Health insurance plans remain the foundation of employee benefit packages. That's unlikely to change as health care ranks in the top five highest annual expenditures among U.S. households.1 But are employees taking their health plan choice too lightly?
Studies show that the majority of employees (93 percent) just go on auto-pilot, choosing the same benefits year after year.2 The potential for being over or under-insured goes up exponentially when this is the case, which isn't favorable for the employer or the employee. The challenge lies in educating employees on what the differences are between each plan. And if you're relying on textbook jargon, it's unlikely someone will take the time to even attempt to understand the complex language you've put in front of them during open enrollment.
Instead, consider putting the health plans in the context of why it could be a good fit and what factors to consider. Here are some examples of how this might look for the most common types of health plans: PPO, HDHP and HMO.
1. PPO (Preferred Provider Organization)
With a PPO, the amount that comes out of your paycheck each month (known as the "premium") will be higher than if you choose an HDHP, but you likely won't have to pay as much out of pocket when you visit the doctor or pay for your prescriptions - that is if you choose a preferred provider, which is defined as an "in-network" provider. You'll only be responsible for paying a set amount known as a co-pay, typically ranging from $15 to $25 for a routine doctor visit, as an example.
If you see a doctor on a regular basis or take prescription medicines, you should consider whether the monthly premium plus the co-pay you'll be asked to pay at the doctor or pharmacy are more manageable than paying a lump sum towards the deductible you would have with an HDHP. Also, you should consider whether the total amount of estimated expenses for office visits and prescriptions will exceed the out-of-pocket maximum amount that is set for the plan.
Example: If your out-of-pocket maximum is $1,000, and the total amount you'd pay for expected office visits and prescriptions is higher, you'll only be responsible for that $1,000. Anything after that will be covered by the insurance company.
A PPO can also be coupled with a Flexible Savings Account (FSA). You set the amount you want to contribute each paycheck pre-tax according to IRS guidelines (maximum of $2,700 per year for single coverage in 2019), and you can use the funds in your account to pay for qualified medical expenses like office visits and prescriptions. Any leftover funds in the account at the end of the year will be lost, so make sure to use your calculation on estimated expenses above as a guide to set your contributions.
2. HDHP (High-Deductible Health Plan)
The definition of the high-deductible health plan (HDHP) is in the name. You'll be expected to pay a higher deductible than you would with a PPO or HMO, but the amount that comes out of your paycheck each month is generally much lower. That means your doctor visits and prescription drugs will be higher than the co-pay you would have with a PPO until you meet that deductible. After you meet that deductible, you'll be responsible for a much smaller portion of the total payment or nothing at all if your deductible is equal to your out-of-pocket maximum.
Although having a smaller amount cut from your paycheck each month is tempting, it's important to consider if you can afford to pay that full deductible amount in the event of a high-cost medical bill. Or, similar to the PPO, if you're expecting to have a high-cost medical event that will exceed the deductible, it could be more affordable in the long run depending on the out-pocket maximum.
Example: You've been told that back surgery is likely in your near future and that estimated cost is $6,000. The HDHP has a deductible of $5,000, which is equal to the out-of-pocket maximum. That means you would only pay the $5,000 deductible.
An HDHP can be coupled with a health savings account (HSA). Similar to an FSA, you set the amount you want to contribute each paycheck pre-tax according to IRS guidelines ($3,500 per year for single coverage in 2019). What's different about the HSA is that your funds don't expire like they do with an FSA. You can build up the funds year after year if you remain in an HDHP and continue to use them for qualified medical expenses.
3. HMO (Health Maintenance Organization)
With an HMO, you're required to have an "in-network" primary care provider to coordinate all non-emergency medical treatment. That primary care provider serves as the starting point for all care. If you need to see a specialist or a specific lab test, a referral from your primary care provider is required for insurance to cover that treatment. Typically, you'll be responsible for 100 percent of payment for any non-emergency health care outside of the HMO network. The premiums and co-pays are usually lower than that of a PPO and there is no deductible with an HMO.
Example: You want to have a skin cancer screening after you notice a spot on your arm. You will have to obtain a referral from your primary care provider to see a dermatologist, which must be in the same network for insurance to cover the screening. This would be in the case of a non-emergency medical event. In medical emergencies like breaking an arm or burning a hand, you will not be required to use the primary care provider to get treatment covered.
So if you have an in-network primary care provider that you're willing to rely on to coordinate general health care, an HMO could be right for you.
Next Steps to Simplify Benefits for Employees
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1 U.S. Bureau of Labor Statistics
2 2018 Aflac Workforces Report