Open Enrollment Season: How to Choose the Right Health Plan

Smiling senior man having measured blood pressure

It’s that time of the year again — health care open enrollment. Open enrollment season is the time of the year when you enroll, re-enroll, or change your 2017 health insurance plan. These fall months are pretty crucial. Unless you have a qualifying life event (getting married, starting a new job, etc.), you won’t get another chance to change your benefits for another year.

Most Americans get their health care through three main options — Medicare, their employer, or the federal health care exchange.

  1. Medicare

Open enrollment for Medicare is between Oct. 15 and Dec. 7 each year. You can get a jump start on the enrollment period by reading up on the plans and options ahead of time in Medicare & You, which is updated each year.

  1. Your job

Enrollment for employer-provided health care plans varies since these plans are set by the employer. Enrollment is typically in the fall, and any changes will go into effect on Jan. 1 of the following year. Ask your employer’s human resources department when your deadline is to enroll.

  1. Obamacare

Open enrollment through the state and federal Health Insurance Marketplace begins Nov. 1, and closes Jan. 31. Keep up on important deadlines here. If you need help signing up on the exchange, seek advice from a designated health care navigator.

Here are some tips to keep in mind as you review your health coverage this year:

Don’t get complacent

You might love the benefits you have at the moment, but that doesn’t mean you should blindly sign up for the same plan next year. Insurers are constantly tweaking existing coverage areas and creating new plans. Check to see if your existing plan has changed and see if there are new plans. With the rapid increase in pharmaceutical and health care prices, it’s important to look beyond the premium alone. Lower-cost plans may have higher out-of-pocket costs like deductibles, co-pays, and co-insurance. Certain covered drugs and treatments or the qualifying doctors or hospitals in your network could have changed as well.

Lower your out-of-pocket expenses with a Flexible Spending Account

Americans are paying the highest out-of-pocket health care expenses in history, due to a shift toward high-deductible plans. You can lower your out-of-pocket expenses by setting aside pretax dollars in a Flexible Spending Account. FSAs are only available to workers whose employer provides them.

FSAs can be used only for certain medical expenses, such as co-pays, prescriptions, and some over-the-counter medications. The maximum contribution is $2,550 for 2016. You can only sign up for one during the open enrollment period. When you do, you’ll decide how much of your pretax salary you want to contribute to cover qualified health care expenses throughout the year. Be careful not to contribute too much, however. The downside of an FSA is that you have to use the money in the account by December 31, or it is returned to your employer. However, some employers offer grace periods.

Take advantage of a Health Savings Account if you have a high-deductible health plan

Health Savings Accounts (HSAs) go with high-deductible plans like salmon and white wine. Like an FSA, you contribute pretax dollars to an HSA to cover your medical expenses. However, since HSAs are not tied to any one employer, they are portable. Your money will come with you from one job to the next, and you won’t be limited on where you can use it. You also don’t have a certain time period to make or change your contribution amount, so you can make changes anytime throughout the year. In order to qualify for an HSA in 2017, your health plan deductible must be higher than $1,300 for an individual and $2,600 for a family.

Learn from last year’s mistakes

This is your chance to find a plan that fits your budget and your needs. Insurance companies change coverage rates and options frequently, so take the opportunity to do your research and flesh out all of your options this enrollment season. If you went for a low-premium, high-deductible plan this year, you might have realized you don’t really like paying higher out-of-pocket expenses all that much. Similarly, if you’ve paid for a high-premium, low-deductible plan but don’t use your health insurance that much, you may join the ranks of the growing number of Americans who have switched over to high-deductible health care plans over the past few years.

Check to see if you qualify for a tax credit

Like 80% of Obamacare applicants, you might be eligible for a tax credit that would lower your monthly premium. The average subsidy granted in 2016 was $3480 ($290/month), according to the U.S. Department of Health and Human Services. If your estimated household income is up to four times the federal poverty level, then you’d qualify for the credit. You can check here to see if you qualify for a subsidy.

If you decide to forego insurance, know what to expect

Under the Affordable Care Act, every American has to have qualifying health insurance coverage, or pay a tax penalty. For 2016, the penalty is $695 for each uninsured adult in the household. However, there are a few exceptions. You might qualify for an exemption from the penalties under certain circumstances. For example, you won’t face a penalty if you suddenly lose a job or you are in between jobs for 1 or 2 months and have a gap in coverage. You should check to see if any exemptions apply to you before skipping out on signing up this enrollment season.

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There’s Insurance for Insurance?

Statistics shows that everything is normal

More Americans are switching to high-deductible health plans to lower their monthly premium costs. But the lower sticker price can eventually come back to bite you. The average annual deductible for an employer-provided individual health plan is $1,478 and even higher for families.

To help deal with increasing out-of-pocket costs, more Americans may turn to “gap insurance” plans (also known as supplemental health plans). According to a report released this year by insurance company Aflac, 79% of workers said they saw a growing need for supplemental insurance plans to help cover expenses their primary insurance does not cover compared to 64% a year ago, and 60% of those said it was because of rising medical costs.

There has been buzz around gap plans for more than a decade, says Rhett Bray, president of BeaconPath, a Mission Viejo, Calif.-based employee benefit consulting firm. But interest really boomed around 2013, with the rollout of the federal health care marketplace and growing popularity of high-deductible plans.

In 2016, more than 90% of people who purchased health plans on the health care exchange chose plans with deductibles of $3,000 or higher. Plans with high out-of-pocket costs have grown increasingly popular with workers who receive benefits through their employer. Of those who receive employer-provided coverage, 29% chose a high-deductible health plan in 2016, a 5-point rise from a year earlier.

“It’s hard to cover an individual’s complete medical needs in an affordable way if you’re just bringing them through a major medical plan,” said Bray. He says that as costs increase, supplemental insurance policies will be “a big tool in the toolbox that most of us as brokers will continue to bring to the table.”

What Is Gap Insurance?

Medical gap insurance is a supplemental health plan that acts as a cushion for people and businesses who carry high-deductible health care plans. Simply put, it’s like insurance for your insurance.

Gap insurance policies are not major medical insurance, and they come with very limited benefits. In most cases, that means that no matter the severity of your situation, your gap insurer plan will only pay you a set amount. And because the plans do not meet the standards set by the Affordable Care Act, consumers can’t use gap insurance policies as a stand-alone insurance without facing a tax penalty.

The main purpose of medical gap insurance is to lower your overall out-of-pocket costs by providing funds to pay for a large deductible and other out-of pocket costs until your main insurance policy kicks in.

What Gap Insurance Costs

Premiums range from $30 to $40 per month for a gap insurance policy for an individual, according to Bray. Costs will vary because each company has its own formula for how much you’ll pay and which benefits are provided, Bray adds. Insurers will consider your age, gender, location, etc. You can get an accurate estimate of a premium by contacting insurers or an insurance broker directly.

Gap plans are provided by many large insurers such as AIG, Aetna, Transamerica, and others, and most can be used to supplement your employer-provided, government-provided, or individual health care plan. But first, try your employer. Ask your benefits department if they offer a limited benefit or supplemental medical insurance plan for individuals.

The big catch: because gap plans aren’t regulated by the health care law like major medical insurance plans, providers can deny consumers coverage based on pre-existing conditions.

The policy level that you choose will also factor greatly into the cost of your monthly premium. The more coverage you need, the higher the monthly premium will be.

Is Gap Insurance Worth It?

Now you might be wondering: “Is getting gap insurance worth it if I’m on a high-deductible health plan?” The answer is maybe.

Carolyn Taylor, director of compliance at benefits consulting firm D&S Agency, recommends referencing the benefits you get through your main medical plan before you shop around for gap insurance to ensure that you aren’t paying for something you don’t need. It will require a little math.

She also said to “do the math” before purchasing. Add up all of the payments you’d make in a year toward your gap insurance policy to see if it would cost less than paying the total annual deductible for your major medical plan. That way you’ll know if the policy is really saving you anything in the first place.

Gap insurance could be worth it if …

You are expecting to be in the hospital for a few days this year.

If you are planning on having a baby or expecting to get surgery sometime this year, “you may want to have a gap if it will help with your inpatient day costs,” says Taylor.

That’s because your gap policy could cover the costs of your deductible and other out-of-pocket expenses for frequent doctor’s visits and hospitalization.

You have an expensive prescription.

Prescription drug prices have never been higher. If you have a policy with a deductible, you may have to shell out more money for a prescription. Selecting a gap insurance policy that includes prescriptions may help you cover the cost. Just do the math to be sure what you are saving on prescription costs is worth the additional cost of a gap insurance premium.

You are older than 65.

Taylor said those 65 and older should absolutely get gap medical insurance because that segment is more likely to frequent the doctor. Many medical gap policies are restricted to those 64 years old and younger; however, those on Medicare can get Medigap insurance. It’s a supplemental insurance plan that acts similarly to gap insurance but is more regulated and broken into government-specified benefit tiers. Read up on the plan specifics here.

The Bottom Line

Ultimately, adding gap insurance to your coverage is a decision you will have to make based on your perceived risk of illness and financial status. Make sure to do your research when considering a gap plan as the benefits and costs vary widely.

 

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