How Do I Choose a Health Insurance Plan During Open Enrollment?

Open enrollment is just around the corner for many of our clients, so we’re gearing up to help them choose their company benefits. This is one of the ways we save our clients the most money: by revamping their company benefits. Maybe you chose your company benefits a few years ago and haven’t looked at them since. Well, I highly encourage you to pull out that giant booklet and start reading.

Warning: this post could save you thousands of dollars. Why? Because many of these benefits are paid for using pre-tax dollars. That means the more you can pay using pre-tax dollars, the lower your tax bracket and the more money you’ll save. 

Also, choosing benefits can be downright confusing! For example, selecting the health coverage with the lowest premium might seem like getting a good deal, but that might not be true. Just like choosing a plan with the lowest deductible but high premium costs. So what do you do?

October and November are open enrollment months for many companies. This is often the only time you can change your company benefit elections during the year without qualifying events (getting married, having a baby, a spouse losing a job, or divorce). Here is a guide to understanding what type of benefits your company may have to offer.

Insurance Terms Glossary

The insurance industry is chock-full of jargon, making it difficult to decipher the right policies for you and your family. To help clear the air and avoid confusion, we’ve identified a few of the most common terms you’ll encounter when comparing and reviewing health insurance plans.

Premiums: Premiums are those pesky payments you (and possibly your employer) pay to maintain your health insurance policy. They’re typically paid monthly, quarterly, or annually. If your health insurance plan is offered through your or your spouse’s employer, they will cover a portion of the premium to reduce out-of-pocket costs.

Copay: When you visit a doctor’s office or pick up a prescription, the copay is the set dollar amount you’re responsible for paying at the time of the visit. 

Deductibles: You are responsible for covering all costs until you spend up to your annual deductible. Once you’ve spent that amount, your insurance provider will begin to pay. In most cases, if you visit a healthcare provider within your insurance’s network, you will pay a discounted price negotiated by your insurer. Deductibles reset every year or when you enroll in a new plan.

Coinsurance: After meeting your deductible, you and your insurer will share the covered services and prescription costs. Coinsurance is the percentage of the costs you’ll be responsible for. 20% coinsurance, for example, means your provider covers 80% of the costs, and you’re responsible for the remaining 20%. 

Out-of-Pocket Maximum: Your out-of-pocket maximum will be the most you spend per year on healthcare costs, including deductibles, copays, and coinsurance. Once you hit that maximum, your insurer will cover 100% of the costs for the rest of the year (as long as the services are covered under your plan). Remember that your monthly premiums do not count toward your out-of-pocket maximum.

Lifetime Limit: There is a cap on the benefits you can receive from your health insurance plan, called your lifetime limit. The limit excludes essential benefits (such as emergency services), but the plan will no longer cover costs if reached. Before worrying about the lifetime limit, remember that it’s usually pretty high—around $1 million. Insurers may also limit certain benefits, such as only receiving one specific service per lifetime.

Exclusions: Your health insurance policy will likely include exclusions, specific treatments, conditions, or circumstances that your policy will not cover. A typical example of an exclusion is dental care, which many companies will then offer as an add-on to the policy for an additional cost. Cosmetic surgeries are a common type of exclusion because they are not deemed medically necessary. 

Network: Your health insurer has negotiated with healthcare providers (doctors, hospitals, specialists, therapists, etc.) and contracts with them to deliver care to the insurer’s policyholders. When you seek care in-network, you will typically receive a discount and have certain costs covered by your insurer. If you seek care outside of your network, your insurer will not have negotiated any discounts, and services may not be covered. 

HEALTH INSURANCE OPTIONS

HDHP + HSA – High-Deductible Health Plan with a Health Savings Account

• For a plan to qualify, it must have a minimum deductible of $1,500 for an individual or $3,000 for a family for 2023. This increases to $1,600 for an individual and $3,200 for a family for 2024. In exchange, these plans usually have very low monthly premiums. You must hit the deductible before the plan will pay for covered expenses.
• These are the only plans that allow a person (or family) to contribute to a Health Savings Account (HSA). Because the monthly premiums are so low, some companies will contribute a specific amount to your HSA each year or offer health incentives for completing various health and wellness tasks that can be deposited into your HSA account.
• The maximum contribution for 2023 is $3,850 for an individual or $7,750 for a family. This includes any company contributions. These limits increase to $4,150 for individuals and $8,300 for a family in 2024.
• An HSA can cover most medical, dental, and vision costs. Learn more about eligible and ineligible expenses for HSA funds here.
• You will receive a debit card for your HSA account to pay for eligible health expenses. This makes it extremely easy to access the money in your HSA when picking up your prescriptions at the pharmacy or paying your therapist.
• Contributing to an HSA gives you a triple tax benefit. Funds contributed to your company HSA are contributed before tax, grow tax-free, and, when taken out to pay for qualified medical expenses, are income tax-free! In addition, unused funds get rolled over each year. Many people don’t know you can invest money in your HSA. Even if you leave your employer, you can take the HSA with you!
• I typically recommend HDHP/HSA policies for those who are young, relatively healthy and don’t anticipate many health expenses for the year.

Note: Employers incentivize their staff to sign up for the HDHP by contributing to their HSA by contributing to their HSA. This could be a great benefit and should be factored in when deciding what plan to enroll.

PPO – Preferred Provider Organization

• A type of health plan that contracts with hospitals and doctors to create a network of participating providers. You pay less if you use providers within the plan’s network. You can use providers out of the network for an additional cost.
• Usually, it has higher premiums but lower deductibles. Again, you must hit the deductible before the plan pays for covered expenses, but because the deductibles are much lower, you will likely satisfy this requirement much quicker.
• This type of plan may make more sense if you go to the doctor regularly and expect a lot of medical expenses in the upcoming year (for example, if you are expecting a baby. However, double-check your out-of-pocket max for this plan versus the HDHP because I’ve found that it might be more affordable to have a baby under an HDHP in some cases).

HMO – Health Maintenance Organization

• A group of doctors and hospitals that provide healthcare services for a copay rather than deductibles and coinsurance.
• HMOs typically only cover in-network services and will not pay for services provided by out-of-network providers.
• If you are enrolled in an HMO and are happy with your providers and the plan has competitive premiums, it may not be worth switching. Remember that the plan will not cover out-of-network visits, so if you are traveling away from your HMO and need to be seen for anything other than an emergency, you may be paying out of pocket.

FSA – Flexible Spending Account

• This is another way to save pre-tax dollars for medical expenses. The maximum contribution is $3,050 in 2023. This increases to $3,200 in 2024.
• Do your best to estimate how much you typically spend on medical expenses each year to budget how much to contribute to this account. You don’t want to overfund because only $610 (for 2023)  from this account can roll over from year to year, and it does not move with you if you change employers. (This also increases to $640 in 2024).
• You will generally use this type of account with a PPO or HMO, whereas an HDHP would be combined with an HSA.
• There is no need to have both an HSA and an FSA. If you qualify, you should elect to contribute to an HSA. The rollover provision makes the HSA more beneficial than the FSA. (You technically can have both if you use the FSA only for dental and vision costs, but I’ve found that it adds unnecessary complexity.)

Limited Use FSA

• These allow employees to set aside pre-tax dollars to cover specific qualified healthcare expenses. They are typically used with an HSA and offered to employees with an HDHP. This is important because the IRS typically doesn’t allow someone to have both an HSA and FSA, but you can have an HSA and a Limited Use FSA if your employer allows it.
• Limited Use FSAs are designed to cover specific dental and vision expenses. This could include dental check-ups, orthodontic work, eye exams, eyeglasses, contracts, or prescription sunglasses. 
• Like regular FSAs, they are subject to the “use it or lose it” rule. 
• The 2023 contribution limit is $3,050, increasing to $3,200 for 2024.

Dependent Care FSA

• This benefit lets you contribute pre-tax for childcare expenses. The maximum for 2023 and 2024 is $5,000 per family or $2,500 if married and filing separately. This means you’ll pay for the first $5,000 of daycare costs using pre-tax dollars.
• You can also use this money for summer day camps or before/after school programs, so be sure to see if the program you’re considering accepts funds from a Dependent Care FSA.

**When choosing a health insurance plan, look at the out-of-pocket maximums. This is especially important if you expect a lot of medical expenses for the year. 

In choosing a plan, it’s important to note: 

• For people with recurring medical expenses (prescriptions, weekly therapy sessions, physical therapy, etc.) Call your providers and ask if they take the different insurance options and the costs associated with different plans. Make sure you factor in these costs when choosing a plan. 
• If you anticipate a significant life change, like a new baby, this is another significant time to review your medical insurance. You can get estimates for the cost of a birth by various plan options. 
• For couples, it’s imperative to review both spouses’ insurance plan options annually. For example, it might be more beneficial for each spouse to be on a separate plan. In other instances, you may want to have the kids on a family plan with dad but mom on her plan through her employer or vice versa (especially if either or both employers will make an HSA contribution).

If you’re feeling overwhelmed by your options, that’s okay! Choosing a health insurance policy is no easy feat, but you don’t have to go it alone. Medical costs, premiums, and deductibles can impact your greater financial plan, meaning reviewing them from a big-picture perspective is essential.