If you're shopping for group health insurance for your company the first or second time around, it can be hard to make a confident choice. The Affordable Care Act (ACA) has changed the group health insurance market considerably. Choosing the right plan is important to your employees and may even offer a competitive edge when hiring.
There are a few things about buying group health insurance in today's marketplace that you might not have considered. Factor these tips into your buying process, and you'll be on your way to getting a plan that will serve you and your employees well for years to come.
The main oversight: Ruling out HSA-qualified plans
First and second-time group health insurance buyers often miss the opportunity to buy a health savings account (HSA)-qualified high-deductible health plan (HDHP). Let's go over these plans so you can better understand why they are worth considering.
Health Savings Accounts
HSAs are individually-owned, tax-advantaged accounts that can be used to pay for current or future health care expenses. Like a retirement account, the funds can be kept as cash or invested into mutual funds. The account holder (i.e., the employee) can contribute to the account, as can any other person or entity, including the employer.
HSAs have a triple tax advantage:
- Contributions made via payroll deduction are pre-tax if made through an employer-sponsored cafeteria plan, therefore reducing taxable income.
- Earnings to an HSA from interest and investments are tax-free.
- Distributions from an HSA to pay for qualified medical expenses are tax-free.
An HSA is not the same as a flexible spending account (FSA), which is an employer-sponsored plan and requires employees to use or lose their contributions each year. Instead, HSA money belongs to the employee and remains in the account until used. Since the HSA is owned by the employee, it is not affected by a termination of employment, and unused amounts roll over from year to year. To open an HSA, your employees must be enrolled in a qualified HDHP (note that some HDHPs are not qualified).
High-deductible health plans
HDHPs are health insurance plans with lower premiums and higher deductibles and out-of-pocket maximums than traditional health plans. Yet, many first-time group health insurance buyers shy away from these plans and opt to offer a low-deductible plan because it minimizes out-of-pocket costs for their employees.
However, after three to five years of offering health insurance benefits, employers often end up moving to a high-deductible plan coupled with an HSA. Several factors may explain this progression:
- After a few years, employers have had time to understand how their plan works and may become more comfortable with employees assuming greater risk in the size of the deductible and out-of-pocket maximum, since the HDHP will still provide protection from catastrophic claims.
- They realize that preventive care is still covered by HDHPs at 100 percent, and is not subject to a deductible.
- Their employees' health care spending has been minimal, and they realize employees could be saving on premiums and building a nest egg for future use with an HSA.
- Health care cost transparency is increasing; employees can more easily choose between providers for the best value and treatment option.
These reasons may also explain why HSA-qualified HDHPs are the fastest-growing health plans on the market.
HDHPs are a great option for companies with a younger demographic that typically don't access health care very often. In addition, employer contributions to an HSA can keep out-of-pocket costs reasonable for employees.
For example, imagine the total premium for employee-only coverage under a traditional, rich group health plan is $600 per month per employee, and your company pays the full amount.
Let's say that, on average, your employees only visit the doctor once or twice a year. Moving to an HDHP would cut the total premium amount to $400 per month, per employee. But say you also elected to contribute $50 per month to each employee's HSA. So altogether, you spend $450 per month, per employee.
As an employer, you would save $150 per month, per employee. Your employees would be able to use the HSA contributions for qualified expenses not covered by the plan, resulting in lower out-of-pocket costs. They would also benefit from the HSA tax advantages mentioned earlier.
In addition to saving you money, HDHPs can help your employees become more cost-conscious in choosing health care. The higher deductible encourages them to pay more attention to how much their medical services may cost and often leads to lower spending on prescription drugs and outpatient care.
Other common surprises
There are a few other things that might catch you off-guard when shopping for group health insurance, especially in the era of the ACA. Don't be surprised if:
- More detailed data is required to get a quote. Prior to the ACA, rates were calculated based on age ranges. All you had to do was provide the approximate age of your employees, and voila, you could get an accurate health insurance quote.
Now, rates are calculated more specifically by age, so exact date of birth is needed. This means you will have to provide the date of birth of all your employees, their spouses and dependents to get an accurate quote.
- The network doesn't include your old doctor or hospital. Look closely at the network of doctors and hospitals that are provided by any plan you're considering. Many plans are reducing the size of their networks as a way to control insurance costs. Your employees may become upset when they discover their favorite doctor is now "out of network" under your new plan.
- Your prescription is classified as a high-tiered drug. Health insurers classify prescription drugs into tiers based on its cost, price compared to similar drugs, and the availability of generic versions or over-the-counter alternatives. The higher the tier, the more your employees will pay when filling a prescription. These are usually brand-name drugs without a generic equivalent.
Compare drug tiers among the insurers you're considering to get an idea of how costs might be different for employees filling prescriptions.
- There's a separate drug deductible. Many health plans now have a separate prescription drug deductible. Like the general deductible, a drug deductible represents the amount of prescription drug expenses your employees would have to pay out-of-pocket annually before the plan pays prescription drug benefits.
- Pediatric dental and vision requirements aren't what you thought. ACA-compliant health plans require pediatric dental and vision coverage. However, ACA provisions require very limited coverage. Look closely at what's included and make sure the coverage is sufficient for your workforce.
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