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10 Open Enrollment Terms to Know

Sep 25, 2018 4 min read Rebecca Lake

Open enrollment is your chance to sign up or make changes to your employer's health insurance plan. Your benefits handbook should include everything you need to know to choose the best coverage.

If you don't have time to read it cover to cover, however, this handy reference guide can help. It breaks down the key terms you'll run into as you navigate open enrollment.

1. Deductible

Your deductible is the amount of money you have to pay out of pocket each year before your plan's coverage kicks in and starts paying benefits.

You might have separate deductibles for different services, such as prescription drugs or outpatient care. With family coverage, you may have a family deductible as well as individual deductibles for each person on your plan.

2. Co-insurance

Co-insurance is a percentage you pay for health care services after you've met the deductible.

For example, say you have a $1,000 deductible and 20% co-insurance. You break your arm and need surgery, racking up a $10,000 medical bill in the process.

Your out of pocket costs would include $1,000 for the deductible, plus $2,000 towards the surgery ($10,000 x .20 co-insurance = $2,000). Your insurance company then pays the remaining $8,000.

3. Co-payment (co-pay)

A co-payment is a flat fee you pay when you go to the doctor or pick up a prescription. The amount can vary by service.

For instance, you might have a $15 co-payment for prescription drugs and a $25 co-payment for doctor visits. A different co-payment may apply to lab tests or specialist services.

As a general rule, the lower your monthly premium, the higher your co-payment and vice versa.

4. Premium

Your premium is the amount you pay to keep your health insurance each year. Premiums are typically paid monthly, with your employer taking it straight out of your paycheck.

The higher your premium, the lower your deductible usually is; going with a lower premium means paying less each month, but you'll need more money to cover a higher deductible if you get sick or hurt.

5. Out-of-pocket maximum/limit

Your plan's out-of-pocket limit or maximum caps how much you pay for health care services each year. That's a huge advantage if you experience a serious illness or injury that results in a catastrophic bill. Once you reach the limit of what you're responsible for paying out of pocket, the rest of the cost is passed on to your insurer.

This limit doesn't include your premiums or anything you spend for services that aren't covered by your plan. Out-of-pocket limits are higher for family coverage versus individual coverage.

6. Network

Your network is the group of doctors, hospitals, clinics, and other health care providers that your insurance plan coordinates with to provide care. If you're seeing a doctor or specialist that's not on that list, that's considered out-of-network care.

You're not required to use the doctors in your network, but your health plan may not offer as much coverage when you go out of network. In that case, you'd be responsible for covering the gap between the total cost of care and what your plan covers.

7. Preferred Provider Organization (PPO)

Your health plan can offer different network types. One of the most popular is a Preferred Provider Organization or PPO.

With a PPO, your monthly premiums and out-of-pocket costs may be higher. But you have the advantage of being able to visit doctors both in and out of network without a referral.

You also don't have to choose a primary care physician, who would normally act as your first point of contact when you need care. A PPO network gives you maximum flexibility in choosing health care providers.

8. Health Maintenance Organization (HMO)

A Health Maintenance Organization (HMO) is another type of network structure.

With an HMO health plan, you're required to choose a primary care physician. If you need to see a specialist, you have to see your primary care doctor first so they can make a referral.

HMO plans don't offer any out-of-network coverage unless you have a health emergency. The upside is that these plans tend to have lower monthly premiums compared to PPO plans, and your overall out-of-pocket cost may also be lower.

9. High deductible health plan

High deductible health plans carry higher deductibles than traditional health insurance. But you get the advantage of having a lower premium.

You'll need to be enrolled in a high deductible health plan to contribute to a Health Savings Account (HSA).

10. Health Savings Account

Health Savings Accounts are tax-advantaged accounts that are used to save for health care expenses.

You can add money to an HSA each year, up to the annual limit for your coverage type. Contribution limits are higher for family coverage; employers can also make contributions to your plan.

An HSA offers three main tax advantages:

•    Tax-deductible contributions
•    Tax-deferred growth
•    Tax-free withdrawals for qualified medical expenses

If you withdraw money from an HSA for something other than a health care expense before age 65, you'll pay a 20% tax penalty, plus ordinary income tax on the money. After age 65, the 20% penalty goes away, but you'll still pay income tax on non-health care withdrawals.

Unlike a Flexible Spending Account (FSA), which can also be used to save for health care expenses, you can roll your HSA over from year to year. As long as you stay healthy, your HSA contributions can keep growing until you need them.


What you can do next

Reach out to your HR representative to discuss any questions you have about open enrollment before making changes to your health plan. Remember that you can also use this time to update your life and disability insurance coverage, if those are included in your benefits package.


Rebecca Lake is a freelance journalist specializing in finance and small business. Her work has appeared online at U.S. News & World Report, Business Insider, MSN Money and The Balance.


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