Health-Care Choices: Making the Wise Decision
Not too long ago, most American corporations provided their workers with not only pay but also with health insurance.
Today, more workers are uninsured. Meanwhile, the companies that still provide health insurance are requiring employees to pay a bigger portion of the cost.
Companies say this shift is in response to the rapidly rising cost of health insurance. According to a national survey by Alexander Consulting Group, about 75% of the responding firms reported an average medical cost increase of 21% during the past year.
That’s not altogether new. Medical costs and health insurance expenses have risen much faster than the rate of inflation for more than a decade, experts say.
The result: The average employee paid more than $3,000 for health insurance coverage in 1991, according to Alexander, a consulting firm in Lyndhurst, N.J.. Worse, 39% of the firms surveyed plan to hike the amount that employees must pay for their health insurance this year. And for those with family coverage, the news is worse: A whopping 49% of the firms are hiking employee contributions for these benefit programs.
Companies are suffering too. Their out-of-pocket costs have soared to more than $11,000 per employee on average, according to the survey. Although Alexander does not have year-ago statistics, consultants there note that today’s costs are often double or triple what they were five years ago.
Consequently, companies that maintain health benefits for workers are launching a wide array of programs designed to reduce the overall cost.
These programs generally include several new options. Among them: traditional indemnity insurance plans with higher deductibles, health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Some firms also offer health-care accounts--a type of medical savings plan. And others hold wellness promotion programs.
A brief explanation: Indemnity plans are the most traditional option. They provide coverage for a certain percentage of your medical expenses regardless of which doctor you see. Preferred provider organizations usually pay some amount for all doctor’s visits, but they pay a larger percentage of the costs if you use a plan doctor. Health maintenance organizations, meanwhile, often provide coverage only if you go to doctors and hospitals enrolled in the HMO. However, HMOs and PPOs usually waive the plan’s doctor requirement in serious emergencies.
Health-care accounts are not insurance, but they allow workers to set aside a portion of their pay for uncovered medical expenses--perhaps insurance deductibles or dental or mental health treatments not covered under your plan. The benefits of these accounts are twofold. One, the money is there when you need it. Second, it is deducted from your pretax earnings. So, as far as the IRS is concerned, you never earned that amount and you don’t need to pay tax on it. The one catch: If you don’t use the money before the end of a set period (usually a year), you lose it.
By and large, each option will include a different payment requirement on the part of the employee. And each will offer substantially different benefits.
Which plan is best depends on the circumstances of the consumer. Individuals should weigh the choices carefully before signing up.
With that said, it is ironic to note that many workers spend more time deciding what to wear in the morning than they do in choosing a health plan, health-care experts say. Regardless of what you may have read in dress-for-success manuals, wearing the brown suit probably will not cost you thousands of dollars. But choosing the wrong health plan could.
Admittedly, many people feel pressured into swift decisions with health insurance. Often firms will hold a short orientation for new employees where they are introduced to the company and its benefit programs.
Generally, this is the first--and sometimes the last--detailed review of the employees’ options. Yet, commonly, after an hourlong orientation, individuals sign up for one of the choices, often without bothering to read the literature.
Why? The individual holding the orientation urges workers to do so. There is usually nothing Machiavellian about the rush. Benefits counselors are simply eager to get workers enrolled in a plan because those who wait sometimes forget. And that means more work for the benefits counselor and, potentially, a gap in coverage for the worker.
What’s the answer? Consultants suggest that new employees check out the company’s benefits programs before they even walk in the door. They can usually do this by calling the company immediately after the job offer is accepted and ask for the appropriate literature.
If you are a longtime employee, you should review your health-care choices each year. Generally, companies will have an “open enrollment” period annually, when workers who need to change benefits can also change their health insurance. If you have never spent the time to weigh all the choices, do so right before or during that open enrollment period.
But even when you have all the time in the world, considering the benefits and detriments of many seemingly minor differences can be tough. One good way to make sense of it all is to compile all your medical bills from the previous year. Then calculate how much your out-of-pocket costs would have been had you been enrolled in each of the company’s plans.
When doing this review, don’t forget about the differences between shared company-employee costs (the amount the company deducts from your checks each month to pay your portion of the health insurance). In some cases, this will be your biggest annual medical expense.
