When you choose your employee benefits during open enrollment each year do you just guess or do you go in with a plan of action? I think that most people just guess. There are a lot of options, a lot of financial jargon, and very little education to help you make an informed choice.
In 2020 and 2019, I provided comprehensive guides to the employee benefits that may be available to you during open enrollment. (You can find 2020’s guide here if you’re interested, but keep in mind that rules, numbers, etc. may have changed since I wrote the article: Guide to Employee Benefits Open Enrollment 2020).
This year I’m not going to write a complete guide to employee benefits like I have done in the past, but I am going to write about one of the most common mistakes that I see people make when making their employee benefits elections.
Which Health Insurance Option Should You Choose?
When it comes to choosing a health insurance plan out of those provided to you through your employee benefits, I often see people choose the plan with the lowest deductible because they think that means that they will end up paying the least for health insurance costs throughout the year.
However, there is so much more that must be considered in order to get a ballpark estimate of what your health insurance costs under each plan might be for the year.
What Are The Costs of Health Insurance?
The most basic cost of a health insurance plan is the premium, or how much you must pay each month just to have the insurance in place. However, there will also be other costs in addition to the premium that you have to take into consideration.
In addition to the premium for health insurance, you will be responsible for paying a deductible. A deductible is the amount of money that you have to spend on health insurance costs (not including the premium) before insurance will begin paying.
Once the deductible has been met, you may be responsible for paying copayments or coinsurance, which are smaller payments that you may have to make each time you receive care after you have reached your deductible. You will continue paying copayments or coinsurance until you reach your plan’s out-of-pocket maximum.
An out-of-pocket maximum (OOP) is the most amount of money that you would have to spend on eligible health care costs in a year under a given health insurance plan. The amount of money that you spend on your deductible, copyments, and coinsurance all count towards the OOP max. Unfortunately, the OOP max does not include the amount that you pay towards premiums.
Should I Choose A High Deductible Health Insurance Plan?
As we see above, there are a lot of different things to take into consideration when choosing the right health insurance plan for you and your family for the upcoming year. Something that I often see is that people are scared to choose a High Deductible Health Insurance Plan (HDHP) because the deductible is larger than that of the other plans available.
However, taking this view means failing to consider all of the costs. I often find that HDHPs offered through employee benefits can actually be more cost effective than other plans. Yes, the deductible may be higher, but that means that the premiums will be lower. Also, I often find that the out-of-pocket maximum for a HDHP is very similar to the other plans offered by the employer.
I always wonder why people are so focused on the difference in the deductible and not focused on the difference in the premiums. One reason I think this happens is because the deductibles are stated as annual amounts and the premiums are stated as monthly amounts.
When looking at the difference in monthly premiums, it may not look like that much. But if you were to annualize the premiums, you may find that the difference in premiums between one plan and another decreases the significance of the difference in the deductibles.
Employer Health Savings Account (HSA) Contribution
One aspect that can often tip the scales in favor of the HDHP is when your employer makes a contribution to your Health Savings Account (HSA) for you. Since these funds are yours you could look at this as a reduction of the deductible (and OOP max).
Combining lower insurance premiums with an employer-provided contribution to your HSA and a deductible that is typically not that much higher than the other plans available means that the HDHP often becomes very attractive among the options.
Run The Numbers For Yourself
Of course, it’s important for you to run the numbers for your particular health insurance plan options and make the decision that makes sense for you and/or your family. Employee benefits can differ greatly from employer to employer and there’s no one-size-fits-all answer.
I’m just asking you to take a little longer look at the health insurance plans that are available to you this year. Take into consideration all of the aspects of the options, not just the deductible or the premiums. You may be surprised by what you find.
