Making sense of your health care coverage is important, whether you’re reviewing the plan you are currently enrolled in, working with your employer to restructure a plan, or looking for a new plan.
However, it can take health benefit expertise, and advanced planning to compare different health plan design options, and various cost sharing requirements such as premiums, copayment, coinsurance, and deductible amounts.
Having trouble decoding your health care coverage options? NEA's health care experts have broken down some of it for you.
- Key Health Plan Features that Affect Members' Finances
- Health Plan Structures That Affect Plan Members' Access to Care
- Common Tax-Advantaged Health Care Accounts
Key Health Plan Features that Affect Members’ Finances
For further information on health care terms see the Centers for Medicare & Medicaid Services' Glossary of Health Coverage and Medical Terms.
The premium is the regular payment you make to access health coverage, regardless of how much or how little you use the plan. Payments are typically deducted on a pre-tax basis from an employee’s paycheck. Usually, the more you pay in premiums, the less you pay in deductibles, copayments, and other out-of-pocket costs, and vice versa.
Employee premium payments can vary depending on things like if just the employee is covered, whether family coverage subsidizes employee-only coverage, and how much employers contribute. Premiums often receive the bulk of the focus when people discuss health plan coverage, but don’t forget to consider how premiums and out-of-pocket costs relate to each other.
With access to the plan, you and your covered dependents can receive health care services, but someone—you or the insurance company, for example—has to pay for them. Before your plan will pay for most services, it will require that you cover the costs up to a certain dollar amount (the deductible).
Many plans pay for some types of preventive care before the deductible. Deductibles can lead to quicker or slower plan-paid costs, depending on how they’re structured. They vary based on who’s covered, the type of benefits used, whether care is obtained from an in- or out-of-network provider, and whether families must pay the full deductible before the plan starts to cover the costs of any covered family member.
3. COPAYMENTS AND COINSURANCE
Once you’ve met your deductible, the insurance company steps in to pay its share of the costs—the amount a doctor charges for a sick visit or that a lab charges for doing blood tests, for example. Even so, you’ll usually have to pay a portion of the covered charge determined as either a fixed dollar amount (a copayment) or a percentage of the costs (coinsurance).
Plans with copayments may have higher premiums than those with coinsurance, because copayments are capped at a set dollar amount and the out-of-pocket cost are generally lower than with coinsurance. With coinsurance, plan members pay more when doctors charge more. High out-of-pocket costs can lead members to skip care and/or prescribed medications—even when recommended by health professionals.
4. OUT-OF-POCKET EXPENSES
Federal rules cap the amount you pay for covered benefits in most health plans. Payments toward your deductible, your copayments and/or coinsurance count toward the cap, but some expenses, like for premiums and things not covered by the plan, don’t. High-deductible health plans (HDHPs) with a health savings account (HSA) are required under federal law to have annual minimum and maximum deductible levels and a limit on the maximum out-of-pocket levels. In 2022 HDHPs must have a deductible of at least $1,400 for self-only coverage and $2,800 for family coverage but can have out of pocket maximums of $7,050 for self only and $14,100 for family coverage.
Health Plan Structures That Affect Members' Access to Care
1. FULLY INSURED AND SELF-INSURED PLANS
A fully insured plan is one in which, in exchange for premium payments, an insurance company assumes the financial risk of paying for the health care used by plan members. When a school district, state or other entity takes on that risk, it’s a self-insured plan.
Self-insured plans usually contract with an insurance company to administer the plan and for access to its provider network. These plans are often more flexible with design and allow greater access to data on the cost and types of benefits used by plan members and their covered dependents.
2. IN-NETWORK AND OUT-OF-NETWORK PROVIDER NETWORK
To keep costs down and improve plan members’ health, insurance companies contract with and maintain a group of in-network providers—including doctors, hospitals, and labs. Those not in the network are called out-of-network or non-network providers.
Networks can be narrow (with relatively fewer providers) or broad. For most things, plans charge members more for out-of-network services, in part because in-network providers have agreed to accept a negotiated and often lower payment rate.
Narrow networks can sometimes lead to lower premiums, but they are more restrictive in where and from whom plan members can seek care.
3. PPO, HMO, EPO, AND POS
Preferred provider organizations (PPOs) establish a network of providers, but members can, generally, see out-of-network providers without a referral but usually at a higher cost.
Health maintenance organizations (HMOs) generally require plan members to use providers working for or on behalf of the HMO, with referrals and authorizations generally required for specialty, hospital, and surgical services.
Exclusive provider organizations (EPOs) combine aspects of PPOs and HMOs (no in-network referral but no out-of-network care).
A point-of-service plan (POS) is like a PPO but it may require referrals.
Regardless of plan type, when you receive emergency services, the copayment or coinsurance that you have to pay is usually the same whether you went to an in-network or out-of-network facility. Whether it matters to someone if a plan is more restrictive in allowing access to specialists and out-of-network providers usually depends on their particular health care needs.
Common Tax-Advantaged Health Care Accounts
1. HEALTH SAVINGS ACCOUNTS (HSAs)
An HSA must be paired with an HSA-qualified high-deductible health plan (HDHP) in order to receive contributions. HSAs are designed to pay for unreimbursed, IRS-approved medical expenses. They are subject to federal annual deductibles, out-of-pocket, and contribution limits.
An employee, an employer, or others can fund an employee’s HSA, and contributions to an account, payments for medical expenses, and gains on investments are generally not federally taxable to the account holder. HSA balances roll over from year to year and follow the account holder if the account holder leaves the employer.
Heads up: HSA contributions can’t be made for people enrolled in Medicare (but HSA funds contributed before then can be used). Also, dependent children, for HSA reimbursement purposes, are defined as under the federal tax code (not extended up to age 26 like under the Affordable Care Act).
2. HEALTH REIMBURSEMENT ARRANGEMENTS (HRAs)
HRAs can only be funded by employers, and they can limit the types of IRS-approved, unreimbursed medical expenses they’ll cover. They do not have to be coupled with an HSA-qualified HDHP but often are. Account balances do not have to roll over every year (although they can), and HRA balances cannot be used to pay for non-medical benefits (or cash withdrawals). Contributions, reimbursements, and investment gains are generally not federally taxable to the account holder.
Unlike HSAs, contributions to HRAs are not subject to a federal cap and do not require a federal minimum annual deductible. HRAs are subject to complex rules regarding when and how they can be used. Reimbursements are okay for dependent children up to age 26.
3. HEALTH FLEXIBLE SPENDING ARRANGEMENTS (HEALTH FSAs)
Employers set up health FSAs, and employees can defer pre-tax pay into the account up to the federally determined annual maximum or a lower amount set by the employer. General-purpose FSAs can be used to reimburse any IRS-approved medical expenses. FSAs can also be established that are limited in scope, such as covering dental or vision out-of-pocket covered expenses only. At the end of the plan year, employees generally forfeit unused FSA money.
FSAs can have a grace period for employees to spend unused funds at the end of the plan year, or they can allow limited rollovers. The types of expenses reimbursed can be limited. Reimbursements are okay for dependent children up to age 26. Due to the COVID 19 pandemic and the inability of employees to receive medical services, a number of health FSA rules in terms of rollovers and forfeitures were temporarily relaxed.