I have a little secret to share…. I actually majored in insurance in college.
Yes, that is actually a major.
No, it is not as boring as it sounds.
This is good news for you, my lovely readers, because it means that I had to take an entire course that was all about employee benefits!
So while I wouldn’t consider myself an expert, I think that I’m at least more knowledgeable than the average person.
Employee benefits are something that are (understandably) misunderstood.
When open enrollment rolls around, most people seem to just close their eyes and blindly pick an option that seems like it isn’t too expensive and might cover their needs.
But do they really understand what they are getting? I’d argue not.
And I understand! I spent almost two entire semesters learning about all of this stuff, and even I still get confused sometimes.
That’s why I’m here to help. I would argue that for the chronically ill, your employee benefits are the most important part of your compensation package.
I’ve probably been in the hospital more times in the past two years than some of my friends have in the past ten. Unfortunately, this can get very pricey.
Healthcare costs are rising at aggressive rates, and under current law, national health spending is projected to grow at an average rate of 5.5% per year for 2018-27 and to reach nearly $6.0 trillion by 2027.
With these costs rising, you should make sure that you’re getting the best value for your benefits and really understanding what is covered.
Let’s just jump right into it.
Employee Benefits Key Terms to Know
Let’s start out with some important insurance terms to know. These terms come up often in all types of plans, so it is very important to understand what they mean!
- Premium: the amount you pay to have an insurance plan, aka your monthly bill
- Deductible: the amount you pay for care before the insurance company starts to pay its share of the medical costs
- Coinsurance: a percentage of the cost that you pay for covered services until you reach the out of pocket maximum (usually after the deductible is met)
- Out of pocket maximum: the most you’d ever have to pay for covered health care services in a year. Copay, deductibles, and coinsurance count towards this number, but premiums DO NOT!
- Copay: a fixed amount you’ll pay for a medical service (doctor visit, ER visit, prescriptions) with the insurance company paying the remainder of the cost
- Open Enrollment: the period of time in which employees and employers can enroll in health insurance, make changes to their coverage, or cancel their coverage (unless they have a qualifying exception)
Most Common Types of Health Insurance Plans
Health maintenance organization (HMO):
- Limited network plan
- Requires you to have designated primary care doctor
- Must obtain referrals for specialty care from primary care doctor
- Will usually cost less in premiums, but has smaller network of covered providers
Preferred provider organization (PPO):
- The broadest level of coverage
- Allows you to see in network physicians as well as out of network physicians (at higher rates)
- Usually will have to pay copays for non-preventative care
- Premiums tend to be higher
Point of service organization (POS):
- Hybrid of HMO and PPO.
- Requires primary care doctor and referrals.
- Can see out of network doctors (at higher rates)
Plan Tier Levels
Once you choose the type of plan you want, you then have the option of choosing your plan tier.
These tiers help determine how costs are split between insureds (you) and insurers.
Here are the four levels of plans:
- Bronze – 40% consumer / 60% insurer
- Silver – 30% consumer / 70% insurer
- Gold – 20% consumer / 80% insurer
- Platinum – 10% consumer / 90% insurer
It is easy to assume you are receiving lesser quality care for “lower” level plans.
However, this is not true!
You receive the same level of care across all tiers. The only difference is what percentage you are paying.
Consumer driven health plans: everything you need to know
As healthcare costs are rising, insurers and employers are looking for solutions to lower costs. One of the ways this is being implemented is through consumer driven health plans, or CDHP’s.
What are consumer driven health plans?
a consumer driven health plan has 3 components:
- high deductible health plan (HDHP) – increases deductible and OOP maximums
- an account that is controlled by the employee – usually an HSA
- consumer information provided to employee to help them become better consumers of healthcare
High Deductible Health Plans – Quick Facts
- An HDHP can be an HMO, POS, or PPO
- In 2020, for an account to qualify as an HDHP, the deductible must be at least $1,400 for individuals and the out of pocket maximum for individuals cannot exceed $6,900
HSA and FSA’s: What they are and why they’re useful
HEALTH SAVINGS ACCOUNT (HSA)
- A type of savings account that lets you set aside money to pay for qualified medical expenses
- HSA’s are limited to $3,550 per year for individuals (as of 2020)
- Contributions are tax-deductible, but can also be taken out of your pay pretax
- Growth and distributions are tax-free
- Can only be used with a HDHP
- Money can be rolled over each year
FLEXIBLE SPENDING ACCOUNT (FSA)
- Pay for copayments, deductibles, some drugs, and some other health care costs. on a pre-tax basis
- Your employer can also contribute to this account
- FSAs are limited to $2,750 per year per employer (as of 2020)
- Employers can offer you to roll over $500 per year or to have a 2.5 month “grace period” to spend unused funds, but this is not required
- If your employer does not offer a roll over, you forfeit all unused contributions to your FSA!
Can I have both an HSA and an FSA?
You might be wondering if you can use both accounts. More tax free money towards your health expenses!
The answer is only a little complicated.
You cannot have an HSA and an FSA at the same time.
You CAN, however, have an HSA and what is known as a “limited purpose” FSA.
Limited purpose FSA’s differ from regular FSA’s because – surprise! – they are limited. A limited purpose FSA can only be used for qualified dental and vision expenses.
So, you could combine your HSA with a limited purpose FSA, but remember that all unused contributions in your limited purpose FSA will be forfeited at the end of the year!
Anyone who choose this employee benefits option, make sure to allocate your deductions wisely!
How should millennials choose health insurance benefits?
It can be difficult for millennials to choose their employee benefits because it may be the first time they have ever had buy them on their own!
Consider your medical costs over the past year, as well as expected upcoming medical costs
If you visit the doctor frequently, have high cost procedures, or take expensive medications – calculate the maximum expected loss that you could have…. could you afford this under each plan?
If you do not frequently visit the doctor – try looking into an HMO or CDHP to save money on premiums.
Remember that you may save money with an HMO, but you will have less flexibility with your benefits and where you choose to go vs. when utilizing a PPO.
Make sure to invest money back into your HSA or FSA to see tax savings on your medical expenses!
Beware of Waiting Periods!
Sometimes an insurance plan may have what is called a waiting period – this is a set amount of time before you can start using your benefits.
For example, you could have a 30 day waiting period before your health insurance benefits kick in.
This means don’t go calling your mom to cancel your health insurance the minute you land a job!
All About Voluntary Benefits
Many employers will also offer additional “voluntary” benefits that you can choose to participate in.
These are great employee benefits for millennials because they can fill gaps in coverage at a discounted price!
Some common examples of voluntary benefits that your employer could offer include:
Dental and Vision Insurance
You can buy supplemental dental and vision insurance.
However, it is recommended you read these policies very carefully!
Some may have broad exclusions or low annual maximums. Make sure to measure the cost of potential savings with what you would pay in premiums.
Many employers offer the ability to purchase life insurance through them.
This can be a good option depending on circumstances (such as if you have preexisting conditions that make it more difficult to obtain life insurance in the individual market).
However, there is a possibility you will forfeit that coverage if you leave your job or are fired.
This insurance will pay a percentage of your lost income if you have a covered accident or illness.
This insurance will help pay medical expenses – such as surgery and follow up care – that result from a covered accident.
Critical Illness Insurance
This coverage can work alongside major medical coverage in the event of certain critical illnesses such as: heart attack, stroke, coronary artery bypass surgery, end-stage renal failure, major organ transplant, and others. It generally pays a lump sum amount to the employee.
Hospital Indemnity Insurance
This coverage can help pay for costs associated with outpatient surgery, diagnostic tests, doctor’s appointments and emergency room trips.
It is usually a lump sum amount.
This coverage is especially beneficial if you participate in a HDHP and are worried about major costs related to a hospital stay.
Identity Theft Protection
This coverage will pay for monitoring public records and alerting the insured to any fraudulent use of their personal details, as well as paying for the cost of repairing the insured’s credit history.
It does not pay for financial costs associated with identity theft.
This coverage can help pay for veterinary and medical expenses for a related pet. Be sure to read the policy for exclusions!
Retirement Benefits (it’s never too early!)
I’m going to spend the most time talking about 401(k)’s because they are the most common type of retirement benefit offered by employers.
- A 401(k) is a special type of retirement account that is funded through pre-tax deductions
- The funds in the account can be invested in a number of different stocks, bonds, mutual funds, or other assets, and are not taxed on any capital gains, dividends, or interest until they are withdrawn
- The maximum amount you can contribute is determined by either company or government guidelines
- Your company may only allow you to contribute 4% to your 401(k), or they may choose to follow the government limit of $19,000 (as of 2019)
- If you earn $40,000 pre-tax and your employer allows you to contribute 4% towards your 401(k), your maximum contribution amount is $1,600
- Many employers will “match” up to a certain percentage contributed towards your 401(k). It is common that they will choose to match either 50% or 100% of contributions up to this amount
I know there are many people out there who hate math, and reading that last bullet is enough to make anyone’s head spin. I’m going to show you two examples below of what this actually means.
|Example 1: You earn $40,000 per year pre-tax, and your employer will match 100% up to 4% of your salary|
|= salary * % matched * % match amount|
|= 40,000 * .04 * .1 = $1,600|
This means that your employer will “match” up to $1,600 towards your 401(k). If you contribute $1,000, they will also contribute $1,000. If you contribute $2,000, they will contribute $1,600.
|Example 2: You earn $40,000 per year pre-tax, and your employer will match 50% up to 4% of your salary|
|= salary * % matched * % match amount|
|= 40,000 * .04 * .5 = $800|
This means that your employer will “match” up to $800 towards your 401(k). If you contribute $500, they will also contribute $500. If you contribute $1,000, they will contribute $500.
There is a ton that goes into understanding your 401(k), but we’re only worried about the basics here today.
The only thing I’m really going to say about a pension is that if your employer is offering one, you hit the jackpot! Many employers stopped offering pensions and they now are typically only still offered for government jobs. Pensions are great because employers contribute to the account for you!
Summing Up Employee Benefits
Now that you have a good understanding of all of the different types of employee benefits for millennials and how they work, make sure to see what benefits are included in your job offer!
As you can see, these benefits can all add up to be worth a lot of money.
It’s not all about your salary amount!
This can all be a lot to remember, so that’s why I created this FREE “Employee Benefits Cheat Sheet” to help you remember what you’ve learned once open enrollment rolls around. Make sure to grab a copy of yours today!