Open Enrollment Decisions — A Consumer’s Dilemma (or is it?)
Here we are in mid-November, having just elected Donald J. Trump as president of the United States. As we have seen in President-elect Trump’s early days is that there will be some attempt at changing the Affordable Care Act (a.k.a. Obamacare), but to what extent? This looming question will make a tremendous impact on millions of Americans across the country, but most likely not for the current open enrollment period (phew!)
Open enrollment? What does this even mean? Well let’s dive into some of the basics. Open enrollment is a specific time frame that allows employees (if you work for a company who offers health insurance/benefits) or individuals (via the health insurance exchanges largely created by Obamacare) to make changes to their current insurance/benefits election. Typically, once a selection has been made, it will become effective for the next plan year (the time period in which you are insured or covered). You won’t be able to make changes to your election unless a qualifying event takes place. Basically, you need to look at the next 12 months and ask yourself “how much insurance coverage will I need?” This depends on each person’s individual and family circumstance. There are a lot of options out there from an HMO to a PPO to a HDHP. At times, it feels like alphabet soup!
- HMO — Health Maintenance Organization. This is a type of plan where you have to go to your Primary Care Physician (PCP — I know, another acronym!) and based on their diagnosis, will refer you to a specialist who is in-network. For example, Jane gets sick and goes to her PCP. Her PCP then determines that Jane has an irregular heartbeat. Jane’s PCP then refers her to a heart specialist. Why do you have to see your PCP first? It helps reduce unnecessary trips to more expensive services (doctors/clinics) if it is unwarranted. You can imagine that Jane felt sick and went directly to the heart specialist, but there all Jane had was a cold or high blood pressure. Those are things that her PCP could diagnose and treat appropriately.
- PPO — Preferred Provider Organization. This is a type of plan where a group of healthcare providers (doctors, hospitals, etc.) come to an agreement with an insurer to provide various health care services at reduced, negotiated rates to all of its members. Taking Jane from the example above, she is not required to see her PCP, however she has to go to a specialist in her PPO network in order for her insurance to cover her at the reduced/negotiated rate. While PPOs tend to have slightly higher monthly premiums than HMOs, they also tend to provide more flexibility.
- HDHP — High Deductible Health Plan. This is a type of plan where you are signing up for paying for all medical expenses out of pocket until you hit your plan deductible. The vast majority of HDHPs can either be a PPO or HMO. In order for your plan to be considered “High Deductible”, the minimum deductible of an individual must be $1,300 and for a family it must by $2,600. At the surface, this option doesn’t seem attractive to many people and truth be told it may never be attractive based on your situation. However, one of the great benefits with having an HDHP is the ability to couple it with a Health Savings Account (commonly known as the HSA). The HSA is an incredibly powerful benefit that allows you to set aside pre-tax money to pay for qualified medical expenses today or in the future. Though HDHPs have high deductibles putting the burden on individuals, they also have much lower monthly premiums when compared to a traditional PPO or HMO. Health Savings Account — you can contribute pre-tax money, invest that money in a variety of options and allow it to grow, and withdraw that money at any point and with no penalty so long as it is used for qualified medical expenses. A list of qualified medical expenses can be found here. The true savings for you will depend on what income tax bracket you fall into, but it is one of the most powerful savings vehicles across any industry (and that includes 401k, 529a, etc.). Additionally, the HSA belongs to you, not your employer. That means you have the freedom to sign up with any HSA provider and those funds are 100% yours. And employers can contribute to your HSA in the same way they do to your 401(k).
Take a deep breath and don’t get overwhelmed. Break down your options in a logical way. Take into consideration the following items so that you can make the most informed decision possible:
- How often do I/my family plan to go to the doctor?
- Am I/are we relatively healthy?
- How important is having health insurance in my/our daily life?
- Do I/we want to save for the future (i.e., build a nest egg of future healthcare expenses)?
- Are there doctors that I/we want to continue to see?
- Do I/we have any medical history that are likely to cause issues in the future?
- What would I/we do in a worst-case emergency situation? How likely is something like this to occur?
- How old am I/are we?
- How much medication (prescriptions) will I/we need to take this coming year?
These are a handful of questions you should ask yourself when making a health insurance purchase decision. It isn’t easy, but with the right amount of planning, you should, at a minimum, be able to assess your situation and make the best informed decision with the information you have at hand. You can rest assured that if you end up picking something that didn’t work for you this time around, you will have an opportunity to make a change this time next year.