Tips for evaluating the alphabet soup of health plan options this open enrollment season

CDHPs and HSAs? The ABCs of health insurance

More workers are likely to be offered a health insurance option that offers a lower premium, but could mean higher out of pocket costs, when open enrollment begins at many companies in coming weeks. Here are some tips for evaluating these new plans, called consumer directed health plans, and the alphabet soup of options this open enrollment season.

What’s a consumer-directed health plan?

This is insurance that typically carries a premium lower than traditional coverage, but the trade-off is accepting a deductible that tops $1,200 and can stretch as high as $10,000 for some family plans. Typically, that deductible must be paid before insurance coverage starts.

That can mean paying for bills for blood tests, X-rays or a doctor’s office visit in full instead of the usual $20 co-pay many have become accustomed to. Consumer-directed plans are paired with a special account to help manage these expenses. The most common are health reimbursement arrangements (HRAs) and health savings accounts (HSAs).

How do I tell an HRA from an HSA?

HRAs are an employer-funded account that helps pay out-of-pocket expenses. That money belongs to the company and stays with it if the employee leaves.

In contrast, customers own health savings accounts, which allow people to set aside pretax dollars for medical expenses. They can keep unused money in the accounts and earn interest.

How do I know if it’s right for me?

The plans can vary widely from employer to employer, so a lot depends on what’s offered.

Financial planners say these plans generally work best for people who use little health care. Those customers can pay a smaller premium, receive a tax break on money they put in their HSA and build up that account.

The plans are a poor match for those who struggle to save money.

“For people that are really on a tight budget and are close to being in financial trouble, that risk could push them over the edge,” said Jon Beyrer, vice president of wealth management for Blankinship & Foster, a Solana Beach, Calif.-based financial advisory firm.

People with chronic conditions like diabetes might wind up draining their savings accounts and being stuck with a high deductible every year. But they also may benefit, depending on the plan’s specifics. Many high-deductible plans come with a lower limit for how much the customer has to spend out of pocket each year. In those cases, such a plan helps someone who uses a lot of health care.

How do I know what my medical needs will be?

You never know for certain what your needs will be, but it can help to figure out coverage for worst-case scenarios, said Bonnie Milani, an independent insurance broker in Encino, Calif.

Look in the plan’s benefits summary for its lifetime coverage maximum and how it might cover a hospital stay. Check whether the annual out-of-pocket maximum is lower than what you currently have or the other options available.

But remember that deductibles and out-of-pocket maximums reset every year. Think about the challenge that might impose.

If you’re diagnosed with cancer late in the year, could you handle paying a high deductible for that year and then paying another deductible a few months later, as your treatment continues?

Several Web sites offer expense calculators, including www.planforyourhealth.com, which was created by the managed care company Aetna Inc. and the Financial Planning Association.

How should I evaluate a consumer-directed plan?

Start by comparing it to your current insurance coverage, something you should do anytime you consider a new plan.

Check for differences in premium payments and deductibles, which are listed in the benefits summary. Compare the co-insurance as well, because this can lead to big out-of-pocket costs. This is the percentage your insurer will pay for a bill after you meet your deductible.

Say you need a medical test that costs $3,000, and you have coverage that pays 80 percent after you meet your $1,000 deductible. If you’ve paid nothing yet toward that deductible, that means a bill totaling $1,400.

Consider whether your employer contributes to the HSA and look for any fees that may be charged to maintain that account.

“There’s a lot of nickel-and-dime fees that you see HSA account providers charge,” Beyrer said.

If I start a plan with an HSA, should I make regular contributions to that account?

Absolutely. People should never sign up just for a premium discount.

Out-of-pocket expenses can pop up quickly, even with generous coverage. For starters, there’s that high deductible. Many insurance plans, even those that don’t involve a consumer-directed option, also pay less for care performed by providers outside their network of doctors and hospitals.

“It can get nasty because you can go out of network and find that you have a whole separate, independent deductible to meet that’s much higher,” said Bonnie Milani, an independent insurance broker in Encino, Calif.

How much can I contribute to an HSA?

For 2010, customers will be able to set aside as much as $3,050 in HSAs for individual coverage and $6,150 for family plans. Account holders over age 55 can make increased payments until they reach Medicare eligibility, usually at age 65. Money can be taken from your paycheck before taxes.