Starting a new job is exciting, but all the paperwork about insurance, taxes, and benefits can be confusing. Health insurance is an important benefit offered by most employers, and taking advantage and making the right decisions can save you thousands of dollars.
Use this article as a guide to help you understand your new job health insurance options.
What are Employers Required to Offer?
Under the Affordable Care Act, companies with more than 50 full time employees are required to offer health insurance coverage—or be faced with a tax penalty. Smaller companies are offered tax credits for providing health insurance.
Employers typically offer their employees the insurance plans that make the most financial sense for the company. The employer generally pays a portion of the plan's monthly premium while the employee pays the remainder. Some companies offer to pay the entire monthly premium as an added benefit to employees.
While some employers offer coverage on the first day of work, many require employees to work at the company for up to 90 days before starting coverage. If you're a new employee waiting for your medical benefits to begin, you can get a short-term policy to fill this temporary gap in health coverage.
Employers may also offer vision and dental plans, workplace wellness programs, and flexible spending accounts, which allow employees to pay for medical costs with pre-tax dollars. Learn more about these requirements at Healthcare.gov.
Types of Plans
Most large employers will give you the ability to choose between several types of health insurance plans. Each plan comes with its own benefits and drawbacks, depending on your anticipated needs and healthcare costs.
PPO — A PPO, or preferred provider organization, is a health plan where you have the ability to choose your own healthcare providers. If you choose a doctor in the insurer's preferred provider network, you will get additional discounts and savings. If you choose a provider outside of the network, you will get reduced benefits.
HMO — An HMO, or health maintenance organization, is a healthcare provider in which your insurance company is your primary healthcare provider. Your doctors are employees of the same company that offers your insurance. You have fewer options when choosing a doctor, and are generally required to receive all care, outside of emergency situations, through the HMO in order to receive insurance coverage.
HDHP — An HDHP, or high deductible health plan, is generally similar to a PPO. However, these plans have a high deductible that you must meet before your plan will begin to pay a portion of your costs. A high deductible plan typically has a lower monthly premium but higher out of pocket costs. In 2016, the minimum deductible to qualify as a high deductible plan is $1,300 for individuals and $2,600 for families.
Premiums
Premiums are the monthly payments you must make to the insurance company whether you go to the doctor or not. Employers often contribute to premiums as a benefit to employees.
Monthly premiums can vary widely depending on the plan you select and the amount your employer chooses to pay. Because employees of the same company are treated as part of a group by insurance providers, you may pay lower premiums than you would if you were to purchase the same plan directly from the insurance company.
Employee health insurance premiums are usually tax deductible, which means you do not pay taxes on these payments. Most employers handle this for you by automatically deducting your premium payments from each paycheck as a pre-tax deduction.
Deductibles
Most PPO and HDHP plans have a deductible. In these plans, you pay 100% of healthcare costs out-of-pocket until you reach the deductible amount. At that point, your insurer begins to pay a portion of your costs while you pay the remainder. This is referred to as "coinsurance".
For example, if you have a $500 deductible and 80% coinsurance, you pay 100% of all covered medical expenses up to $500 per year. Once you reach $500, your insurance company will begin to pay 80% of your costs, while you pay the remainder. Once you reach the out-of-pocket maximum for your plan, your insurance company will begin to pay 100% of your eligible costs.
Each plan has a different deductible and coinsurance percentage, and some plans separate prescription medications from other healthcare costs. Breaking down your annual medical expenses can help you choose the plan with the best deductible for your needs.
In general, plans with lower deductibles have a higher monthly premium. If you are generally very healthy and rarely go to the doctor, a high deductible plan may make the most sense. If you have persistent health problems or make frequent visits to the doctor, you may save money by choosing a plan with a lower deductible and a higher monthly premium.
Out-of-Pocket Maximums
In addition to monthly premiums and a deductible, each health insurance plan has an annual out-of-pocket maximum. Once you have paid that amount, your insurance company will pay 100% of your eligible costs going forward.
Some plans have a lower out-of-pocket maximum, and others have a very high one. If you choose a plan with a high out-of-pocket maximum, it is important to have emergency savings in case of a medical emergency where you will have to pay thousands of dollars for treatment.
Tips If Your Employer Does Not Offer Insurance
Many small employers do not offer any health insurance, and others offer a small stipend that employees can put toward their own policies. If your employer does not offer coverage, or if you're currently unemployed, it's important that you get your own health insurance plan.
The Affordable Care Act requires uninsured individuals to pay a penalty, and offers discounts and assistance to individuals and families with income levels that fall below certain thresholds. If you are not currently insured, you can purchase your own health insurance plan through a federal or state exchange. You can access the federal exchange through HealthCare.gov.
Make an Educated Decision
Before choosing a health insurance plan through your new job, be sure to look at your healthcare costs from the previous year. Have a good understanding of your own health and your family's healthcare needs and consider any changes that may occur over the next year. In particular, assess the following:
- Number of doctor visits
- Expected surgeries or other types of hospitalization
- Upcoming non-surgical procedures
- Prescription medication costs
- Money available to spend on healthcare
Take into account the deductible, premium, and out-of-pocket-maximum for each plan, and choose the plan that best meets your needs.
