Nearly 150 million Americans get health insurance through their employer. If you are among them, pay close attention to the enrollment materials heading your way this fall. Major changes are afoot.
Every year at this time, employees can review their benefits and choose a plan for the following year, an annual rite known as open enrollment. The vast majority end up “auto-enrolling”—that is, staying in the same plan year after year—according to a survey of 2,100 American workers conducted this year for insurer
Aflac.
That might not be the best strategy this time around, experts say. Two-thirds of employers tracked by human-resources consultant Mercer say they are making changes to their health plans for 2015 to rein in costs and comply with the Affordable Care Act, which was signed into law in 2010.
Many companies are raising premiums or increasing deductibles. Others are offering financial incentives to workers who take steps to improve their health—or imposing penalties on those who don’t. Still others are levying surcharges to cover spouses in certain circumstances.
In addition, many employees will receive enrollment materials for the first time, due to an ACA provision requiring large companies to offer health coverage to a wider pool of workers.
“If there was ever a year for employees to pay attention to open enrollment, this is it,” says Brian Marcotte, chief executive of the National Business Group on Health, a Washington-based association of 400 large U.S. employers.
Most workers take less time researching their benefit options (30 minutes) than they do shopping for a television (two hours), according to Aflac. Yet employer-sponsored health coverage costs a typical family of four close to $10,000 a year in payroll deductions and out-of-pocket expenses—far more than a typical flat-screen—according to actuarial consultant Milliman.
Here is how to make smart choices that could help you save hundreds—even thousands—of dollars next year:
Learn the New Rules
One big change for 2015 is that more employees will be eligible for employer-sponsored health insurance.
Under the employer “shared responsibility” provisions of the Affordable Care Act, companies are required to start offering coverage the government deems adequate and affordable to employees working 30 or more hours a week. A plan is considered affordable if it costs you less than 9.5% of your annual household income, and adequate if it pays at least 60% of the cost of covered services.
Employers with 100 or more full-time employees must offer coverage to 70% of those workers next year; firms with 50 or more full-timers must offer coverage to 95% of them in 2016 and beyond.
If you or a family member gets an enrollment package for the first time, “pay attention, because you probably need to take action,” says Tracy Watts, a senior partner in charge of health reform at Mercer.
The penalty most people face for not having health coverage rises next year to 2% of annual household income above the expected tax-filing threshold of $10,300 for a single filer and $20,600 for a couple, within certain limits. This is the employee’s part of the shared-responsibility mandate.
First-timers currently enrolled in a health plan through a public exchange must be especially vigilant. If you purchased a policy with a premium tax credit (available to lower-income workers buying plans on the exchanges), you may no longer be eligible for the subsidy, assuming your employer’s plan meets the government’s standards for affordable, adequate coverage.
HealthCare.gov, which serves more than 30 states, will automatically renew most policies, so you may have to take steps to cancel a plan purchased there; some states with their own exchanges require policyholders to actively re-enroll.
If you don’t sign onto a medical plan—either through your employer or an alternate source such as a public exchange—you could face penalties at tax time unless you apply to the government for a waiver from the individual mandate in 2015.
Even if your employer’s plan doesn’t meet the government’s standards for affordability and adequacy, you still could have to pay a penalty if you don’t have coverage
Study the Options
Some employees will have a variety of health plans to choose from this fall, and they need to evaluate which one will be the best fit. Others will have only one or two workplace plans to choose from.
Your first priority should be to understand the choices, and how they are changing.
The most common type of employer health plan is what is known as a preferred provider organization, or PPO, in which participants pay less if they use doctors and hospitals within the plan’s network and more for providers outside the network. Participants are typically on the hook for a portion of the cost of visiting a doctor, known as a copay.
PPO plans enroll 58% of covered workers, according to the Kaiser Family Foundation, a Menlo Park, Calif.-based nonprofit focusing on health issues.
Premiums, deductibles and copays on such plans are headed higher, Mr. Marcotte says. That is partly because in 2018 plans will be penalized with a 40% excise tax if their value to the employee exceeds certain dollar thresholds.
Enrollment is up significantly in another type of plan, sometimes known as a “consumer-directed” or “account-based” plan.
Almost one-third of companies surveyed by the National Business Group on Health expect to offer such a plan as their only option for 2015. That represents an increase of nearly 50% in the number of companies taking that approach this year.
These plans typically come with higher-than-average deductibles and lower-than-average premiums. For example, the employee share of the annual premium for single coverage for consumer-directed plans averages $905, versus $1,081 for all plan types; the deductible averages $2,215, versus $1,217 for other plans, according to Kaiser.
Like PPOs, most consumer-directed plans have networks of physicians. But unlike with PPOs, you typically take on most of the cost for doctor visits and other health care until your deductible is met.
To help cover such costs, these plans are typically linked with tax-advantaged health savings accounts, known as HSAs, which participants and employers can both fund and which can be used to pay for out-of-pocket medical expenses. The money can often be invested in stocks or mutual funds, though some accounts require a minimum amount to be held in cash.
Your contributions reduce your taxable income, and you don’t pay any taxes on the contributions or any growth in the account if the money is used to pay for qualified medical expenses. If you use the money for other purposes, both your contributions and your employer’s are taxable, as are any gains on the money; if you are under 65, you also pay a 20% penalty on money used for nonmedical purposes.
Employees considering a consumer-directed plan should keep in mind that taking advantage of an HSA is often crucial to making the plan a good deal. Money in an account that isn’t used one year can be rolled over to the next, and your account can go with you if you change jobs or retire.
For 2015, you and your employer will be able to contribute up to $3,350 combined to an HSA, up from $3,300 this year. If you have family coverage, the new limit will be $6,650, up from $6,550. Participants 55 and older (and not yet enrolled in Medicare) can contribute an additional $1,000.
Plans linked with HSAs also carry limits on out-of-pocket expenses that participants can be forced to pay. Those limits will rise to $6,450 for individuals and $12,900 for families. Most employers set limits well below those amounts: The average out-of-pocket limit is $2,250 for individuals and $5,000 for families at firms with more than 500 employees, and $3,000 for individuals and $6,000 for families at smaller firms, according to the latest figures from Mercer.
The out-of-pocket limits include deductibles, coinsurance and copays, but not premiums. But starting in 2015, prescription-drug costs must count toward the out-of-pocket maximum.
“That’s good news for employees,” says William Austin, managing director at benefits consultant NFP Corporate Services.
Do the Math
The next step is to figure out which of the plans on offer is likely to cost you the least.
If you have a PPO plan, add up your copays for the past year. Then, add up the insurer’s negotiated rate for the services you received—which is found in the explanation of benefits—to see what your costs might have been in a consumer-directed plan. Don’t forget to consider the premiums for each plan, too.
If you didn’t spend much on health care, the math may point toward choosing a plan with a high deductible, such as a consumer-directed plan, says Carolyn McClanahan, founder of Life Planning Partners, a fee-only financial-planning firm in Jacksonville, Fla. That is because your expenditures, including premiums and out-of-pocket expenses, may still be lower than the premiums and copays in a low-deductible PPO.
But you must be prepared to cover the costs if your health-care needs rise. Make sure you can afford the deductible and the out-of-pocket maximum in a consumer-directed plan. You don’t want to come up short, nor do you want to skimp on necessary medical care to avoid spending money.
If you did spend a lot on health care, you may instead want a low-deductible, which many PPOs have, Ms. McClanahan says. That may also be the best choice if you have reason to believe your health-care expenses will go up—if, for example, you plan to get pregnant or have surgery, or you or someone in your family has developed a chronic medical condition.
There are exceptions to those rules of thumb. For example, some employers pick up a larger share of the premium for consumer-directed plans to encourage employees to enroll in them, says Ms. Watts at Mercer. If that makes the premium low enough, it might make it worthwhile to accept a high deductible in a consumer-directed plan, even if you’re going to use it all, she says.
Another change could also affect the calculations—this one involving health-care flexible-savings accounts, which are similar to HSAs, and which are available to employees regardless of which type of plan they choose. These accounts can be used for uncovered medical expenses if you don’t have an HSA through your plan, or if you use an FSA exclusively for dental and vision expenses.
As with HSAs, contributions to FSAs reduce your taxable income. But in the past they could be particularly risky because participants forfeited any unspent money in the account at year-end. Now employers have the option of allowing employees to carry over up to $500 of unspent FSA funds from one year to the next.
The Internal Revenue Service hasn’t announced the health-care FSA contribution limit for 2015 yet, but Marjorie Martin, a principal with Buck Consultants at
Xerox, projects it will be $2,550, up from $2,500 this year.
Weigh the Incentives
Employers also are trying to influence their workers with financial incentives, which can be worth weighing.
More employers, for example, are charging extra to cover spouses who are eligible for coverage elsewhere. The average added expense is $100 a month, Mercer found.
A growing number of companies are offering employees financial incentives for healthy behavior.
Some common variations: premium discounts amounting to $250 a year on average, or cash or gift cards totaling $75 on average for completing a biometric screening or health assessment and discussing the results with a lifestyle coach, says Beth Umland, director of research for health and benefits at Mercer.
Keep an eye on the calendar. Mr. Marcotte says employers his association surveyed put on average $600 per employee into HSAs. Thirty percent of them make contributions if employees participate in select wellness programs, but there is usually a deadline, typically late November, for participating. “You don’t want to miss that window,” he says.
In selecting a plan, it also is worth checking the rosters of participating physicians in competing plans. Doctor groups have been merging and hospitals have been revising their contracts with insurance companies at a furious pace, so your plan choices may include “vastly different” combinations of doctors and hospitals than in years past, according to a report from benefits consultant Aon Hewitt.
There is another strategy for dealing with such changes. “It’s always nice to ask your doctors if there’s a plan they like best,” adds Ms. McClanahan, a former doctor. “They’re more likely to choose to stay on that plan’s panel.”
Consider the Alternatives
Nine percent of employers tracked by Kaiser offered additional compensation this year to employees who chose not to enroll in their health plans.
If you are considering the alternative approach of buying a policy through a public exchange, keep these points in mind.
First, you won’t be eligible for a subsidy if your employer is offering you coverage the federal government deems adequate and affordable.
Also, employer-based coverage is purchased with pretax dollars, but coverage through an exchange is paid for with after-tax dollars.
Lastly, if you change your mind, you can’t necessarily go running back to your employer’s plan at will. You may have to wait until the next open-enrollment period rolls around.
