It’s that time of year again. Every year, during the benefits “open season”, employees must make decisions about which their health insurance coverage. Health insurance plans’ coverages and premiums change each year and it’s important that you keep up with the details of these changes.
OPM offers resources for you utilize in your research but expects that it is your own responsibility to understand the information you gather. This column will equip you with key considerations as well as how each plan type may or may not meet your needs, allowing you to feel better prepared to select your medical insurance coverage.
Make sure to read to the end, where you’ll find out how to receive our free annual FEHB guide that we’ve prepared to help you in your decision making.
We’ll be discussing some important considerations to keep in mind when analyzing your existing and new health insurance. We will also cover specific health plan types, including PPO, FFS, HMO, POS, High Deductible plans, and Consumer Driven plans.
Key Factors and Terminology
When selecting your health insurance, there are numerous FEHB programs available and sorting through the list can seem overwhelming. Let’s start by defining some of the terminology that you’ll encounter.
Premium: this is the cost of the insurance policy. This figure is influenced by the type of plan and coverage levels. Higher costing premiums do not always mean better coverage. In many cases it may mean higher coverage, but it’s important to not pay more for insurance than what you need.
Copayment: this is generally a fixed dollar amount that you would pay for health care service after you’ve paid your deductible. In general, plans with lower monthly premiums have higher copayments, and vice versa.
Coinsurance: this is the percentage of covered health care services that you pay after you’ve paid your deductible. As with copayments, there is an inverse relationship to premium costs.
Deductible: this is the out-of-pocket amount owed by you before your insurance begins to pay. This concept is similar to a deductible on your car or home insurance.
Health Savings Account (HSA): this is a type of account that allows you to put in pre-tax dollars to be used for medical expenses. Your contributions lower your tax bill and using the money for qualified medical expenses makes the withdrawals tax-free. This balance can accrue from year to year, unlike an FSA that typically features use-it-or-lose-it.
Out-of-Pocket Maximum: this is the highest amount you’ll pay each year towards costs including deductibles, copay, and coinsurance. Premiums are not included, neither are extra services. In-Network vs Out-of-Network providers may impact this too.
Network: this is a list of health care providers that are within a group that accepts that insurance. In-Network usually means negotiated rates that lead to discounted services for you as a consumer. Out-of-Network providers generally cost more.
Changes in these categories impact the cost of the health insurance plan. For someone that is relatively health, rarely injures themselves or gets sick, and visits doctors mainly only for regular check-ups, perhaps opting for a lower-priced premium may provide you with enough coverage. Just make sure you keep an emergency fund liquid in the event that you have a greater health care need.
For someone with greater health challenges, it may be more advantageous to opt for a plan that has better coverage, especially if you expect to be needing health care more frequently.
You should consider the type of health care you expect to receive, especially if you have regular therapy that you attend, or on-going medication needs. These are coverages that you’ll want to ensure your plan covers before electing that insurance plan. Be sure to check every year you renew – health insurance carriers often change their coverage each year. This will help you prevent a surprise bill from a medication or care that is no longer covered.
Remember that you can have one year of more comprehensive coverage, followed by another year of reduced coverage (and likely reduced expense). Open season allows for flexibility of changing your plan as your needs change. You may even get the option to change more frequently if you meet a qualifying event, such as getting married or having children. You’ll want to consider your coverage needs for your family as well.
Finally, make sure you understand how becoming eligible for Medicare impacts the decision matrix. There are changes that occur once you are retired and Medicare eligible. You may experience changes in coverage that you need to be aware of. Often, Medicare can pair well with certain FEHB plans. That’s a discussion for another time, and there are pros and cons to nearly every choice made.
Next, we’ll discuss the types of health insurance plans:
HMO Plans: Health Maintenance Organizations
HMOs have historically been known for being focused on wellness and prevention. They typically require that you go see your primary care physician for the majority of your care. Since this primary physician sees you frequently, they have a good idea of what is going on with you and attempts to keep you healthy. This also means that most if not all of your care will be through in-network providers.
This is an important consideration because if there is a specific doctor that you see regularly, you’ll want to make sure that they fall within your network if you are opting to go with an HMO. HMOs also usually have a co-pay instead of deductibles.
With an HMO, if you require medical care from a medical professional that is considered a specialist, you usually have to first contact your primary care physician and get a referral. While this isn’t necessarily a game changer, it’s an important factor to know about. You risk not having coverage if you visit a specialist without first having a referral from your primary care physician. Another thing to note is that you’ll also likely be seeing a specialist that falls within your network. Again, something to considering if there is a specific doctor that you like to see.
There are a few different types of sub HMO categories that apply to how the doctors work. We won’t go into that but if you have questions it’s important that you contact the plan first before you select it as your insurance.
FFS Plan: Fee-for-Service
A Fee for Service plan is a more flexible type of insurance. With these plans, they will typically pay the medical provider directly or they might reimburse you after you filed an insurance claim for medical treatment. This means that you have more flexibility in choosing your medical care providers, so you can change doctors frequently if you’d like, without having to talk to your primary doctor.
If your fee for service plan is an indemnity plan, then you have what’s called a deductible. The plan will only pay for a portion of the medical costs and pass the rest on to you as the insured. It’s not until you reach your deductible limit that or max out of pocket that the insurance company will begin covering the remainder of the cost for your medical care. Out of pocket maximums reset each year, so just know that you may be putting yourself at risk for more expenses if you see many doctors with this plan.
In some plans, you might have access to what’s called a PPO, or Preferred Provider Organization. As the name indicates, this is a group of medical providers that agreed to being part of this group and as such, reduce their charges for service. An employee seeking medical care from a PPO would likely pay less of our pocket, but as with everything, there are exception to be sure to look carefully before signing on the dotted line.
POS Plans: Point of Service
A point of service is a combination plan. If you took some of the benefits of HMO plans and put it together with a PPO, you’d get this plan.
Enrollees are typically less restricted than in an HMO since their range of doctors is bigger. Enrollees also tend to have lower costs and out of pocket expenses than compared to a PPO.
You’ll still select a primary care physician from the list that they let you pick from, and you’ll still need to have a referral if you’re going to see a specialist. In these manners, it seems like a regular HMO, except you’ll find that the cost to you tends to be less than the traditional HMO.
My clients have indicated that point of service plans have required them to use generic brands of prescription, so if you are on continued medication, make sure you check this detail. Any cost savings can easily be blown out of the water by extra expenses from prescriptions, especially if you take a medication that does not have a generic equivalent, or perhaps the generic doesn’t work as well for you.
HDHP: High Deductible Health Plans
A high deductible plan is one in which an enrollee typically has higher annual out of pocket expenses. The deductible is a much higher amount than in other types of plans. So why would an employee choose this plan?
First, the monthly premium tends to be lower with high deductibles. This makes sense, since you would be paying more for actual medical care. If you are someone that does not frequently require doctor visits and are in good health, perhaps this might be a good plan for you.
Yearly checkups (wellness visit) are included in this so don’t think you can’t go see your doctor every year. Get those checkups, it’s important.
Another incredible benefit of a high deductible plan is that you have access to an HSA (health savings account). This magical type of account allows you to deposit money into it on a pre-tax basis, grow it with investments, and then use the grown money in a tax-free status if you’re using it for qualified expenses. It’s similar to an FSA, but better because any balance that you don’t use will rollover into the next year for you. If you use it for non-qualified expenses, you’ll be penalized so be careful.
But there are so many things that insurance may not cover (including Medicare), that you can use these funds to cover in a tax-free status if they’re qualified expenses. This is an underutilized planning vehicle, especially by young people.
CDHP: Consumer Driven Health Plans
The last one we’ll discuss are Consumer Driven Health Plans. This one is the odd one out. These are still high deductible plans, but as the name indicates, these tend to be more customized plans, and it isn’t really just one particular type of plan.
You still have the ability to set aside money on a pre-tax basis to help pay for your health care, but the cost of health care will be higher than some other traditional types of health insurance. These plans tend to have lower premiums and as such, are most popular by employees that tend to be healthy and conscientious about their health and the care they need.
In short, it allows enrollees to look around and select competitive care in an effort to reduce costs. The philosophy is to put the power in the hands of the enrollee. It hasn’t been too popular of a plan since most people just don’t have the knowledge or time to research the world of medical care. You have more choices of medical care providers than traditional health care programs but that also means more research on your part.
FEHB Guide
No plan is perfect for everyone, and it all depends on your specific needs. There’s plenty to think about as each plan type serves a specific group of people and their needs.
As promised, we’re giving out our annual FEHB guide for free. If you’re interested in receiving this, send an email with the subject line “FEHB Guide” to info@rmgadvisors.com and someone from our team will forward it your way.
