How to approach health coverage

Health insurance: The much-talked-about, incredibly confusing, indispensable coverage plan that makes every October, when enrollment season comes around, a little bit more stressful. To help you understand this important benefit, we’re going to keep our explanation simple, covering enough about health and disability insurance, and what you need to ask, to permit you to take full advantage.

Note that this primer is looking at insurance as an employer-provided benefit, not as it’s purchased on the individual market, but direct consumers will want to answer many of the questions and concerns posed below when considering their options.  

Your top takeaway should be the importance of having an insurance-backed plan for both the expected and unexpected health-related events in your future. Knowing how you will respond to or approach health care decisions could save you thousands of dollars over time.

Here’s what you need to know regarding…

General coverage: Find out if there are any monthly or per-pay-period costs for the overall benefits plan, which will make an immediate dent in your take-home pay (although it is usually a pre-tax deduction). Find out who is covered – just you? Other family members? Future family members? Find out when each component of the benefit goes into effect – some will begin the first day of work, some after 30 days, and some after one year of employment. Ask whether any of the benefits are taxable; life insurance, for example, is a benefit you may end up paying taxes on at the end of the year. If the benefits are provided “cafeteria-style,” where you choose which to enroll in, find out if you can add benefits at a later date, and what restrictions would be involved.

Health insurance: As you probably know, health insurance is expensive. Employers commonly cover some or all of your individual premium. Your share is typically paid in at least two ways: First, you’ll pay the “premium,” a monthly fee that will probably come out of your paycheck on a regular basis. Second, you’ll be responsible for a “deductible,” which is an amount you must pay (typically several hundred dollars) toward medical expenses like doctors’ fees or prescription drugs before your benefits kick in fully. Finally, there’s the “co-payment,” a pre-determined amount you pay toward your medical expenses, set either as a flat fee ($15, $50, $100) or a percentage of the total charge.

You may be able to choose from a few different types of insurance plans. Consider the type of plan (PPO, HMO, etc.), the expenses covered by each (for instance, HMOs will often pay for preventive care that others don’t), deductible and co-pay levels, exclusions for pre-existing conditions, and whether or not the plan features open or closed enrollment (for instance, there may be a medical exam or some other evaluation required for enrollment).

If you have a chronic condition like asthma or diabetes, or see a specialist (like a chiropractor or psychologist) regularly, add up the cost of your office visits and make a list of the prescription drugs you take. Then see whether the available plans will cover them, and what kind of deductibles and co-payments are involved. Also, be sure to check for any kind of annual or lifetime limit on what the insurance will cover.

Dental insurance: Find out what kind of preventive care (exams, cleaning, X-rays), surgical care (root canals, extractions), and orthodontic care (braces) are covered, and to what extent (in terms of deductibles, co-pay, annual limits, and lifetime maximums). Seeing your dental hygienist just twice a year, and receiving consistently good reports? Consider a basic, preventive care plan. Got grade-school-aged kids? Consider orthodontic coverage.

Vision/eye care insurance: This is a great benefit if you need it – and most will need it eventually. Evaluate what expenses are covered, what the deductibles are, and what the annual limits and lifetime maximums are. Many companies now offer an “up to” amount of annual coverage which can include exams, eyeglasses, contact lenses, and even disposable lenses.

Disability insurance: This is one of those benefits you will never care about until you need it. Disability insurance is usually divided into short-term disability (which sometimes includes an allocation for sick pay, and usually includes initial disability coverage from 90 days to a year) and long-term disability (which usually kicks in after short-term runs out). It’s important to understand that insurance is simply risk management, so ask yourself, “What kind of risk am I trying to cover?” Short-term disability typically provides 60% of your salary for three to six months. If you have sufficient savings, or if you are able to accrue sufficient paid sick or vacation time, you may only need long-term disability coverage, which is cheaper. Find out the percentage of your salary that’s paid, how that percentage may change over time, and what the percentage is based on. In addition, find out how any “variable pay” components may be covered. Also worth noting: If your employer does not provide maternity leave, short-term disability is an alternative to consider. (See also Navigating family medical leave.)

Life insurance: Though you’re probably not planning your funeral arrangements yet, this benefit will become increasingly important as you add loved ones to your life. In the meantime, it may cover the basic expenses in the event of an unexpected tragedy. Some companies will also allow you to purchase additional “term insurance” (covering an extra period of time), although often at or above the going market rate. It is usually better to purchase additional insurance separately, but evaluate the costs – especially if the rates offered will remain stable for the duration of your employment. Most life insurance policies are not big enough to cover what’s needed: It’s recommended you purchase or contribute to a plan with benefits amounting to 10-12 times your current income (or the largest income of the household), and only buy term life insurance (as opposed to permanent insurance, which lasts a lifetime but is more expensive and, typically, more complex).

Accidental death insurance: Though it may not matter to you how you die, some companies pay more if your death is of a more spectacular nature. Take this coverage only if it’s offered for free.

FOR MORE INSIGHT

On health, disability, and life insurance
7 ways to keep medical debt in check (Consumer Financial Protection Bureau)
Disability insurance: Why you need it and how to get it (NerdWallet)
Life Insurance: Who needs it? (Life Happens)

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