Before signing up for health insurance at work, read this
The fall employee enrollment season is upon us, which means millions of working Americans will have to make a number of complex decisions when it comes to their benefit selections. In fact, the average employee may typically have to make decisions about more than 17 benefits.(1) That’s a lot of decision-making responsibilities – especially when you add the stress of trying to protect your family’s financial well-being as the pandemic continues.
Plus, that process likely won’t be any easier this fall, as many employers plan to make changes to their benefit lists due to COVID-19. Therefore, to help you navigate the maze of decisions employees will need to make during open enrollment, below are four tips to help you maximize your benefits in the workplace.
Tip # 1: don’t be afraid of high deductible health plans
The two most common types of health plans that employees have access to through their employers are the Preferred Supplier Organization (PPO) and High Deductible Health Plans (HDHP). The PPO option usually has a lower deductible with higher premiums, while the HDHP option generally has higher deductibles with lower premiums and is usually paired with a Tax-Advantageous Health Savings Account (HSA) – a powerful one. savings and spending vehicle.
To help understand why American workers choose the health plans they make during open enrollment, Voya launched a study last fall in partnership with SAVVI Financière. Interestingly, research reveals that employees are often biased against HDHP compared to more traditional PPO health plans. In one part of the study, participants were presented with two different plans and told to see them as the same in terms of quality of care, access to care, and all the other features beyond cost. The only differences between the HDHP and PPO plans were the premiums and deductibles. Almost two-thirds of study participants (65%) chose the PPO plan – despite the fact that the study was deliberately designed so that HDHP was always the optimal financial choice. As a result, depending on how much was used for their benefits, the average employee over-spent $ 500 to $ 2,500 on their health care plan during the year, which is money that a person could save for retirement or set aside for an emergency.
The study identified several reasons why employees are biased against HDHP and, interestingly, the name of the health plan had a big impact. For example, participants were almost twice as likely to choose a PPO plan over an HDHP when the words “high deductible” were used in the plan name (65% PPO vs. 35% HDHP). This preference decreases significantly when the plan names are unbranded (53% PPO vs. 47% HDHP).
The bottom line is that when it comes to choosing the best health plan for your family, there is never a one-size-fits-all solution. Therefore, it is important to keep an open mind otherwise you could end up spending too much money on your health plan.
Tip # 2: Harness the Power of HSAs
COVID-19 has underscored the need for U.S. workers to be better prepared for health care spending. A health savings account can offer several benefits for both short and long term health savings. For anyone enrolled in a high-deductible health plan, HSAs can help you meet immediate health care costs as well as those you will have later in life when you retire.
When faced with an unforeseen short-term need, such as paying for an emergency room visit, many people might be tempted to dip into their retirement savings. Fortunately, funds from an HSA can serve as an emergency savings account for qualifying health care expenses. HSAs have the potential to offer a triple tax advantage:
Contributions are not taxable.
Investment gains are not taxed.
And withdrawals for qualifying medical expenses are also not taxed.
Additionally, when you are enrolled in an HDHP and an HSA, you can choose to leave your funds in your HSA and, instead, cover a medical bill “out of pocket”. This strategy is one way HSAs can serve as a potential emergency savings vehicle for unforeseen healthcare costs in the future. Additionally, since HSA funds are renewed every year, many HSAs provide the opportunity to potentially increase your account balance by investing in long-term investment funds, such as stocks.
Because of these characteristics, HSAs have grown in popularity during the pandemic. Industrial research shows that assets in HSAs grew 25% and the number of new HSAs increased by 6% in 2020, bringing the total number of HSAs to around 30 million in the United States. For 2022, the IRS also increased HSA contribution limits at $ 3,650 per year for individuals and $ 7,300 for families. People aged 55 and over are eligible for an additional catch-up contribution of $ 1,000.
Tip # 3: Don’t overlook group life insurance
The pandemic has caused many people, young and old, to reflect on their own mortality. As a result, the number of life insurance contracts sold in the first half of 2021 increased by 8% compared to last year. This is the strongest growth in policy sales recorded since 1983, according to LIMRA Survey of Second Quarter US Individual Life Insurance Sales.
Unfortunately, people with serious health conditions typically don’t qualify for individual life insurance, or the cost of a policy may not be affordable. Given the recent interest in life insurance coverage, this is where your employer-provided group life insurance could be a benefit to explore during this fall’s open enrollment period.
Since group life insurance is sponsored by your employer, it is often a cost effective way to help protect those who depend on your income. In many cases, it does not require a medical examination for coverage, which is generally cited as a barrier to purchasing life insurance. In addition, employees can often take their group life insurance policy with them if they leave their employer. They just need to continue paying the insurer directly for the coverage, but it will still be at a cost-effective group rate. Your spouse or children may also be eligible, which provides another layer of protection for the whole family.
What life insurance coverage do you need? It is a personal decision that must be carefully considered. When calculating the amount of life insurance you want to purchase, a rule of thumb is that your death benefit should equal five to ten times your annual income. Although this is a simple formula, it is important to remember that it does not take into account individual factors, and the financial protection your family may need may change over time, such as when your kids finish school or when you pay off a large debt, like your mortgage. If you need help, there are calculators online that do a great job of guiding you personally, or you can talk to a finance professional.
Tip n ° 4: voluntary services are becoming less and less “voluntary”
Typically, when employees prepare for open enrollment, they spend most of their time focusing on their primary workplace benefits: medical, dental, and visual. While these benefits are important, Voya customer data shows that more than four in ten pension plan members (44%) have protection or insurance gaps in their coverage.(2) It could put you in a difficult financial position if you have to deal with unforeseen medical expenses. For example, the average cost of a day in the hospital in the United States is around $ 2,400, with the average patient staying for more than four days.(3)
The voluntary benefits offered by your employer can provide additional protection, and it is encouraging that employees are now increasingly looking to their employers for solutions. New Voya search shows that the majority of American workers (75%) want help coping with an unexpected life event, such as a serious illness or accident. Some of the voluntary benefits and services offered by some employers include hospital insurance; critical illness insurance coverage; and referral, refinancing and repayment of student loans, to name a few.
Employees should not ignore these types of voluntary coverage when selecting their benefits during open enrollment. For example, if you are expecting a baby in the next year or if you are worried about contracting COVID-19 and being hospitalized for an extended period of time, hospital insurance can help and usually costs less than what. most people expect. Hospital insurance costs on average between $ 250 and $ 300 per year, or less than $ 1 per day.(4)
Plus, there are some voluntary benefits that can be particularly helpful for more than just medical bills. Accident insurance, for example, can be used to pay for anything from living expenses – utility bills, pizza delivery, or dog walking – to trips to your next doctor’s appointment. . When you are the victim of an eligible accident, this compensation is yours to spend as you wish and according to your needs.
If we look at the lessons learned from last year’s open registration period, a Voya consumer survey shows that nearly six in 10 U.S. workers (56%) spent more time reviewing their employer’s benefits during their open enrollment period. As we enter another fall open registration season amid the COVID-19 pandemic, I strongly encourage everyone to make this time investment again.
While I realize it can seem like a maze of decisions to make, if you get lost your HR team is there to guide you and can probably provide you with links to online tools and resources. Plus, you’ve already taken the important first step in setting yourself up for success, and that is spending time educating yourself.