It's that time of year again: open enrollment season. 

This is the opportunity for many employees to evaluate their existing benefits options. One of the most important of these is employer-provided health insurance. 

With so many plans and choices, the process can feel overwhelming. That's why many people stay in the same plan year after year—whether or not it's still the right fit. 

This guide is designed to help you break down the key factors to consider when reviewing your options. By understanding how each element works, you'll be in a better position to make an informed decision and reduce the sense of overwhelm that often comes with reviewing health insurance. 

What You Pay

When it comes to health insurance, what you pay is often the deciding factor in choosing one plan over another. Unfortunately, figuring out the true total cost isn't always straightforward. 

That's because your costs are determined by several moving pieces, not just one number. Five of the most important elements are: 

• Premium 

• Deductible 

• Copays 

• Coinsurance  

• Out-of-pocket maximum 

Let's look at how each works and how they fit together. 

Premium

Your premium is the annual cost of your health insurance plan. Many employers cover a portion (or sometimes all) of this, and the rest comes out of your paycheck. 

You can think of your premium as the minimum cost of health care you'll have to pay for the year. While premiums can be expensive, medical care without insurance can be much more expensive. This is one reason why having health insurance is so important.  

Typically, the higher your premium, the more your insurance will cover and the less you'll have to pay out of pocket in other areas. While your premium is important, it's only one piece of the puzzle. Focusing too heavily on it while ignoring your deductible, copays, and coinsurance can lead to surprises later. 

Deductible

Your deductible is the amount you pay for medical costs before your insurance coverage kicks in. 

There's usually an inverse relationship between premiums and deductibles. A high-deductible health plan (HDHP) often comes with a lower premium, while a low-deductible plan usually comes with a higher premium: 

• High-deductible plan: Lower premiums, but you'll need to pay more out of pocket before insurance helps. This can work well for healthier individuals who don't anticipate many medical expenses. 

• Low-deductible plan: Higher premiums, but your insurance coverage starts sooner. This may be better if you expect frequent doctor visits or significant medical bills. 

Those enrolled in qualified HDHPs can also contribute to a Health Savings Account (HSA). HSAs are tax-advantaged accounts that let you set aside money for medical costs. Contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free as well. 

Unlike Flexible Spending Accounts (FSAs), which are "use it or lose it," HSA funds stay with you year to year. Many providers even let you invest your HSA balance, making it a powerful way to save for future medical expenses. Younger, healthier employees especially benefit from this, and many employers sweeten the deal by contributing to employees' HSAs on their behalf. 

Copays

Copays are another form of cost sharing between you and the insurance company. Depending on your plan, you might be required to pay a fixed dollar amount each time you visit the doctor or fill a prescription. 

The amount can vary depending on whether the provider is in-network or out-of-network or whether they are a primary care physician or a specialist. 

For individuals or families that visit health care providers frequently, copays are an important consideration, as the costs can add up quickly. 

Coinsurance

Coinsurance is a cost-sharing arrangement, but instead of being a fixed dollar amount, it's a percentage of the bill. Like copays, coinsurance typically applies after you've met your annual deductible. 

For example, let's say you have a $2,000 deductible, a 20% coinsurance rate, and you receive a $5,000 bill. You'd first pay the $2,000 deductible. Then you'd split the remaining $3,000 with your insurance company. At 20% coinsurance, that means you pay $600 and your insurer pays $2,400. 

Even after your deductible is met, coinsurance can significantly impact your out-of-pocket costs. That's why it's smart to set aside funds not just for your deductible but also for your share of coinsurance. 

Out-of-Pocket Maximum

The out-of-pocket maximum is arguably the most important financial element when choosing a health insurance plan. It is the maximum amount you'll be required to pay in medical costs in a year. It includes your deductible, copays, and coinsurance. Once you hit this limit, your insurance pays for 100% of covered costs for the rest of the year. 

Consider this example: 

John Doe has health insurance through his employer. His premiums are $300 per pay period (24 pay periods), for a total of $7,200 per year. His deductible is $3,000, his coinsurance is 20%, and his out-of-pocket maximum is $7,000. 

Early in the year, John has a skiing accident and racks up $30,000 in medical costs. He pays the first $3,000 (his deductible). He then pays $4,000 in coinsurance (20% of the next $20,000), while the insurance company covers the remaining $16,000. At this point, he has reached his out-of-pocket maximum, so the insurance covers the final $7,000 of the bill. 

John's total cost for the year is $14,200 ($7,200 in premiums plus $7,000 in out-of-pocket costs). 

This example illustrates why the out-of-pocket maximum is so important: it sets the upper limit of your financial exposure in a given year. 

Like deductibles, out-of-pocket maximums often have an inverse relationship with premiums. Lower maximums usually mean higher premiums, while higher maximums can mean lower premiums. 

Other Factors to Consider

While cost is central, it's not the only thing that matters. Other important considerations include: 

• Are your preferred providers and hospitals in-network? 

• What services are covered? 

• How much flexibility does the plan offer? 

HMO (Health Maintenance Organization) 

An HMO usually comes with lower premiums but less flexibility. You'll need to use in-network providers, and you typically must get a referral from your primary care physician before seeing a specialist. 

Going out-of-network can mean footing the entire bill yourself. For those who are generally healthy and whose preferred doctors and hospitals are already in-network, an HMO can be a cost-effective option. 

PPO (Preferred Provider Organization) 

PPOs cost more in premiums but offer greater flexibility. You can see both in-network and out-of-network providers without a referral. However, your out-of-pocket costs will be much lower when you use in-network providers. 

A PPO is often a better fit for people who value flexibility, travel frequently, or need access to specialists without going through a primary care gatekeeper. 

What Plan Is Right for You?

Choosing the right plan depends on your personal and family situation. 

• Younger, healthier individuals: A high-deductible, low-premium HMO plan can be cost-effective, especially when paired with an HSA. Just be sure to keep extra savings on hand in case of unexpected expenses. 

• Families with children or ongoing medical needs: A lower-deductible, higher-premium PPO plan may provide the most value, thanks to greater flexibility and lower out-of-pocket costs when care is needed. 

Still, it's important to do the math. Compare not just the premiums but also the potential out-of-pocket maximums. In some cases, even with higher medical expenses, a high-deductible plan may still be more cost-effective overall. 

A financial advisor can help you review your existing coverage, run scenarios, and weigh the trade-offs so you can make the most informed choice for your family. If you need help with your health insurance plan or financial planning in general, please reach out to our team. You can also learn about our team here.