If you’re like most people working a full-time job, this time of year is open enrollment season, the time when you select all of your employer-provided benefits and health insurance for the upcoming year. Choosing health insurance can be confusing.
Please don’t ask me why, but the way providers talk about health insurance benefits can confuse many folks, especially younger employees who might be enrolling for their insurance for the first time. One recent study showed that more than half of employees choose plans that aren’t right for them, costing them money in premiums or underfunded costs.
So, what is all this tricky language, and what does it mean for you and your benefit selections? Let’s review a few of the most common terms you’ll encounter in selecting a package.
A premium is just the cost of your plan to you. It’s like your subscription to health insurance. Sometimes, you might see this as a monthly, six-month, or even annual premium, but it’s all your cost to participate.
Typically, the greater your coverage, the higher your premium. So, lots of providers will offer tiers that allow you to select your desired level of coverage. What I often see is that younger, healthier folks who don’t use medical services as often will choose a lower-cost plan. But that can be risky — you don’t want to be stuck with large medical bills if you find yourself in an unexpected predicament.
Co-insurance refers to the percentage of your medical bills that you pay vs. the percentage that your insurance company pays. So, if you have a $100 x-ray and your corresponding co-insurance rate is 20%, you’ll pay $20 toward that x-ray while the insurance pays the other $80. Even within the same plan, these rates can differ for different services, so look closely and consider what you’ll most likely be using throughout the year.
Your deductible is the number you must hit for your insurance company to start paying for services. For example, if you have a $3,000 deductible, you’re on the hook for most or all charges up to $3,000 for that year. After that, insurance starts to cover your bills according to the plan you signed up for.
Here’s how that works out with co-insurance:
You have a $2,000 hospital bill and a $1,000 deductible. You’ll pay the first $1,000 out of pocket, hitting your deductible. After that, your co-insurance kicks in. With a 20% rate, you’ll pay another $200 on the balance, while the insurance company pays the remaining $800.
The out-of-pocket maximum is pretty self-explanatory: It’s the limit on what you can pay throughout the year. Once you’ve hit that maximum, your insurance provider must cover additional costs.
You’ll usually pay more monthly for a lower maximum, but it can pay off in case of a major illness or injury. This is another example of weighing the costs vs. the risks.
A co-pay is the flat fee you’ll pay for visiting a healthcare provider — doctor, dentist, optometrist, etc. Some plans offer higher co-pays to offset monthly costs, while some may not have co-pays at all. Many plans offer different co-pays depending on whether your provider is in or out of network.
The network is a list of healthcare providers your insurance provider “prefers.” The insurance company negotiates with these specific doctors and signs contracts to include them in their preferred network, so visiting them will generally cost you less in co-pays and even out-of-pocket maximums.
This doesn’t always mean that you can’t visit a doctor outside of your network, but the cost to you will be higher — often twice as high as if you stayed in the network. If your current physician or specialist is out of network, but you really want to keep them, you may want to spend a little more in premiums to lower your per-visit cost, if that option is available.
I know this can seem like a lot of confusing information about choosing health insurance, but it’s really important that you consider all six of these terms so that you select the right insurance plan for you. Can you afford the higher premiums upfront so that you’re not saddled with one hefty bill if something happens to you? Or do you want to take on a little more risk and keep that monthly payment lower?
Either way, I’m happy to look through your options with you and help you choose the best plan that fits within your overall financial plan to best protect your family’s needs. Contact me or anyone else on our team today for a consultation, and let us take the guesswork out of open enrollment.
Article by Dillon Harper, Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.
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