PERSONAL FINANCE: What you need to know during this year’s ‘open enrollment’ period [Column]

We’re entering open enrollment season — the yearly period when you have a chance to make changes to your employee benefits package. If you’re like most employees in the U.S., open enrollment may be the only opportunity you’ll have during the entire year to alter your health care benefits.

Health insurance can seem complicated because there are so many moving parts. It’s helpful to understand the different terms and acronyms you are likely to encounter as you review your options. Here are some of the most common.

Premiums

Any form of insurance coverage involves paying premiums, which is essentially the amount you and your employer pay to your insurer every month for your health insurance. Most employer-based health insurance today requires that you pay a portion of the monthly premium for coverage. The payments you are required to make are generally deducted from each paycheck.

Deductible

Many insurance plans include a deductible. In the case of health insurance, this is the amount of money you have to pay in total (usually in a given year) before your health insurance assumes the costs. For example, a plan with a $1,000 deductible would require that you pay all bills up to $1,000 out of your pocket before insurance coverage would kick in.

Copay (copayment)

This is a fixed amount you pay each time you use a medical service. For example, each doctor’s visit might require a $20 copay. If your insurance plan includes copays, this amount is required even if you’ve met your deductible for the year.

HMOs and PPOs

These are two different forms of health insurance coverage. HMOs are health maintenance organizations, which often are available for lower monthly premiums but come with some restrictions. For example, most require that all of your health care needs be coordinated through your primary care physician. With HMOs, you are also typically limited to services from a specific network of providers covered by the plan. PPOs are preferred provider organizations, which tend to have higher premiums than HMOs. With PPOs, referrals from your primary physician typically aren’t required and you generally have more flexibility in choosing providers.

Health Savings Accounts (HSAs)

Some health insurance plans come with an HSA feature. This allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. You can use the savings account to cover expenses for deductibles, copays and other out-of-pocket medical costs. By using pre-tax dollars, the net cost to you for these services is reduced. HSAs also automatically roll over any unused funds each year for future use, even years from now when you retire.

High Deductible Health Plan (HDHP)

These plans are offered in conjunction with an HSA. HDHPs often are available for a lower monthly premium, but, as the name implies, require that you carry a higher deductible. Much or all of the deductible can come out of the money you set aside in the HSA. If you anticipate few major health care needs, HDHPs can be a sensible option to limit your premium costs.

Flexible Spending Accounts (FSAs)

This benefits option lets you pay many out-of-pocket medical expenses with tax-free dollars. You set money aside into an FSA with each paycheck on a pre-tax basis. The funds accumulated can be used to cover the costs of copays, deductibles, qualified prescription drugs, and certain other medical expenses. Most of the money must be used before the year is out, but your employer may allow you to carry it over for a short period into the following year or include a provision that lets you spend up to $500 of this year’s FSA savings in the following year. Make sure to inquire with your benefits provider if you have questions about the specifics of your plan.

Making the right choices for your circumstances can result in better coverage than you have today and potentially save you hundreds or even thousands of dollars a year. It’s worthwhile to carefully review your options and choose the most appropriate plan for your needs.

Bronwyn L Martin is a Financial Advisor and Chartered Financial Consultant with Martin’s Financial Consulting Group, a financial wealth advisory practice of Ameriprise Financial Services LLC. in Kennett Square and Havre de Grace, Md. She specializes in fee-based financial planning and asset management strategies and has been in practice for over 22 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.

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