Medical Plans: A guide for Employees
I can count on one hand the amount of times that I visited the doctor in my twenties. Routine check-up, health screenings, you name it, no more than five visits during that entire decade of my life. You could say that I was pretty irresponsible. And yes, I would agree. However, the little concern that I had for my health, wasn’t the only area of irresponsibility. You see, during a five year window from age 23-28, I was unknowingly enrolled in a PPO 300 health plan. In terms of cost, a low deductible PPO (Preferred Provider Organization) plan is certainly not one of the cheaper options. If I had been contributing to a HDHP (High Deductible Health Plan,) my take home pay would’ve been substantially higher. In total, I probably left around $12,000 on the table. Money that I’ll never see again.
In this post, we’ll simplify your employee health plan options. Whether this is your first time enrolling in your workplace health coverage, or you have extensive knowledge of the plans available, I’m positive that you’ll find value here.
Let’s start with the key terms that you should become well familiar with:
Deductible:
Your deductible is the amount that you’re responsible for paying, before the insurance plan starts to pay. For example, if your plan has a $1,500 deductible, and you accrue $10,000 worth of medical expenses during that plan year, the first $1,500 is fully your responsibility. The insurance plan will step in for the next $8,500 and share the cost by paying coinsurance.
Coinsurance:
Once you’ve reached the deductible amount for the plan year, the health care service begins to engage in shared costs, called coinsurance. Unlike the deductible being a fixed dollar amount, coinsurance is covered on a percentage basis. For example, your plan summary states that the heath care provider will pay 80% coinsurance.
You accrue: $10,000 Medical Expenses
Your plan enrollment: $1,500 Plan Deductible with 80% Coinsurance
You Pay:
$1,500 (deductible) + $1,700 (coinsurance) = $3,200
Insurance Pays:
$6,800 (coinsurance) = $6,800
$10,000 - $1,500 (Your deductible payment) = $8,500
$8,500 x 0.8 (Health Care Coinsurance) = $6,800
$8,500 x 0.2 (Your Coinsurance) = $1,700
Copay:
Your copay is the amount that you pay for different services. A majority of the time, it’s a fixed amount. Your plan will list the cost for services such as visits to urgent care, hospital emergency room, x-rays, prescription drugs, etc.
Maximum Out of Pocket:
Your maximum out of pocket cost is the most that you’ll pay for covered services in the plan year. Once you’ve satisfied your deductible, copay, and coinsurance for in-network care, your health plan will cover the remaining 100% of medical costs. If you see a $4,000 maximum out of pocket on your plan summary, you know that’s the maximum that you will be responsible for. Keep in mind, this doesn’t include out-of-network coverage. Plans will have a separate maximum out of pocket for that.
In-Network:
If your doctor, physician, hospital, or other health provider accepts your insurance plan, that means they are in-network. The costs in the in-network category of the plan summary will be your responsibility here. Before attending, be sure to check to make sure that they accept your coverage.
Out-of-Network:
Out-of-network means your doctor or specialist doesn’t directly contract with your health insurance plan provider. You still may be able to see them, but this will likely result in a higher cost. The cost in the out-of-network category of the plan summary will be your responsibility here. Some people love their out-of-network doctors because they provide a specialized service. Be sure to have a full understanding of the costs associated when using out-of-network care.
HMO:
HMO stands for health maintenance organization. An HMO has its own network for doctors, hospitals, and physicians. This type of plan doesn’t offer any out-of-network coverage, unless it’s for a serious emergency. HMO participants have the benefit of lower copays and coinsurance amounts, and the opportunity to contain costs all together. With an HMO, you will have a PCP (primary care physician,) which is a doctor that assumes the role as your “Quarterback.” They will have a full understanding of your health situation. As particular needs arise, they will assess and make introductions to specialists in-network. For example, if your ear is bothering you enough to seek medical help, the PCP will be the one that you visit with. They will determine if it needs greater care, in which they will introduce an ear-specialist. HMO’s are a great low cost option to have, you just need to be aware of the limitations of plan coverage.
PPO:
PPO stands for preferred provider organization. This is a very flexible option, as it allows you to receive both in-network and out-of-network coverage. Whether you’re at home or on vacation, you’ll be able to see most doctors. Unlike an HMO, you aren’t required to see a PCP for referrals either. If you like a doctor, you have the freedom to continue receiving treatment from them. Given this flexibility, the PPO plans are typically more expensive plans to have.
POS:
POS stands for point of service. These plans are a hybrid of an HMO and PPO. Just like an HMO, the POS plans have an in-network PCP. They differ from an HMO, in the sense that POS plans offer out-of-network coverage, similar to a PPO. These plans aren’t as common as the HMO, PPO, and HDHP’s, but you may see them offered through your employer.
HDHP:
HDHP stands for high deductible health plan. As the name states, the deductibles here are higher. Similar to PPO’s, there’s more flexibility here with out-of-network coverage. The main difference is that the copays, coinsurance, and deductibles are all higher. As a result, HDHP’s are a great lower cost solution for younger, healthier individuals that don’t plan on using their health coverage unless for serious emergencies.
HDHP’s also offer an HSA (Health Savings Account,) which can cover qualified medical expenses (deductibles, copays, coinsurance) on a pre-tax basis. There’s also a full HSA marketplace with all sorts of products that can support a healthy lifestyle.
Open Enrollment:
Now that you understand more about how the plans are structured, it’s time to pick the one that makes the most sense for your situation. The open enrollment period is the one time of the year that you’re able to make changes to your current health plan elections. Most companies set their open enrollment period to anywhere between two to four weeks. Be sure to check with your employer, to see how long your open enrollment period is.
Things to consider during Open Enrollment:
Savings Goals:
Your health coverage is funded by pre-tax salary deductions, that are deducted every pay period. When mapping out your salary and savings goals, be sure to factor your medical plan costs on an annual basis. Looking at this annually, will give you an idea of your yearly spend on health coverage, and the total difference in cost between plans.
For example: You’re paid bi-weekly, which is 26 times per year. A $25 difference in a plan cost per-pay-period may not seem like a lot, but it ends up being a $650 difference annually.
Your Healthcare Usage:
How often do you visit your doctors and physicians? Do you know the information on your health card? Could you recite your ID number or GRP number without looking? Ask yourself these questions. If you’re one of the ‘lighter than average’ healthcare users, I’d suggest looking at a lower cost plan, like a HDHP.
Upcoming procedures is something else to consider. Maybe this is your first time having work done that you know might be costly. Possibly other doctors’ visits as well. In that case, you should enroll in a richer plan that has lower deductibles and traditional copays. Your take home pay will be less, but it will save you a lot more in medical costs.
HSA:
HDHP plans are compatible with an HSA (Health Savings Account,) which is a great luxury to have. Although these high deductible health plans do indeed have a high deductible, enrollment in them equates to higher take home pay. HSA’s are funded in pre-tax dollars, which helps. Also, In most circumstances, employers will make bonus contributions to their employees HSA. Free money to spend on qualified health care expenses isn’t shabby.
Spouses or Partners:
If your spouse or partner is also part of a company that offers health coverage, take time to learn about their options. Compare all of the plans offered, as well as their price points. Take a look at how they’re priced at all coverage levels: ‘Employee Only,’ ‘Employee+Spouse,’ ‘Employee+Child(ren),’ and ‘Family.’ You may see major discrepancies, as companies have different strategies with how they fund their employee benefits. Some may fund 80% of the employee only cost, and drop their funding percentage much lower for all additional dependents. Others may keep the funding percentage uniform across all coverage levels.
Every year, my wife and I sit down and evaluate for that reason. We’ve experienced it all. One year we were fully covered under my health plan. The next year we switched over to hers. The following year, we found it to be more beneficial for each of us to be on our own separate company plans. And then we had a son, so we decided to go on my plan’s coverage at the ‘Family’ level. Then the next year, she went back on hers and I stayed on mine with my son at the ‘Employee+Child’ level. Lots and lots of movement every year during open enrollment.
TLDR? Here are the best plans to select for different scenarios:
HMO
Someone that wants to contain their health plan costs and is fine with having medical support all in one network
HDHP
A young, healthy individual that doesn’t plan on using their health coverage very often, unless it’s for an emergency. Their main goal is to save money
PPO
Either an individual or someone with dependents, that already knows that they are going to take full advantage of their health coverage. It’s likely that their medical expenses for the year will add up
If you’d like to know more, please reach out to us at Luminescent Benefits. Learn how our free high-touch business consulting service will tailor the perfect fit! www.goluminescent.com or call us at 713-444-3242
