Tips on choosing health insurance during open enrollment

Key Points

  • Choosing health care insurance can be the most complex decision during the open enrollment period.
  • Calculating your health care costs from the previous year can help determine what type of insurance plan is best for you.
  • Don't forget about health care flexible spending plans, which can save you money on out-of-pocket health care expenses.

For most employees, picking a health insurance plan is the most complex open enrollment decision. By spending time reviewing your benefits options, you may be able to find ways to save money on health care costs. Follow these steps to help determine which plan may work best for you:

1. Diagnose your needs

First, calculate your health care needs in the coming year to determine how you will fare both medically and financially under each type of plan your employer offers. This will help you narrow down your choices.

Review how you and your family used health care in the past year.

  • How many times did you go to the doctor?
  • Does anyone have any chronic health problems?
  • What will you need in the way of vaccinations and routine health care this coming year?

Calculate how much you spent on health care in the past year.

  • How much did you spend on co-pays, co-insurance and prescription drugs?
  • Did your expenditures exceed your deductible?

Project any out-of-the-ordinary health care services.

  • Do you have any large, planned expenses for next year, such as braces for teens or any elective surgery?

Use your calculations above to determine how you will fare both medically and financially under each type of plan your employer offers. This will help you narrow down your choices.

2. Understand your options

Health insurance is likely to be the category of benefits where you see the most change from year-to-year. Here's a breakdown of the three different types of health insurance plans your employer may be offering.

High-deductible health care plans (HDHC)

  • In recent years, hundreds of companies have moved toward high-deductible health plans as one β€” or sometimes the only β€” health insurance option they offer employees.
  • As the name implies, you pay more in deductibles, but you also pay less in premiums. By enrolling in a HDHC, you may contribute pre-tax dollars into a health savings account (HSA) to help with the out-of-pocket costs, and some companies will even contribute to these accounts. Earnings in these accounts grow tax-free, and no tax is due on withdrawals used to pay for qualified medical expenses.

Health maintenance organizations (HMO)

  • Your employer may also be offering an in-network plan that fully covers only health care providers in the plan's network.

Preferred provider organizations (PPO)

  • More flexible, these often cover at least some costs for out-of-network providers and specialists.

It’s important to carefully review your options before making a decision, as the costs for these types of health insurance plans vary greatly. Perhaps your existing physician is in-network, which makes the choice easy. If not, determine what matters most to you β€” continuing with your current physician or saving money. If keeping your physician ranks higher, find out how much, if any, the insurer will pay toward visits to out-of-network providers.

3. Know your out-of-pocket costs

Check each of your options and do comparisons for the following costs:

Monthly premiums

  • Add up the annual total premium costs you would be responsible for. Typically, your employer pays a portion and the rest is deducted from your paycheck before taxes.

Co-pays

  • This is the amount you pay upfront for health care services and prescription drugs. While it varies by health plan, the amount is consistent once you've made your choice. Co-pays for doctor visits, for example, can range from $0 to $50 or more, depending on the service. Often your co-pay for prescription drugs varies depending on whether you use a brand name or generic.

Deductibles

  • This is the total dollar amount you need to pay before the insurance plan will contribute to costs. Your portion of the deductible can range from $0 to $5,000 or more depending on the plan you choose and whether you elect individual or family coverage.

Coinsurance

  • This is the percentage of the cost that you pay for health care services or supplies after the deductible has been satisfied. It's usually 20 percent of what the provider charges. You must pay these charges until you reach your out-of-pocket maximum.

4. Make the most of a health care flexible spending account (FSA)

If your employer offers an FSA, you can use this account to pay for eligible out-of-pocket medical expenses not covered by your health insurance plan such as prescription drugs, co-pays, eyeglasses, etc. on a pre-tax basis. Keep in mind that you cannot enroll in an FSA if you are enrolled in an HSA.

Under the Affordable Care Act, the maximum contribution on these accounts is $2,550. Keep in mind that you would forfeit any funds from this account that you don't use during a certain period, usually within 12 months, set by your employer. That's why it's important to calculate carefully how much you think you'll spend on out-of-pocket health care expenses. Ask your benefits department for your company's list of eligible expenses.

5. Explore other plan options

If you're married or have a partner, compare your health care plan choices to those offered by your spouse or domestic partner's employer or the health care exchanges. After crunching the numbers, it may make more sense to switch to their health insurance plan. Remember, open enrollment is your opportunity to make this transition. Otherwise, you will likely need to wait until a "qualifying event," such as the birth of a baby.

Your Ameriprise financial advisor can help you make sense of the many health insurance options available to you.