Understanding Employer Benefits
Learn why having healthcare coverage is important, even if you are young, in great shape, and perfectly healthy. Healthcare is changing rapidly in this country and understanding your insurance options can help you make sure you are making choices that make the most sense for you.
First, some facts about changes to health care laws:
- Under the Affordable Care Act, you can be insured as a dependent on your parents’ health insurance until you turn 26. There are exceptions. For example, if your parent has an existing job-based plan and you can get your own job-based coverage.
- Starting in 2014, if your employer doesn’t offer insurance, you’ll be able to buy insurance directly in the new online Health Insurance Marketplace.
- Also starting in 2014, if your income is less than the equivalent of $43,000 for a single person, and your job doesn’t offer affordable coverage, you may be able to get tax credits to help pay for insurance.
You’re perfectly healthy. You even exercise every day. Well, almost every day. So, why do you even need insurance? For one thing, any healthcare costs you do encounter can be cheaper when you have health insurance. Health insurance companies negotiate with providers, which sometimes results in lower prices.
And here’s the big one: What happens if you get into an accident or are diagnosed with a serious illness? In an extreme case your medical bills could put you in debt, ruin your credit, and have a lifelong impact on your finances.
Let’s start with a brief explanation of some of the types of healthcare plans, and then look at a couple of examples to compare and contrast some very different situations and choices.
HMO – Health Maintenance Organization. This type of plan normally requires you to choose a Primary Care Physician, who serves as your first point of contact for all things medical. That person would refer you to specialists if needed. In general, visits to doctors who aren’t part of the HMO are reimbursed at a lower level, and sometimes not at all. Usually, you will pay co-payments, but not necessarily deductibles. This plan is likely to cost you less than the next two types we’ll discuss.
PPO – Preferred Provider Organization. These plans usually offer more flexibility in choosing physicians. And, you may not need to see a designated Primary Care Physician for referrals to specialists. Generally, there are co-payments and often an additional percentage charge, such as co-insurance. There also may be deductibles and lower coverage for out- of-network physicians.
POS – Point of Service. POS plans are sort of a combination of an HMO and a PPO, and are generally less expensive than the PPO. For example, you may have to see a Primary Care Physician for a referral to a specialist, but that specialist may not have to be in the plan’s network.
High Deductible Plan. These plans usually require the lowest payroll deduction. Coverage begins only once you’ve paid a certain level of out- of-pocket costs. They’re usually offered in conjunction with an HSA (Health Savings Account), which your employer may contribute to. The maximum annual deductible for an individual is $1,200, and $12,100 for a family.
HSA – Health Savings Account. These accounts are often offered in conjunction with High Deductible health care plans that feature a deductible of least $1,200. They offer a way to save for out-of-pocket expenses before reaching the deductible limit. An HSA is portable, so it stays with you if you change employers or leave the workforce. And, the interest and earnings on the assets in the account are tax-free.
FSA – Flexible Spending Account. These accounts allow you to contribute a part of your paycheck – before taxes – to be used for qualified medical expenses. FSA’s aren’t offered with a High Deductible plan, but may be offered with the other plans your employer provides. The big difference between an HSA and an FSA is that, if you don’t use everything in your FSA by the end of the year, anything that’s left will be forfeited to the employer. This means you need to plan carefully when estimating how much to contribute each year to the FSA.
Catastrophic Health Insurance. These plans are designed to provide coverage for hospitalizations or serious illnesses. The monthly premiums are usually lower than with traditional health care plans, but the annual deductibles will be higher. (In some cases much higher.)
Remember: you don’t necessarily want the cheapest plan. You want the best value for you, in your particular situation.
Let’s take a look at two recent college graduates, Ben and Emily, who are excited to be in Atlanta after four hard years of college.
Ben immediately gets a job with a law firm that offers a full range of benefits, including healthcare. He’ll sign up for a plan, but before he chooses one, he asks himself, “Do I get sick a lot? Do I have conditions that require multiple doctor visits?”
Since the answer to both of those questions is “no,” and he wants to pay as little as possible for his coverage, he decides to sign up for the High Deductible plan.
This plan does include complete coverage, and there are no co-payments on certain preventative care procedures. He’ll also get discounts on his premiums if he does certain things, like take an annual physical, or join a gym. He’ll also contribute to an HSA that will cover out-of-pocket expenses before he reaches his deductible. These contributions will come out of his check before being taxed. And, if he doesn’t use the full amount, he can carry over the remainder to the next year.
Emily gets an unpaid internship at a top advertising firm, and also works at night as a bartender. She’s in relatively good health now, but does have a chronic condition, which would require frequent visits to a specialist if it were to flare up again. Emily has two choices: She can stay on her parents’ plan since she is under 26 and had been covered under their plan while she was in college. Her parents’ plan is a PPO, so it wouldn’t be necessary for Emily to go through a Primary Care Physician to see a specialist.
Her other option is to get some type of catastrophic insurance or she might find less expensive, more comprehensive insurance on the exchanges. Emily decides to stay on her parents’ insurance until she turns 26, or lands a paid position at the advertising firm – whichever happens first.
While you’re thinking about your choices, ask yourself a couple of questions to help you make the decisions that are right for you.
- Do I (or anyone in my family that will be covered under this insurance) have any conditions that require multiple doctor visits or specialists?
- How important is it to me to see a specific doctor? Is that doctor covered under any of the plans being offered?
- If I choose a plan with a lower payroll deduction and higher out-of- pocket limit, do I have the extra money to cover that amount, if I end up needing it?
When you’re young and healthy, it can be hard to see the need for insurance. But life happens, and things change – often suddenly. You can be in perfect health one day, and in the hospital the next. The costs you could incur from an illness or injury may end up being a lot bigger than any premiums you’ll pay. So think ahead – and be prepared for the unexpected.