October just started, and that usually means open enrollment at work! This is the time of the year where employees are providing a ton of information for employees to dig through as they decide what type of insurance coverage they need for the upcoming year. The CGS Team knows it can be overwhelming to read through all those plans and try to understand it, so we’ve created an easy-to-understand guide to help you decipher your health benefits. The right plan partnered with the right benefit may save you some major cash!
Before we talk about some of the benefits that come with each plan, it’s important to understand what each plan means and how it can affect you.
HMOs (Health Maintenance Organizations) – You have a primary care physician who recommends you to “in-network” specialists for any matter they cannot handle. HMOs typically have lower out-of-pocket expenses and don’t require claim forms. However, if you see an “out-of-network” doctor or specialist, you may be paying out of pocket.
PPOs (Preferred Provider Organizations) – Similar to HMOs, you use doctors who are in-network. However, you can see doctors who are out-of-network and still potentially be reimbursed for the visit. HMOs and PPOs are usually more costly than HDHPs.
HDHPs (High Deductible Health Plans) – As the name suggests HDHPs have high deductibles. This means that you front money out of your own pocket until you reach your deductible limit. Once the limit is reached, your insurance provider kicks in and starts paying. HDHPs are used in conjunction with HSAs. These plans are usually the least expensive but can add up until your deductible is met. If you’re extremely healthy or extremely sick, this is the best bet from a financial standpoint.
An HSA is a Health Savings Account. HSAs allow you to save for medical expenses while reducing your taxable income. Since HDHPs have high deductibles that must be reached before insurance kicks in, HSAs allow you to contribute pre-tax dollars each paycheck to an account (that comes with a debit card).
You can use that debit card to pay for co-pays, prescriptions, and other medical expenses throughout the year. Most companies offer the HSA and contribute to them (average company contribution is $600). If your company does not offer any HSA plans, most financial institutions do. It’s important to note that HSA balances roll over each year (unlike FSAs). HSAs can also be invested in mutual funds.
An FSA is a Flexible Spending Account. FSAs function similar to HSAs in that you can contribute pre-tax income to help pay for a wide range of medical expenses. FSAs are offered with any health insurance plan, unlike HSAs which are only available with HDHPs. One important difference of an FSA compared to an HSA is that any contribution made to an FSA that isn’t used by the end of the year will be lost.
Most companies offer a grace period or carry over option, but it is not a guarantee. HSAs are useful because they help cover costs that High Deductible Plans don’t cover. FSAs may not be the best option if you’re healthy. If you are contributing more to your FSA than your annual medical expenses, you will lose money.
An HRA is a Health Reimbursement Arrangement. An HRA is an IRS-approved, employer-funded, tax-advantaged health benefit plan that reimburses employees for out-of-pocket medical expenses and insurance premiums. HRAs are only available if your company offers them. If your company does offer them, they will usually set it up regardless if you specify you want it. Be sure to confirm if your employer does offer an HRA, as this could change your mind about opening and contributing to an FSA.
To help reduce your annual insurance premium, most companies offer health-risk assessments, weight-loss programs, or other wellness activities for employees to participate in. According to the Kaiser Family Foundation, more than three in 10 companies offer these incentives to employees.
Simply filling out a health-risk questionnaire can average savings of $135 on your annual premium. Bank of America offers a $500 annual premium discount for employees who participate in a round of wellness activities that include getting an annual physical. There are timeframes for employees to complete these incentives to get the savings. Reach out to your HR representative to see what incentives your company may offer.
It can pay to be knowledgeable (literally) about the health benefits and health insurance plans available to you. We hope this guide gave you an overview of the most important aspects of the most common benefits so that you can make the best financial move! Do you have any tips or experiences to share when it comes to picking out health benefits? What benefits does your employer offer? Leave a comment below to share your thoughts!