It’s that time of year again when employees must renew their employee benefits and health insurance is always top of mind. Your company may or may not have made any changes, but it is important to note that there are certain things that must be elected each year and are not automatic, such as Flex Spending Account (FSA) elections. FSA elections do not carry over each year and the limits usually increase slightly.
On to health insurance and how I look at plans for comparison. I have compared numerous plans over the years and the first thing I start with is the worst-case scenario which is comparing how much the insurance company pays vs. how much you must come out of pocket. Insurance companies and their actuaries are smart and usually when looking at the different levels of coverage offered, typically the worst-case scenarios are the same. So, if something catastrophic happens, you most likely will be coming out of pocket with same amount of dollars (premiums plus deductibles and coinsurance).
Transfer of risk
This makes sense because insurance is actually the transfer of risk, and we just must decide how much risk are we willing to transfer to the insurance company. If we want to transfer more of the risk, then we choose a plan with higher premiums. If we are willing to take some of that risk ourselves, then we take on a little less insurance. The goal with insurance is to NOT use it.
Now that we understand the concept of transferring the risk, look at your current situation and family set up. What is the likelihood of you using your insurance? A young, single person who doesn’t take any medications and rarely goes to the doctor probably does not want to choose the most expensive health plan. They may want to choose one with lower premiums and higher deductibles because they are not likely to use the insurance. Instead, they may want to leverage a high deductible plan with an HSA (Health Savings Account).
If you have a large family with kids playing sports or a known surgery coming up, then you may opt for the plan with the higher premiums and lower deductibles because you are likely going to utilize your insurance a lot more. You may also have access to a Flex Spending Account (FSA) where you can have some money set aside each paycheck to help with additional medical expenses throughout the year.
Evaluate your own family situation
In summary, when choosing a health plan, you should start with evaluating your own family situation, then decide how likely it is you will be utilizing your insurance. Once you understand this, then you can look at the premiums, copays and deductibles to see what makes the most sense for your family situation. Then you may be able to supplement these choices with other employee benefits that may be offered, such as HSA’s and FSA’s. If you need help reviewing your employee benefits, this is something we do here at Financial Journey. Set up a free introductory call to see how we can help!
Financial Journey LLC is a registered investment advisor offering advisory services in the states of Florida, Alabama, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.