Before You Sign Up for Health Insurance at Work, Read This - Kiplinger's Personal Finance
It’s open enrollment time at workplaces across the country – for health insurance as well as a bevy of other benefits. Here are four tips to help navigate the maze of benefit decisions.
The fall open enrollment season for employees is upon us, which means millions of American workers will need to make a number of complex decisions when it comes to their benefit selections. In fact, typically the average employee may have to make decisions on over 17 benefits.(1) That’s a lot of decision-making responsibility — especially when you add the stress of trying to protect the financial well-being of your family as the pandemic continues.
Plus, this process will likely not get any easier this fall, as many employers plan to make changes to their benefit line-ups as a result of COVID-19. Therefore, to help navigate the maze of decisions employees will need to make during open enrollment, below are four tips to help maximize your workplace benefits.
Tip No. 1: Don’t be scared off by high-deductible health plans
The two most common types of health plans that employees have access to through their employers are preferred provider organization (PPO) and high-deductible health plans (HDHPs). The PPO option typically has a lower deductible with higher premiums, while the HDHP option typically has higher deductibles with lower premiums and is commonly paired with a tax-advantaged health savings account (HSA) — a powerful savings and spending vehicle.
To help understand why American workers choose the health plans they do during open enrollment, Voya launched a study last fall in partnership with SAVVI Financial. Interestingly, the research reveals employees often have a bias against HDHPs when compared to more traditional PPO health plans. In one part of the study, participants were presented with two different plans and told to think of them as identical in quality of care, access to care and all other features beyond cost. The only differences in the HDHP vs. PPO plans were the premiums and deductibles. Almost two-thirds of study participants (65%) selected the PPO plan — despite the fact that the study was purposefully designed so the HDHP would always be the optimal financial choice. As a result, depending on how much they used their benefits, the average employee was overspending on their health care plan by $500 to $2,500 through the year — which is money a person could be saving for retirement or putting aside for an emergency.
The study identified several reasons why employees are biased against HDHPs, and interestingly the naming 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 noticeably lessens when the plan names are unbranded (53% PPO vs. 47% HDHP).
The bottom line is that when it comes to selecting the best health plan for your family, there’s never a universal, one-size-fits-all solution. Therefore, it’s important to keep an open mind — or you could potentially end up overspending on your health plan.
Tip No. 2: Tap into the power of HSAs
COVID-19 has underscored the need for American workers to be better prepared for health expenses. A health savings account can offer several benefits for both short- and long-term health care savings. For anyone enrolled in a high-deductible health plan, HSAs can help you address immediate health costs as well as the ones you’ll have later in life when you retire.
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Faced with a short-term, unexpected need — such as paying for an ER visit — many people might be tempted to dip into their retirement savings. Fortunately, funds in an HSA can double as an emergency savings account for qualified health care expenses. HSAs have the potential to offer triple tax benefits:
- Contributions are not taxed.
- Investment gains are not taxed.
- And withdrawals for qualified medical expenses are not taxed, either.
Plus, when enrolled in a HDHP and 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 unexpected health care costs in the future. Additionally, since HSA funds roll over each year, many HSAs offer the opportunity to potentially grow your account balance by investing in long-term investment funds, such as stocks.
As a result of these features, HSAs have increased in popularity during the pandemic. Industry research shows that assets in HSAs increased 25% and the number of new HSAs increased 6% in 2020 — which brings the total number of HSAs to approximately 30 million in the U.S. For 2022, the IRS has also increased HSA contribution limits to $3,650 per year for individuals and $7,300 for families. Individuals who are 55 and older are eligible for an additional $1,000 catch-up contribution.
Tip No. 3: Don’t overlook group life insurance
The pandemic has caused many people — both young and old — to reflect on their own mortality. As a result, the number of life insurance policies sold during the first half of 2021 increased 8% compared to last year. This is the highest policy sales growth recorded since 1983, according to LIMRA’s Second Quarter U.S. Individual Life Insurance Sales Survey.
Unfortunately, individuals with serious medical 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 group life insurance provided by your employer might be a benefit worth exploring during this fall’s open enrollment period.
Since group life insurance is sponsored by your employer, it’s often a cost-effective way to help protect those who rely on your income. In many cases, it doesn’t require a medical exam for coverage — which is typically cited as a barrier for purchasing life insurance. Additionally, 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 kids may also be eligible, which provides another layer of protection for the entire family.
How much life insurance coverage do you need? It’s a personal decision and one that needs to be carefully considered. When calculating the amount of life insurance you want to purchase, one rule of thumb is that your death benefit should equal five to 10 times your annual income. While this is a simple formula, it’s important to remember that it doesn’t consider individual factors, and the financial protection your family may need can change over time — for example, when your children finish school or when you pay off major debt, such as your mortgage. If you need help, there are online calculators that do a great job providing personal guidance, or you can speak with a financial professional.
Tip No. 4: Voluntary benefits are becoming less ‘voluntary’
Typically, when employees prepare for open enrollment, they spend most of their time focused on their core workplace benefits: medical, dental and vision. While these benefits are important, Voya’s customer data shows that more than four in 10 retirement-plan participants (44%) have protection or insurance gaps in their coverage.(2) This could put you in a challenging financial situation if you get hit with an unexpected medical expense. For example, the average cost of one day in the hospital in the U.S. is around $2,400, with the average patient staying more than four days.(3)
Voluntary benefits offered through your employer can provide additional protection, and it’s encouraging to see that employees are now increasingly turning to their employers for solutions. New Voya research shows that the majority of working Americans (75%) want help navigating an unexpected life event, such as a critical illness or accident. Some of the voluntary benefits and services that some employers are offering include hospital indemnity insurance; critical illness insurance coverage; and student loan guidance, refinance and repayment, to name a few.
Employees should not disregard these types of voluntary coverage when selecting their workplace benefits during open enrollment. For example, if you are expecting a baby in the coming year or perhaps are worried about getting COVID-19 and being hospitalized for an extended period, hospital indemnity insurance can help, and typically costs less than what most people expect. Hospital indemnity insurance averages between $250 and $300 per year — that’s less than $1 per day.(4)
Plus, some voluntary benefits can be particularly useful for more than medical bills. Accident insurance, for example, can be used to pay for anything from living expenses — utility bills, pizza delivery or dog walking — to rides to your next doctor’s appointment. When you experience a qualified accident, that benefit payment is yours to spend how you like and need.
If we look at lessons learned from last year’s open enrollment period, a Voya consumer survey shows that nearly six in 10 American workers (56%) spent more time reviewing the benefits offered by their employer during their open enrollment period. As we enter yet another fall open enrollment season in the midst of the COVID-19 pandemic, I would strongly encourage everyone to make this time investment once again.
While I realize it might feel like a maze of decisions to navigate, if you get lost, your HR team is there to help guide you and can likely provide links to online tools and resources. Besides, you’ve already taken the important first step to putting yourself on the path to success, and that’s spending time educating yourself.
1) For illustration purposes only. Number of benefits decisions will depend on employer offering
2) Voya book of business data as of 12/31/19
3) The Kaiser Family Foundation Health Stats; Nov. 2014 study. Reviewed and updated 11/20/19
4) Voluntary Hospital Indemnity and Supplemental Medical Products SpotlightTM Report, Eastbridge Consulting Group, Inc., 2019 (average annual premium cited is for group products only)
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Rob Grubka, Fellow in the Society of Actuaries
CEO, Health Solutions, Voya Financial
Rob Grubka is chief executive officer of Health Solutions for Voya Financial. In this role, he is responsible for product development and management, distribution and the end-to-end customer experience for Voya’s stop loss, group life, disability and supplemental health insurance solutions, as well as health savings and spending accounts, offered to U.S. businesses and covering more than 6.6 million individuals through the workplace.