Open Enrollment is coming up next week. This is a period of time when you can make choices for your benefit plans for next year.
In a previous job, I worked in the employee benefits department at a Fortune 100 company. So I know a thing or two about these benefits. Over the next few days I’m going to write about my choices.
Please note the benefits and premiums vary greatly from employer to employer. I’m writing from the perspective of an employee working for a large company with comprehensive and heavily subsidized benefits.
The first post in the series is about health insurance — medical, dental and vision. If you’d like to jump ahead, here are the follow up posts in this series:
- Open Enrollment, Part 2: Life Insurance and AD&D
- Open Enrollment, Part 3: Disability Insurance
- Open Enrollment, Part 4: Flexible Spending Account
Medical
This is the most important benefit the employee receives. I have a choice between a PPO and an HMO.
A PPO allows the employee to go to any doctor in the network without a referral. If you see a doctor out of the network, there’s still a reduced level of benefit. An HMO is an exclusive network. You must choose a Primary Care Physician (PCP) and you can’t go to a specialist directly without first getting a referral from your PCP.
In general, relative to HMOs, PPOs are more flexible but cost more to the employee and the employer. On the other hand, HMOs tend to provide higher levels of benefits with lower deductibles and co-pays.
For example the PPO plan will cost me $25 per pay period (every two weeks). It covers diagnostic services at 90%, has a $500 annual deductible, and $20 co-pay for office visits. The HMO plan will cost me $20 per pay period. It covers diagnostic services at 100%, has no deductible, and $15 co-pay for office visits.
For me, I always choose a PPO because I like the flexibility. The employer is usually motivated to move the employees from a more costly PPO to an HMO, but I don’t want to cut any corners with regard to my health care in order to save my employer some money. It will cost me a little more in terms of employee contributions, annual deductible and co-pays, but all those are pre-tax money when I use money from a Health Care Flexible Spending Account. I will write more on Flexible Spending Accounts in a future post.
Dental
Dental insurance technically isn’t much insurance because the annual payout is typically capped at $1,500-2,000. It’s still valuable.
Usually the plan offers different coverage level for preventive, basic, and major care. If you have bad teeth, be prepared to save more money in the Flexible Spending Account, because one root canal plus one crown can easily exceed the annual insurance cap. Plus you will have to save for the co-pays.
My company only offers one plan. I chose it. The premium is pretty low at $5 per pay period.
Vision
Vision care covers eye exams, lenses, and frames. There is also some coverage for contacts. Some plans give discounts for laser eye surgery.
My company only offers one plan. Premium is even lower than Dental. I chose it.
More to come on life Insurance, AD&D, disability insurance, Flexible Spending Account … …
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FIRE Finance says
Thanks for this informative post. We have listed you as one of our favorites from the Carnival of Personal Finance #74. Keep up the good work.
Cheers
FIREFinance
Andy says
Great series of post. I just did one discussing how I chose my OE options, but the level of detail you hvae here (over 4 posts) is great and was very informative. Thanks.
sewall says
Dental benefits are designed with a low cap because of adverse selection. People often know when they’re going to need costly dental work or they can delay that work somewhat. Then they buy insurance for the year in which they intend to do it and drop it afterwards. Thus, dental insurance suffers from poor risk pooling: a lot of “bad risks” enroll and very few “good risks” do so.
The only way to keep the premium from getting out of control is to keep the benefit pretty low. Fundamentally, annual election of dental benefits don’t make sense. Dental shouldn’t really be unbundled from the overall health plan. For the insurer, it’s a bad design from the perspective of risk management.