans, and only 16% and 26%, respectively, for high deductible health plans with a savings option (HDHP/SO).
Are you better off with an HDHP/SO? That's where number crunching and educated guessing come in. The answer typically comes down to whether you incur medical services equal to or exceeding the annual deductible for the HDHP/SO plan.
It's also important to identify overlooked opportunities from previous years and new plan features that could save you money, time and effort. For example, many employers will give you financial incentives to undergo biometric screening and participate in some health promotion programs.
Another potential savings opportunity, if you use a PPO plan, is to choose a narrow network of health care providers. Narrow networks have fewer provider options, but can be less expensive (and thus encouraged by your employer) because providers in that network expect to get a higher volume of patients.
Also, narrow networks are often designed around physicians and health systems that have the best track record for health outcomes. That's a money-saver in the long run — and it's potentially better for your health. But it might require you to change doctors, so only you can decide if it's worth changing.
If you're considering an HDHP/SO, don't neglect to take advantage of the savings opportunity, which is generally a Health Savings Account (HSA). Employers may contribute to your HSA, which puts a dent in the high deductible. Some plans operate like a 401(k) in which your savings are matched, up to a limit, by your employer.
For 2020, the maximum that can be contributed to an HSA (the sum of your and any employer contributions) is $3,550 for individual coverage, and $7,100 for family coverage. That money can stay in your account for as long as you like, including into your retirement.
Putting money in an HSA provides tax benefits. If you simply pay for medical expenses out of pocket, they're not tax deductible unless you itemize deductions for the tax year and only to the extent that your medical expenses exceed 10% of adjusted gross income (AGI) for 2019 (up from 7.5% of AGI for 2018). You must incur significant medical expenses to exceed this threshold. Plus, given the more generous standard deduction under current tax law, fewer taxpayers are itemizing expenses these days.
Conversely, the write-off for HSA contributions is an "above-the-line" deduction. That means you can claim it even if you don't itemize.
HSA distributions that are used to pay qualified medical expenses of the HSA owner, spouse and dependents are federal-income-tax-free. And you can build up a balance in the account if contributions plus earnings exceed withdrawals for medical expenses. Any earnings are free from federal income tax unless you withdraw them for something other than qualified medical expenses.
So, if you're in very good health and take minimal or no distributions, you can use an HSA to build up a substantial medical expense reserve over the years, while earning tax-free income along the way. Unlike Flexible Spending Accounts (FSAs), undistributed balances in HSAs are not forfeited at year end. They can accumulate in value, year after year. Thus, an HSA can function like an IRA if you stay healthy.
Some trendy health plan benefits to look for during open enrollment include:
"Virtual" primary care services. These are communication systems beyond basic "telemedicine" video hook-ups. They include technology that gives doctors more data to review, enabling you or a family member to receive a diagnosis and recommended remedy, plus where applicable a prescription transmitted directly to your pharmacy.
Health care apps. A subset of virtual care involves apps for smartphones. They're increasingly being used for mental and emotional health, fitness, medical decision support and diabetes management.
Accountable Care Organizations (ACOs). Similar to PPOs, these provider groups share some of the financial risk of providing care with payers (you and your employer). Their care delivery system and reimbursement arrangements reward efficient care.
Concierge services. Such programs assist you with navigating the health care system to help you get appropriate services, and resolve issues over billing, denied claims and related matters.
If your head is spinning from all the options, take a deep breath, but persevere until you've made an informed decision. If you have questions, reach out to your financial and HR advisors for more information.
Get in touch today and find out how we can help you meet your objectives.
