Helping Employees Understand Health Insurance Costs

Employee health benefits continue to be a considerable competitive edge for most companies. But for businesses in which their employees select a plan from the government health insurance marketplace, open enrollment and explaining healthcare plans can be a complex topic for the HR team.

A Forbes Advisor study found that 77% of Americans don’t understand coinsurance. Copays, deductibles, and other common healthcare terminology are all confusing.

At the same time, healthcare costs leave most Americans dissatisfied. More than premiums, many are unhappy with the expensive out-of-pocket (OOP) costs related to their health plan.

While educating employees on the basics of health benefits is important, helping them navigate the immediate financial burden of healthcare would be more beneficial. In this article, we’ll break down how to explain the real cost of insurance.

Premiums are only a fraction of health insurance costs

With health insurance coverage being one of the most expensive living costs, it’s no surprise that employees want to get the biggest bang for their buck.

However, the terminology often creates friction, and the process of choosing the “right” plan can be so labor-intensive that it’s tempting to choose the plan with the lowest premium.

However, the “cheapest” premium plan isn’t necessarily the best plan for a specific employee. Your employee may benefit from a higher premium but lower-deductible or out-of-pocket plan if they want to keep costs down.

7 questions your employees should ask about insurance

The easiest way to focus on the financials is for employees to consider their own health and healthcare needs.

For entry-level employees with no preexisting conditions, this can often be more difficult to navigate than for senior workers who better understand their annual healthcare needs.

Some questions to help employees navigate the process are:

1. Do you have preexisting conditions that require management, medications, or treatment?
2. How many times will you need to see a doctor in the upcoming year?
3. Will you need to see a specialist?
4. Will you potentially need surgery for a condition you are managing?
5. Do you participate in high-risk sports or activities that could require regular or emergency medical attention?
6. Do you have dependents who have access to health, dental, or vision insurance?
7. Are your providers in-network or out-of-network?

Employees that say “yes” to any of the above questions should then estimate the cost of each item. Let employees know they can call their preferred doctor, specialist, or hospital to get the rates for specific procedures. They will need to call the organization’s billing department.

Thanks to the No Surprises Act, your employees shouldn’t have to worry about exorbitant out-of-network costs in most emergency situations (ground ambulance transport is not included in this ruling).

Since it can impossible to budget for an emergency, this can be left alone unless the employee has past experiences they can draw on.

When to use low-premium plans and catastrophic coverage

Low-premium, high-deducible plans can be considered “cheap” or “affordable” if you don’t need to go to the doctor more than once.

Some plans, like Tennessee’s Blue Cross Blue Shield, may provide children’s dental coverage and preventative care, which can be useful for parents and health-conscious individuals.

Low-premium, high-deducible plans can be considered “cheap” or “affordable” if you don’t need to go to the doctor more than once.

However, high-deductible can mean over $8,000 — a considerable sum when the average premium is over $456 per month or more than $4,800 annually. With a high-deductible or OOP cost, your employee still pays full price until they hit that high $8,000 or more limit.

For many younger, healthier individuals, catastrophic coverage can seem like a better option. Monthly rates can be as low as $60 or $100 per month. But they also carry high deductibles and cover a limited amount of coverage.

When to use low deductibles

When you purchase a low-deductible plan, this means that the discounted rate kicks in earlier. It also means the premium is higher.

However, if you need to make frequent doctor visits due to an ongoing condition, low deductibles can help you save in the long run.

Usually, the deductible is close to or the same as the OOP limit, meaning that hitting the deductible means you may not need to pay much more.

The key here is figuring out what the copay or coinsurance costs are. If you pay nothing or a flat rate of $15 after meeting your deductible, that may be a good deal.

However, if you still need to pay 80% of the visit cost, they may be taking you for a ride.

If you’re going for a low-deductible plan, you want to get as much covered as possible. Otherwise, you may end up spending more than you intended.

When to use low out-of-pocket coverage

Rather than go by premiums or deductibles, it’s important to consider a low OOP. Like with low-deductible plans, a low OOP plan translates into a higher premium.

However, if you hit the out-of-pocket limit, your health insurance will cover the rest.

This plan is usually more cost-effective for employees with regular health needs or if they expect to need surgery over the next year.

But it’s even possible that a low OOP may be the best general plan, even if it costs a little more. For example, if a low OOP plan has a premium that’s $1,000 more per year, but could save you $4,000 in potential expenses, is it worth it?

The difference can be significant. Take the following plans as an example:

Here, we have 3 plans:

• Plan A is a low premium, high deductible, and high OOP.
• Plan B is a mid-level premium with a low deductible and OOP.
• Finally, Plan C is a slightly higher premium with no deductible and a low OOP.

Let’s assume your employee has scheduled surgery for the next year. They’ve already requested sick leave. And while you don’t know the specifics, you had the same surgery recently, and you know the procedure costs at least $8,000.

While Plan A looks like the most affordable due to the low premium, your employee would potentially have to pay for their surgery entirely out-of-pocket.

But with Plans B and C, they would shave over $2,000 off of the cost, and insurance would cover the remaining expenses throughout the year.

While this example only shows a $10 difference between the last 2 plans, Plan B offers dental, whereas Plan C does not give your employee better value for their money.

And, as we can see with Plan C, it’s possible to hit a point where the lower OOP and deductible cost does not outweigh the costly premium.

Now, you’re likely not going to have this level of insight regarding your employees’ health and finances. You can, however, help employees consider the total cost in your benefits packet or a brochure with the Open Enrollment announcement.

How to navigate healthcare benefits for your business

The high cost of healthcare benefits coupled with shifting legislation can be confusing. This is the case not just for employees, but for businesses, too. Choosing to offer employee health benefits can be a strategic move, but there are many things that you should consider.

For the full story, check out our Ultimate Resource To Navigating Healthcare. In this nifty guide, we cover benchmark employer contributions, what employees want in their health plans, insurance evaluation checklists, and much more.