For many employees, open enrollment season means you can decide whether to keep, add, or change your health, disability, and life insurance policies. Your company’s human resources department may have meetings or send emails about your choices so you can understand how much you’ll pay out-of-pocket to access specific services and how to enroll. Your choices will affect your benefits for the year ahead.
Many companies pay a portion of your insurance premiums, and you are responsible for covering the rest. These benefits may seem irrelevant but can provide a crucial financial safety net when the unexpected occurs.
Health insurance may be one of the most complicated among the different types of insurance. Since you are likely to use healthcare services throughout the year, choosing a plan that meets your needs is crucial. There’s more to choosing a healthcare plan than picking the cheapest option, though. The amount of money you’ll pay toward co-insurance and deductibles should also factor into your decision.
Even with health insurance, accessing health care isn’t free. Your employer and the insurance companies offering coverage may assume you understand the various terms related to your coverage, and it’s OK if you don’t. Here’s what you need to know about how much money you may pay to access health services with health insurance:
When you visit the doctor, you’ll pay your deductible, then coinsurance. The amount of money you pay goes toward your out-of-pocket maximum. When you reach your out-of-pocket maximum, the insurance company pays all healthcare costs for the remainder of the year.
For example, if you are the only person on your plan and your deductible is $3,000 per year with a 20% coinsurance rate, and your out-of-pocket maximum is $6,500 per year, and you need surgery, your bills may look something like this:
Doctor’s services: $4,500
Pharmacy services: $600
Total costs eligible for health insurance coverage: $10,300
Here’s how you’ll share costs with the health insurance company. You pay the deductible of $3,000 plus 20% coinsurance on the remainder of the bill of $1,460. Your total out-of-pocket costs are $4,460, and the insurance company pays the balance of $5,840.
In this scenario, you will have paid $4,460 toward your yearly out-of-pocket maximum of $6,500.
The amount of money you pay toward health insurance premiums each month comes out of your paycheck before taxes. So, if you make $55,000 per year and your health insurance premiums are $600 per month, you’ll pay taxes on $47,800.
Your health insurance plan may make you eligible for a health savings account (HSA) or flexible spending account (FSA). Contributing to an HSA or FSA also reduces the amount of your income subject to taxes.
An HSA is an account that allows you to save money to pay before taxes for your deductible, co-insurance, and non-covered health expenses. Your contributions to an HSA account roll over from year to year if you don’t need the funds to pay for healthcare costs. The money you save grows tax-free, and after age 65, you can use it for any purpose without paying penalties. HSAs may be available through your employer if your health insurance plan meets specific rules:
Your employer may also contribute a set amount to your HSA as part of their benefits package. Annual contribution limits are as follows:
An FSA works with a traditional health insurance plan. With an FSA, your employer deducts the amount you choose, up to $2,850 in 2021, from your paychecks before taxes. They deposit that money into an account that you can access to pay for certain healthcare costs, including your deductibles and copayments.
If you don’t use all of the money in your FSA account by the deadline (usually January 1 of the following year), you lose those funds. It’s essential to carefully estimate your future out-of-pocket healthcare costs so you don’t end up with extra money in your FSA at the end of the year.
Contributions to FSA and HSA accounts are tax-free. Participating in the appropriate savings option allows you to set aside money for future medical costs to lessen the impact on your budget.
Making the right choices about your health insurance can help reduce the stress you’ll feel if you need medical care. When evaluating your health insurance options, consider the monthly premium costs as well as your potential deductible, co-pay, and co-insurance costs before making your decision.
Each company sets rules about health insurance, the options offered to employees, and the amount of money employees pay to access vital healthcare services. Your human resources representative can help you clarify any points that you don’t understand.