NerdWallet's Smart Money Podcast
Open Enrollment: Choosing a Healthcare Plan (HMO, PPO, FSA, HSA, HDHP and More)
Thu, 07 Nov 2024
Expert Nerds talk through the complexities of open enrollment, starting with ways to assess healthcare plans and costs. This episode takes a deep dive into specific terminology and scenarios relevant to choosing health insurance coverage. Hosts Sean Pyles and Liz Weston start with an overview of open enrollment period timelines for November and December 2023 before welcoming guest Nerd Kate Ashford to explain deductibles, premiums, HMOs, PPOs and HDHPs. Then, NerdWallet’s Tina Orem joins the show to discuss the pros and cons of high deductible plans and the intricacies of Health Savings Accounts (HSAs) and both Medical and Dependent Care Flexible Spending Accounts (FSAs). In the second half of this episode, she zeroes in on selecting optimal health insurance for individual needs, discussing the merits and disadvantages of different health plans, budgeting for healthcare, and how to compare the benefits of an FSA and an HSA. In their conversation, the Nerds discuss: open enrollment, health insurance options, healthcare choices, high deductible plans, premiums, health savings accounts (HSAs), flexible spending accounts (FSAs), optimal health insurance, HMOs, PPOs, HDHPs, health insurance budgeting, FSA vs HSA, the use it or lose it rule, health insurance decision-making, health insurance terminology, healthcare strategies, health plan selection, medical costs, and types of health insurance coverage. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [email protected]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What is open enrollment and when does it occur?
Hey listeners, Sarah here with a super quick announcement before we get into today's episode on open enrollment. I just want to let you know that we will be talking about the results of this week's election in a special episode this Monday. So no politics today, but know that our editors are hard at work so we can help you understand what the results mean for your finances.
Now, enjoy today's episode.
Hello, dear listeners, Sean here. Today and this month, we're reprising a special series we brought you last year on open enrollment. It was so nice, we're running it twice. Plus, we miss our old friend Liz Weston and wanted to bring her out of retirement, sort of.
This series is chock-a-block with specifics on this really important time of year when a lot of people are choosing their healthcare and other benefits. So sit back, perhaps with a cup of something delicious, pumpkin spice, peppermint, or not, and enjoy. Decisions, decisions. Sometimes it's hard to make them.
And that goes double when you're trying to figure out which health plan to choose during open enrollment.
How much health care do you use? How often do you see the doctor? Do you have any major surgeries or procedures coming up? Are you planning to try for a baby? Do you have small children? All of these things can affect what kind of plan makes sense for you.
Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Liz Weston. This episode kicks off our nerdy deep dive into open enrollment. Yay! Liz?
Sean, did you just yay open enrollment? Sarcastically. Oh, okay. Well then, yes. Yay. And I'm confident in predicting that nobody actually says that at this time of year.
Yeah, it's not my idea of fun to sit down and try to figure out if I want a high deductible plan. What my premiums will be, what prescriptions are covered or not, if I should use an HSA or FSA, how to decide on life insurance and disability.
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Chapter 2: How do I choose between HMO and PPO plans?
All the terms. So co-pay is usually a fixed amount you pay every time you see a doctor or specialist. So your plan might have you pay $25 every time you see your primary care doctor and $50 every time you see a specialist. Co-insurance is what it's called when you pay a percentage of the costs of a covered service, usually after you've met your deductible.
This tends to kick in for things like x-rays. So if you hit your deductible, you would owe 20% of the cost of the x-ray and your insurance covers the rest.
And how do you go about evaluating where these fit into your decision making? I mean, high deductible with low co-pays, low deductible with high out of pocket. We're doing a lot of math here, aren't we?
Yeah, unfortunately, you really do have to do the math. You have to look at all the things. How much are the premiums for the full year? If it's a high deductible plan, does your company give you an HSA contribution? Is there a plan deductible and what is it? What's the out-of-pocket maximum, which is the most you could spend in covered care in a year? That's important.
If you have a big health event, you could hit that. And you probably should estimate, based on what's happened in the past, how many times you typically see the doctor or a specialist and what kinds of things might pop up. Do you have a kid who plays sports? Maybe figure for at least one x-ray. Even a ballpark figure here is helpful.
Then you can do some rough math for what that kind of care would cost you under each plan. If you're totally stumped, you can log into your account for your current health coverage and take a look at the claims you've had this past year. My health plan has an app. I can look up my claims there or log onto their website. I'm not going to sugarcoat it. You do have to get into the weeds on this.
You can't do this while you watch Netflix.
Oh, and I was really looking forward to rewatching Arcane. Anyway, speaking of Arcane, let's move on to the alphabet soup of healthcare options. PPOs, HMOs, HDHPs, C3POs. Let's take them one at a time. What is an HMO and what are some of the advantages and disadvantages of choosing this?
HMO stands for Health Maintenance Organization, and this is a type of health plan that works with a specific network of doctors and hospitals. Usually this is the cheapest kind of plan to choose, but it's also got the least flexibility.
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Chapter 3: What are the pros and cons of high deductible health plans?
Generally, people need to think about these questions, and it's a lot of questions. How much healthcare do you use? How often do you see the doctor? Do you have any major surgeries or procedures coming up? Are you planning to try for a baby? Do you have small children? All of these things can affect what kind of plan makes sense for you. How financially stable are you?
Are you living mostly paycheck to paycheck or do you have a financial cushion you could use to pay the upfront costs of a high deductible health plan? How much choice do you want? If you don't care who you see, you might be fine in an HMO with a limited network.
But if you want more freedom to see specialists or doctors who might be out of network, a PPO offers more flexibility, although your costs will be a little higher. And you also have to think about your specific doctors and medications. You want to make sure you choose a plan where hopefully your doctors are a network and your medications are covered at prices you can afford.
If that's not the case, keep shopping. And the key word there is shopping. Definitely compare plans every year. Don't just auto-renew because things change. Networks change, covered drugs change, and so do your health and financial circumstances. So it's worth your time to get in there and look around.
And one last question, Kate. One of our producers was talking about what you might call the overabundance of options when you go through the Affordable Care Act exchanges. Those are also known as Obamacare exchanges. And you're trying to choose an individual health plan. She calls it overwhelming abundance and not in a good way. So there could be a dozen or more options to choose from.
Do you have any advice on how to start that process?
Oh, your producer isn't kidding. I plugged my zip code into my state's ACA marketplace page and got 48 pages of results. Not 48 results, 48 pages. So overwhelming. You can whittle your options down in a few ways. It's incredibly tedious to check each plan to see if your doctor is a network specialist.
Some state marketplaces allow you to put in your medications and your doctors and filter that way. That would be helpful. My state's website did not. But you can also use budget to take another chunk of plans out. What can you afford each month? And then eliminate all plans that cost more than that. You may be able to filter...
By metal level, which is the plan's ranking based on costs and out-of-pocket expenses, platinum, gold, silver, so forth, it's probably safe to say that the lower-priced plans, like bronze level, offer more basic coverage. And after that, you're making choices based on what we've talked about already. How much health care do you need? What's your financial situation? You're back to that math.
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Chapter 4: How do premiums and deductibles affect my healthcare costs?
The second thing I would say is once you're rolling, put some sort of recurring note on your calendar or some kind of reminder to check your account balance once a month or so. to see how you're tracking. And the third one is if you have a partner on your insurance, like remind them to use the FSA card for purchases.
This happened a lot in my household where one of us would get to the checkout and then completely forget to use the FSA card to pay because it's just a habit to pay with the other card or whatever. And then you get home and you realize what you did and then you have to go the reimbursement route. And a lot of people, you know, they're probably not going to bother with that if it's a small purchase.
Yeah, you're probably right. Let's move on to HSAs, which are health savings accounts. What can we use these for and how do they work?
So HSAs are also for paying medical expenses, but they are even cooler than FSAs in my opinion. Because for one thing, you could put more of your paycheck into one if you want to. So like FSAs, you don't pay tax on that money that you're going to spend on medical stuff anyway, and you usually get a card to pay with. But even cooler is that you can invest the money in an HSA account if you want.
And all the capital gains in there are tax-free. So they can theoretically just sit there and compound and compound and you don't pay capital gains tax. Plus the withdrawals are tax-free if you use the money for medical expenses. So we call this a triple tax advantage, right? No tax going in, no tax wallets in, no tax coming out. And in the tax world, that is like finding a unicorn.
Yes, it is. Okay. So what's the catch?
So the one catch with an HSA is that you have to be in a high deductible health insurance plan to be eligible to contribute to one. And I will say there's one little area where the FSA is actually cooler than the HSA. And that is for medical care FSAs, not dependent care FSAs. You can use the full balance in an FSA account right away.
So if you, let's say you elect to have like $3,000 put in the account over the course of the year, With an FSA, the $3,000 is available to you like in January, like immediately, even though you haven't made $3,000 worth of deposits in the account yet. But with an HSA, on the other hand, you can only spend what's in the account that day.
And we should say that high deductible health insurance plans are not a good fit for everybody. So no matter how cool the HSA is, it might not be the best choice for you. Right. Okay. So some companies won't just provide the opportunity to have an HSA. They'll actually contribute to it, right?
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