How to Evaluate Employer Benefits Packages (Part 2): Medical
In my prior post I shared what I consider the Big 5 Benefits and how you can get started evaluating different benefit packages. In this post we’ll take a deeper dive into what to look for when comparing medical benefits, but first it’s important to understand some basic plan terminology and how health insurance works.
How Health Insurance Works
Some benefits are insurance policies designed to protect you from catastrophic financial loss. The way health insurance works is that you contribute funds to a “piggy bank” of sorts with a group of other people (like your fellow employees). Because everyone puts a little into the bank, no one has to shoulder the entire financial burden if something unexpected happens to them. Instead, the “members” in the insurance plan pay some costs out-of-pocket and the rest is covered using funds from the bank, (in this case, the health insurance plan). In the case of medical benefits, the "bank" deposits are contributed by your employer, and you and any fellow employees who are covered under the same health plan.
The Difference Between Medical Plans
The primary differences between health insurance plans are the member responsibilities: (1) how much you are required to contribute to the plan and (2) the formula for determining how much you pay out-of-pocket versus how much is paid by your health insurance plan when you need a service.
Typically, all health plans cover 100 percent of the cost for preventative care, such as annual physicals and screenings. How you share the cost for the rest of your healthcare services is based on three plan design components.
- Deductible: This is the amount each year that you’re responsible for paying before your insurance kicks in to help. Plans may have different deductible amounts.
- Coinsurance & Copays: Both of these terms describe your share of the cost of a covered healthcare service. Coinsurance is calculated as a percentage of the remaining balance after you have paid the deductible. Copays are a fixed dollar amount that you usually pay at the point of service, like a doctor’s visit or when paying for prescription medicines.
- Out-of-Pocket Maximum: This is the maximum amount you could end up paying through the deductible, coinsurance and copays in one year. After you meet this limit, your insurance plan will usually pay 100% of the remaining cost of covered services. This is the part of the benefit that protects you the most from the catastrophic impact of a major health care event. It’s important to note though that sometimes deductibles, copays and coinsurance for specific services will not count toward this limit.
A Practical Example
Here’s an example of how these three components work together. Let’s imagine you have a health plan with a $1,000 deductible and 80% coinsurance, and you need a medical procedure that is going to cost $1,500. Because you have a $1,000 annual deductible, you would first have to pay that amount. Your health insurance plan would cover 80% of the remaining $500 ($400) with the remaining 20% balance ($100) coming from you, making your total personal responsibility $1,100.
Now let’s imagine you need a second $1,000 medical procedure in the same year. You already paid your annual deductible of $1,000, so this time your total portion of the bill would only be 20% (or $200) with the plan picking up the other 80% ($800).
What to Look for When Comparing Medical Benefits
Now that you know the primary difference between health insurance plans is the member responsibility, here are some important components to consider when comparing medical benefits.
1. Your Contribution Amount & the Out-of-Pocket Maximum
Take note of the required contribution amount for each plan option. Sometimes this is referred to as the “premium”, and is the amount that will be deducted from your paycheck each pay period to help cover the “Health Plan” portion of your medical expenses. Although your contribution may seem like a lot, remember that medical insurance is very expensive and your employer is probably paying 70% or more of the total “premium” cost.
You should try to select a plan that enables you to balance how much of the out-of-pocket costs you can afford to pay before you reach the out-of-pocket limit. If you can fund more of those out-of-pocket costs (if they occur), you can enroll in an option with a lower employee contribution. But if you want the health plan to take more of the risk, then you should expect to have a higher contribution deducted from your paycheck.
2. The Provider Network
Every health plan has a designated network of providers (doctors, hospitals, etc.) that have agreed to offer their services at specific rates for plan members. Your out-of-pocket costs are lower when you use this network. Some plans do not offer any coverage when you use providers outside of the network, which leaves you paying the entire bill.
If you have a favorite hospital or a preferred primary care physician or specialist, you should make sure they are in the health plan’s network of providers. If not, you will probably need to change providers to help control your costs.
3. Coverage for Specific Medical Conditions
Remember that if you are healthy and don’t have any chronic conditions that need to be regularly managed (including using prescription medication), most of your care will probably fall under the preventive category, which is usually covered at 100% when you use in-network providers. However, if you have specific health issues, you should dig deeper into the coverage for your condition. You may want to request a plan document and/or a schedule of benefits and do research on how your specific care needs will be covered.
It’s not a good idea to bring up your specific health issues during the recruiting process. I recommend calling the customer service line of the health plan's third-party benefits administrator to obtain these details. If there are aspects of the employer’s plan you don’t like, you can also choose to purchase your own coverage through Healthcare.gov or directly from any of the health insurance carriers. But in doing so, you will miss out on the amount the employer contributes toward the premium of the plans they offer.
Next Time: Retirement Benefits
Retirement benefits are frequently overlooked, but they’re probably your single largest benefit. In the next post I’ll explain the different options employers provide and help you learn how to maximize this benefit.
Written by Brian Mitchell
Brian Mitchell has experience leading Total Rewards strategy and implementation for large employers. He enjoyed helping his own millennial children navigate first-time employment and benefit selections. He hopes his insights simplify the process for you as well.
Benefit Boosts by Brian Mitchell© – Vol 2024-003
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