Shake Your Fear of Using Flexible Spending Accounts

I am a big fan of flexible spending accounts and have used the medical one for as long as I can remember. In this article, I'm going to walk you through the reasons I use an FSA. I'll also help you overcome the fear of the use it or lose it provision that keeps most employees from using their FSA at work. Are flexible spending accounts a good idea? Read on to find out.

What is a Flexible Spending Account?

A flexible spending account is actually primarily one of two different types of accounts. First, there's a medical flexible spending account that can be used for eligible medical expenses. The second type of flex account is a dependent care account that can be used for eligible dependent care expenses.

Both types of flexible spending accounts are funded by contributions made entirely by the employee and are not funded by your employer. However, your contributions are made on a pre-tax basis which reduces your taxable income.

Medical and dependent care accounts are separate accounts. This means you'll have to decide how much money you want to go into each account if any. You can do just a medical flex, just a dependent flex or both.

Besides being different accounts, the medical and dental FSA's operate a little differently. While a medical FSA comes attached to a debit card and the money can be spent before it's fully funded, the eligible dependent care claims must be filed and the money must already be deposited before claims can be paid.

I have never used the dependent care FSA for my own expenses so most of my discussion here will center around the medical FSA which I have used for years.

Who Should Use A Flexible Spending Account?

If you know you are going to have eligible expenses and are going to spend the money anyway, then a flexible spending account is a great tool to reduce your taxes.

A good example of a good FSA candidate is if you are someone who has a chronic condition, has prescriptions every month, a sizable deductible that you know you are going to meet, then you'll want to check into using an FSA. (* Please note the FSA vs HSA discussion below.)

If you know you are not going to spend any money that would qualify as an eligible expense during the year unless it's totally unexpected, then an FSA isn't for you. The FSA is strictly for people who know they will have eligible medical expenses.

In my case, I already know when the plan year starts that I'll have more expenses than the limit on the amount I can put in there. That's why I max it out. Obviously, if you don't have any planned eligible expenses, you wouldn't want to put money into it.

Otherwise you'll just lose it.

Three Reasons to Use a Flexible Spending Account

There are three reasons to use a flexible spending account.

1. Reduce your taxable income (and possibly increase your net take home pay) Every contribution to your FSA goes in on a pre-tax basis. This means your overall tax liability decreases and your net paycheck might actually go up slightly. You'll want to check the limits each year but as of 2017, the max amount you could contribute was $2,600 per plan year. If you want to get a good idea of how much money you'll save in taxes and how much your net paycheck will go up, here's a good FSA calculator here. I plugged in an example of a person making $40,000 per year and putting in the max of $2,600. The estimated tax savings was $623 for the year but more importantly, the estimated net paycheck increased by 3 percent.
2. Advance your contributions on day one (for medical FSA's only) While the tax advantages are great, probably the best thing a medical FSA has going for it is that your funds are available on the first day of your plan year even if you haven't had them deducted from your paycheck yet. So, if you have expensive prescriptions or eligible medical expenses you need to pay for before your deductible is met, this is a great way to take a big bite out of that. Keep in mind, your deductible on your health plan may be higher than what you can put into it.
3. No repayment required if you terminate employment If you leave employment prior to the end of the plan year and have used all your medical FSA money, your employer cannot collect the balance. That's because the use it or lose it provision goes both ways. This is why there's often a waiting period to become eligible for a medical FSA. They want to make sure you are going to stick around so they don't get stuck making up the difference.

Those are three of the main reasons I've found that make using an FSA, or at least the medical FSA, worthwhile.

Flexible Spending Account vs HSA (Health Savings Account)

Health Savings Accounts or HSA's are another way to pay for eligible medical expenses. However, you can't do both an FSA and an HSA at the same time. The rules on pretax contributions on different plans can get tricky. The government only wants to give you so much pre-tax eligibility. So if you have any questions about these two types of plans, you'll want to check the rules in place at the time.

While you can put more money in an HSA on a pretax basis than an FSA, the money has to be in an HSA before you can use it. This is unlike the FSA which will advance the money on day 1.

If you are user of your medical plan, it's possible the higher pre-tax limits might be beneficial to you. However, the goal of an HSA is to accumulate the difference in the money you save in premiums by opting for a high deductible plan as opposed to a lower deductible plan to use later.

I've always felt if you are going to use all your contributions that would have gone into an HSA during the plan year and have a zero balance at the end of it, it's probably not worth the hassle of the HSA personally. But you'll have to look at that for yourself to see what you want to do.

In actuality most people just opt for a high deductible plan either because they have no choice in plans or they just want a lower premium. Very few people actually take the savings from the premium between a high deductible plan and a low deductible plan and set it aside in an HSA. This is because a lot of people just don't feel they can afford to do that.

What you want to remember is that if you are spending after tax money year after year on eligible expenses, you can save on your taxes and increase your net take home pay slightly in most cases by using one of the two.

How To Deal With The Use It or Lose It Provision

The biggest turnoff to the flexible spending accounts is the use it or lose it provision. While some FSA plans have a a carry over provision, many instead have a deadline to file claims. If you don't have eligible expenses, you can't get your money out of the FSA.

I've witnessed people just have to let the money go unclaimed either because they were too lazy to file the claims, didn't have eligible expenses or didn't comply with providing needed documentation to the third party administrator who handles the FSA administration.

When I talk with employees who I know will have eligible medical expenses but are afraid to use the account because of the use it or lose it feature I always tell them that the easiest way to get used to how the FSA's work is to start small. If you know you'll meet your deductible every year but are wary of the FSA, start with a $200 or so. Choose an amount you know you will use.

Then, once you are comfortable with how the mechanics of getting your money out of the FSA works and notice you are running out of money in the first quarter, then look at increasing it the next year.

This is what I did many years ago and now I already know I'll use all max when the plan year begins. In fact, I wrote this in July and already used all my FSA money a month and half ago.

Caution! Proper Documentation Needed

With some employees I've talked to, they've told me that the third party administrator makes them provide so much documentation that it's such a hassle to get their money out. Remember, first make sure you are using your funds for eligible expenses. Here's a good place to start to see what type of expenses are eligible.

Next, make sure you keep receipts for all eligible expenses You'll need to submit those to document your expenses. I know the FSA I use has an app on my iPhone and I have to upload pictures of receipts for my transactions. If I don't they reject my expense.

Finally, make sure the expenses are for the plan year the funds are deposited. You can't use funds for the current year for prior year or future year expenses.

If you find that the administrator of the FSA your employer is using is requiring you to just through more hoops than you think should be necessary then be sure and report that problem to your employer. They need that information and can also help you resolve it.

Conclusion

If you are spending money on eligible medical and dependent care expenses already, a flexible spending account is a great way to reduce your tax liability and possibly increase your net take home pay just by changing how you spend the money.

Will you have eligible expenses and are afraid of the use it or lose it provision? Then start small until you get a real good feel for how the flexible spending account works.

Once you understand it, and learn that it's easier than expected, you'll eventually learn how much you should put into one each year.

Let me know in the comments if you use an FSA (or HSA). I'd love to hear what you think!

Why Tobacco Users Shouldn't Pay a Tobacco Surcharge

When you set up group health insurance plans, the option exists to separate out tobacco users from non tobacco users. This allows insurance companies to charge tobacco users higher premiums. But should tobacco users really pay more? I don't personally think so and that's what I want to talk about today.

It's Legal to Charge Tobacco Users More Even If They Don't Ever Go To The Doctor

First off, I want to talk about why tobacco users get singled out to pay higher premiums. That's because it's a legal way for insurance companies to charge higher premiums for some employees in your group. Since it's legal, you can bet that insurance companies want to do it.

It's often cloaked in the veil of some sort of "wellness" mission the employer has but it's basically just a way to get more premiums out of somebody.

Ironically though, you can't charge higher health insurance premiums for older employees. Nor more for females than for males. You also can't charge employees who actually have health conditions a surcharge because of their medical problems.

Those groups get subsidized by everybody else but the tobacco users do not.

Insurance Is Meant To Spread The Risk Across ALL Members Of The Group Not Just The Tobacco Users And Unhealthy People

Sometimes I think people forget that insurance is designed to spread risk across everyone in the group.

Not too long ago, I had an employee express disappointment that everyone got the same rate. He didn't use tobacco and didn't think it was fair that he didn't get to pay less. However, he completely overlooked the fact that he had high blood pressure and took medication for it. Shouldn't all the employees who don't have high blood pressure get to pay less in that case?

Of course, the answer is no, so why should smokers be any different.

Many times tobacco users don't even have any medical problems. This means they don't even use the health insurance they purchase but have to pay more than the employee who has had two heart attacks and a triple by pass surgery.

This doesn't make any sense to me.

A Tobacco Surcharge Creates Ill Will Toward You The Employer

When I enroll employees in benefits, employees aren't stupid. When they see a tobacco surcharge that means they will have to pay more even if they never go to the doctor, they look at their fellow employees.

Then they ask, why do I have to pay more than the employee who has diabetes or the employee who had breast cancer?

Last year I did an enrollment where the health insurance was set up so that employees who used tobacco paid $100 more per month than their non tobacco counterparts. If their spouse smoked, they also paid it. This meant some families paid $200 per month more than the non tobacco users.

Granted, these employees had a smoking cessation program available to them. They could enroll in that and get the tobacco surcharge waived in a couple of months.

But still, you are sending a clear message to those employees that creates resentment against you the employer.

It Encourages Lying To Avoid The Smoker Surcharge

Most employees that smoke will own up to it if they are everyday smokers. But the casual smokers who maybe only smoke every now and then don't consider themselves "smokers" even though they are.

You'd be surprised at the number of employees who say they don't smoke but really do. Of course, they aren't hardcore smokers. It's usually something they might do only when they go out for drinks or something.

It still counts though and they technically should pay the surcharge but you know what, they don't. That's not fair to the employees who are completely honest about it.

Shouldn't We Be Promoting Wellness? Isn't Tobacco Use Unhealthy?

Yes. You should be promoting wellness. And yes, tobacco use is unhealthy. I'm not advocating that smoking is great or anything. The only thing I am suggesting is that when it comes to spreading risk in your group, spread the risk across everybody like insurance risk is meant to spread.

Conclusion

Remember, that the tobacco surcharge is there for one purpose which is to collect more premiums. Theoretically it's there to offset the cost of the health problems the smokers and other tobacco users might have.

But in my experience, and while I don't have the scientific data to back it up, I've found that most of the tobacco users use the health insurance less than the non tobacco users who have medical problems.

And that's why I'm against the tobacco surcharge.

What do you think? Should employers charge a tobacco surcharge or not?

Let me know in the comments.

How to Use the Summary of Benefits & Coverages

Many people choose a health insurance plan based on how much the premium for that plan is. While that strategy works fine if you never go to the doctor, it's not always the best approach if you actually will use your health insurance. That's why the second thing you need to look at the Summary of Benefits & Coverages.

What is the Summary of Benefits & Coverages?

The Summary of Benefits & Coverages is a tool you can use to get an idea of the amount you'll have to pay out of your own pocket when you use your health insurance for things like going to the doctor, getting prescriptions or going to the emergency room for example. It outlines in more simple and plain language what the actual insurance policy says it will pay for.

What You Want to Look For

Your premium is the absolute minimum you'll have to pay during your plan's year. But, if you are like my family, we always use our health insurance each year. That means we pay more than just the premium. So what I do is look at the Summary of Benefits & Coverages to identify exactly what these other charges will be and how much.

These are the areas that I focus on:

• Network vs Non-Network Coverage On a summary of benefits, there are usually two columns. One is for in network providers and one for non-network. Your plan will always pay the most benefits for in network benefits. So, an important first step then is choose a plan that has your providers in it. There's no sense in going outside your network unless it's an emergency and you have no choice.
• Out-of-Pocket Limit The out-of-pocket limit is the most you'll have to pay of your own money before the plan pays for everything after that. This is the worst case financial scenario if you get a major medical problem. For most of us, that means that our annual cost will fall somewhere between the premium we pay for the year and the out of pocket limit. All things being equal, you'd opt for the plan with the lowest out of pocket limit.
• Deductible The next thing I look at is the deductible. The deductible is how much you have to spend out of your own pocket before the health insurance plan begins paying. That means that if you have a $2,000 dollar deductible, you'll have to pay that $2,000 for any service subject to your deductible before the insurance company will pay anything. A lower deductible is good but you'll have to look at your deductible in relation to all of the other aspects of the plan. Some plans have separate deductibles for individuals and for families. Some have separate deductibles for prescriptions and for other services. 
• Copayment A copayment is an amount you'll have to pay to access certain services like going to the doctor or buying prescriptions. It can be a flat dollar amount or a percentage. Some plans make you pay your deductible first before copayments kick in while others don't. 
• Coinsurance Coinsurance is your share of the cost of a covered service after you meet your deductible. Coinsurance is most commonly a percentage like 10%, 20% or 30% for example. After you meet your deductible, you share the cost with the insurance company at the percentage listed.

These are the most important areas you'll want to look at to help you determine which plan is best for you in your situation.

Review The Prior Plan Year To See Where You Spent Money

What I like to do at the end of a plan year is add up my premium, my deductible, copayments and coinsurance amounts I spent for all of my services.

One year I added this up and it was over $22,000 dollars. It's hard to imagine that crazy amount because it is such a burden but you have to look at your total outlay and where you are spending it. Only then can you figure out what plan will be best based on how it works.

Make an Estimate of What You Think You'll Spend Next Plan Year

After you review the prior year, give some thought to what next year will look like. Are you expecting to have to pay for any planned procedures? Do you expect next year to be like this year?

While you can never know for sure what the year will bring, make your best guess and choose the plan that allows you to minimize your out of pocket expenses. This might mean you'll choose a plan with a higher premium to reduce your deductible, copayments and coinsurance.

Carefully Review the Summary of Benefits & Coverages Each Plan Year and Every Time You Change Plans

One plan year, I had four different health insurance plans. Each of those plans had a different coinsurance amount. The coinsurance on these plans ranged from 10% to 30%. You have to keep an eye on these back end charges because the insurance companies will sneak them in there to reduce their costs if you aren't paying attention.

Conclusion

Consider yourself lucky if you never have to go the doctor. That makes choosing a plan easy. You just choose the one with the cheapest premium.

If that isn't you, make sure you look beyond the premium you have to pay and don't forget about the other ways you'll have to pay once you start using your plan.

Your total cost will be your premiums, deductibles, copayments and coinsurance. Do everything you can to limit your out of pocket even if it means choosing a plan with a higher premium.

9 Surprising Things I Learned About Health Insurance This Year

Over the past year, I've been enrolled in four different health insurance plans. Technically, I've been on four different health plans over a 7 month period of time. That's a crazy number of plans to have been on during the year. I thought what I'd do is share with you some things I learned about health insurance over this period of time.

A Little Background

As a self-employed person, I use to pay the full cost of my health insurance premiums. A few years ago, my premium was roughly $1200 per month. Back when I started paying my own premiums, I remember one of my clients charged their employees $1 a month for their coverage.

When they raised the premiums on those employees just a little bit, the employees were understandably annoyed. But, they also were incredibly lucky they didn't have to pay the full premium. Most of it was subsidized by their employer.

I know one year, my total outlay of premiums, copays, deductibles and coinsurance was over $22,000 in one year. It's amazing that it was that much considering my family didn't have anything major like a critical illness to deal with - just chronic medical conditions.

Eventually, I went on an employer sponsored plan that helped pay the cost of my premium which was a big relief because back then, pre-existing conditions weren't guaranteed coverage.

I was on that plan for about three years and then went on the exchange to buy a policy. The removal of the threat of being denied coverage due to pre-existing medical conditions was a huge relief for my family. I was on the exchange policy for a month.

After that, I went back on an employer sponsored plan which changed to another carrier during this time.

Now that you know the background, let's talk about what I learned about health insurance over the last several months.

The Need For Cobra Seems To Have Disappeared?

With the option to go on the exchange to get a policy, I would forgo my opportunity to go on COBRA and went right to the exchange. I don't remember exactly, but I think my premium would have doubled with COBRA. I estimate I saved about $700 in premium per month with a smaller deductible and a 10 percent coinsurance as opposed to 20 percent under my first employer sponsored plan.

I chose the gold plan on the exchange and didn't qualify for a subsidy. I could have bought my plan directly from the insurance company at about the same cost but still elected to buy it through the exchange. I opted for a gold plan.

One thing I didn't realize was that I believe I could have elected COBRA retroactively. In any case, it took awhile to get my COBRA information from my employer and I based my expected premium on some sort of benefit breakdown the company had given me.

The Flexible Spending Account Use It Or Lose It Provision Applies To The Employer Too

I didn't know it at the time but my FSA was underfunded when I left my employer. The use it or lose provision that most often effects employees who put in too much money and have to forfeit it applies to the employer when you leave an FSA midyear and leave it underfunded.

While I had read stories on the internet about employers trying to recoup their money, I half expected my last paycheck to be less because of I was underfunded. But, it wasn't.

This is one of the reasons there is often a waiting period to participate in an FSA. The employer does assume some risk of underfunded accounts occurring since funds are advanced on day 1.

It's probably also why the amount you can put in was reduced not too long ago. I wouldn't be surprised if FSA's disappeared completely to eliminate all risk for the employer but we will see.

Pre-Certification Can Happen After The Fact

My son needed an insulin pump for his type 1 diabetes so I checked with the insurance company to see what was required. I was told that it had to be pre-certified. When I talked with the medical device company, I let them know of that requirement.

They explained to me that they worked with the insurance company all of the time and would definitely pre-certify the claim.

Of course, when the claim came through it was denied. The reason? It wasn't pre-certified. I was concerned I'd have to pay for the insulin pump but evidently you can pre-certify after the fact.

I've been accustomed to large claims like that being denied on the first go around so it wasn't a surprise it was initially declined. It took about 3 months for that claim to be paid.

Not Everyone That Buys Insurance On The Exchange Has Claims

I had gold plan policy that I bought on the exchange. I had the plan for one month and never used it. So contrary to all of the screaming the insurance companies are channelling through all of the media outlets about losing money, I was a profitable customer in the gold plan.

I Paid My Deductible Three Times This Past Year

Since I was on four plans, I was subject to the deductible on each of the those plans. I had to re-meet my deductible on three of them which drove up my cost of insurance for the year.

I'd try and scream as loud as the insurance companies that I lost money but I don't have the media reach they do. I just have this website.

In the end, the same insurance company got my deductible twice.

The Insurance Company Will Either Get You With Higher Premiums Or Higher Backend Costs Associated With Copays And Coinsurance

The insurance company will find a way to get the same amount of money out of you each year one way or the other. They'll either charge you more in premium and less in the back end. Or, if they give you a break on the premium will charge you more in the guts of the policy.

If you use the plan what matters most is the amount of the employer contribution, or subsidy if you get a policy on the exchange in terms of getting you an overall lower cost.

If you don't ever use the plan then premium matters most.

While I save a considerable amount of premium on my current plan, my coinsurance is 30 percent which drives up my cost. My exchange gold plan had a higher premium but a 10 percent coinsurance amount.

It's A Myth That You Get To Choose Your Own Doctors

A lot was made about the Affordable Care Act limiting your choice of doctors. But it was the way the employer sponsored plan structured their networks that prevented my son from using a doctor he had used since he was born - not the ACA.

I'm Not A Big Fan Of Prescription Drug Tiers

Rather than spread the cost of prescriptions across all prescription bought by members insured under a plan, drug tiers spread that risk across the users of the higher tier drugs.

It's stupid that my son should have to pay $90 for the same medication someone else gets for $10 who is on medicare.

A Significant Milestone On The Fourth Policy - No Premium Increase

My last plan was the first time that I can ever remember that my premium and plan stayed the same when the plan year switched. I can't remember not having a premium increase in decades. So all things considered, that's the most positive thing that happened on my four plans.

Conclusion

These are the most significant things I learned in the last year about my health insurance plans.

What are some surprising things you've learned about health insurance?

The Definitive Guide to Health Insurance

Health insurance plans pay for covered medical expenses that you might incur to treat medical conditions. Plan participants pay premiums and then file claims to receive benefits. Benefits are paid directly to the providers unless the insured paid for the expense and in that case, the insurance company would reimburse the insured according to the terms of the policy.

RESOURCE: This guide is a part of my larger guide called The Definitive Guide to Workplace Benefits. Be sure to check it out.

You Can No Longer Be Turned Down For Pre-Existing Conditions

As a result of the Affordable Care Act, you can no longer be turned down for a health insurance policy. This is a key component of the law and one that those of us who have medical conditions or family members who do truly appreciate.

Preventative Care Is Covered At 100 Percent

Any preventative medical expense is now covered at 100 percent. There is no cost to the policy holder to receive those services.

The Health Insurance Mandate - You Must Have Health Insurance

It is now required by law to have health insurance either on your own or through an employer group. If you don't have coverage, you may be subject to a penalty. The reason you must have health insurance is to spread the risk of everyone being guaranteed a policy over all of the people covered.

How To Understand Your Health Insurance Policy

Health insurance companies are incredibly complex policies. Most people never read the policy and find out through trial and error what is covered and not covered based on what providers tell them.

The best tool you can use to understand your policy is a document called a Summary of Benefits & Coverages. This summary outlines what it covers, how much it pays as well as what is not covered under the policy.

Your Health Insurance Will Only Cover What Is Medically Necessary

Your health insurance will only cover procedures that are medically necessary. This means that cosmetic procedures that aren't related to a medical condition won't be covered.

What is medically necessary will depend on your health care provider and your policy. As an example, some medical supplies are limited to certain quantities even if you might need more of them.

The most common time I've experienced this is with prescription drugs. Insurance companies will only cover a 30 day supply. If the medication only comes in quantities that cover 28 days, you are technically shorted two days.

So even though, it's medically necessary, you'll still get caught under certain rules of the policy.

You May Have To Go To Certain Providers Called In Network Providers

Plans differentiate between providers that are in network and out of network. In network providers have agreed to work with the insurance company and charge certain prices. Out of network providers have not.

Because of this out of network providers may not be covered at all or only up to an allowable amount. You'd be responsible for the excess cost above the allowed amount.

You want to make sure that you go to doctors in your network to receive maximum benefits under your plan.

The Premium

The most common feature of a health insurance plan is required premium to maintain coverage. Paying your premium on time is essential to maintaining coverage.

The premium you pay may or may not be the total premium under the policy. If your policy is employer sponsored, then it's likely your premiums are subsidized by the employer who is also making contributions.

If you by insurance privately, you may received subsidies under the provisions of the Affordable Care Act. These subsidies would come from the government. Whether or not you receive a government subsidy is dependent on your income.

If you don't receive a subsidy, you are paying the full cost of the insurance policy. If you are accustomed to employer provided medical coverage, you'll likely be shocked at the full cost of a health insurance policy if you have to pay it.

If you are on medicare or medicaid, your coverage might be subsidized completely by the government.

The Out of Pocket Maximum

The out of pocket max is the most you'll have to pay out of your own pocket during the plan year. The out of pocket maximum is listed for both an individual and a family.

This number is very useful because it will limit your overall risk in any one given year. As a single person, if your premium is $100 per month and the out of pocket maximum for an individual is $6,000 per plan year you can calculate the most you'll have to pay.

$100 premium per month X 12 months = $1200 + $6,000 out of pocket max = $7,200 max

In that example you'll know when you begin the year, the most you'll have to pay is $7,200. It helps you plan and also compare plans.

An out of pocket max is listed for both an individual and family. It's usually written like this:

$6,000 individual/$12,000 family

While the numbers for you plan might be different, just keep in mind to calculate your total possible yearly outlay for medical expenses could be as high as your annual premium PLUS your out of pocket max.

The Deductible

The deductible is an amount of money you'll have to pay out of your own pocket before your insurance kicks in. Just like the out of pocket maximum it's written the same way.

$1,000 individual/$2,000 family

In this case, if you were single, you'd have to spend $1,000 out of your own pocket first and then the insurance company would begin paying (subject to your co-insurance amount discussed below).

Example: I have to buy diabetes supplies for my son's insulin pump. Before the insurance company will pay for these supplies, I'd have to pay $1,000 first before the insurance company would pay. Once I've reached that limit, the insurance kicks in for my son. But if me or my wife have something done, we will also be subject to the $1,000 deductible until we reach the $2,000 family deductible. Then it would start paying for us.

Coinsurance

Coinsurance is an amount you have to pay once the insurance company begins paying until you reach your out of pocket max. In most of the policies it's listed as a percentage such as:

10%, 20%, 30% co-insurance

If your coinsurance was 20%, after you have met your deductible, you would pay 20 percent of the cost of the covered amount.

Example: I've met my deductible and my son's diabetic supplies cost $1,000. I'd have to pay 20% of the $1,000 or $200 at the time I bought the supplies.

Common coinsurance items are outpatient service, hospital stays and durable medical equipment.

Copayments

Copayment or copays are flat amounts for specific covered services. Copayments typically are part of doctors visits and prescription drug costs. The copays for doctors may vary depending on whether they are primary care physicians or specialists.

Drug copayments also vary. Typically, drugs are listed in tiers. Tiers may be a flat copay, most common for generic drugs or a percentage of the drug price.

Example: My son's diabetes doctor copay is $40. When we visit that doctor, I pay $40 and the doctor files a claim to get paid.

Copays may also apply for emergency room visits and before admissions to the hospital.

You'll have to review your summary of benefits to know for sure and also to determine whether services subject to a copay must meet the deductible first.

Conclusion

That's a guide to how your health insurance plans will customarily work. Remember that the first place to start understanding your specific plan is by reviewing your Summary of Benefits. If you need more help, contact your plan administrator or insurance company for more specific information.

If you have any questions, please include them in the comments below.

The Definitive Guide to Workplace Benefits

Below you'll find my Guide to Workplace Benefits. Let me know if you have any questions about my guide in the comments section below. I want this post and along with my workplace benefits videos to be the best, most comprehensive and helpful guide about workplace benefits available. Your questions will help me provide a better, more insightful guide.

Health Insurance Benefits, Programs & Services

Health insurance pays for covered medical expenses, while other programs provide tax savings for health care expenses and other services to promote and treat your health and well being.

• Major medical plans
• Prescription drug coverage
• Section 125 plan
• Flexible spending accounts (FSA)
• Health savings accounts (HSA)
• Employee assistance program (EAP)
• Wellness programs
• Tobacco cessation programs
• Teledoctors
• Healthcare price transparency tools
• On site health clinic
• Athletic facilities

Dental & Vision Insurance Benefits

Taking care of your teeth is what dental insurance benefits are all about. From eye exams, to eyeglasses to contacts, vision insurance help employees pay for the costs of eye care.

Life Insurance Benefits

Life insurance provides a death benefit to a beneficiary when an insured that is covered under the policy dies. Below I've listed the types of life insurance that might be made available to employees at work either under the terms of a group term life insurance contract or an individually owned contract.

• Basic Group Term Life Insurance
• Supplemental Group Term Life Insurance
• Dependent Group Term Life Insurance
• Accidental Death and Dismemberment (AD&D)
• Permanent Life Insurance

Even though life insurance is a pretty simple concept, many employees still get confused about what their life insurance options are both at work or on their own on an individual basis. Most employees know they have something at work but aren't sure how much or what type it is.

It's not also not uncommon for those responsible for administrating the life insurance programs for an employer group to not know all the details about how they work. This sometimes includes not just the human resources professionals but also the agents who put these programs in place.

Here's a collection of resources to help you get a better understanding of life insurance provided at work.

• Definitive Guide to Life Insurance
• 8 Problems with Group Term Life Insurance
• 6 Reasons Employees Enroll in Permanent Life Insurance
• Why It's Not Always Easy to Buy Life Insurance on Your Own
• Are Your Group Insurance Rates Attained Age or Issue Age?
• Group Life Insurance Conversion and Portability Explained

Flexible Working Hours, Telecommuting, Paid Time Off, Sick Pay, Workers Compensation & Disability Income Insurance Benefits

Paid time off and medical leave provide time off when you need it while sick pay, workers compensation and disability income insurance policies provide money to employees when they are sick or hurt and can't work because of it. Flex time and telecommuting provide you more freedom and control in how they work.

• Paid time off (PTO)
• Sick pay plans
• Workers compensation
• STD: Short term disability income
• LTD: Long term disability income
• Family medical leave
• Flex time
• Telecommuting

Critical Illness/Specified Disease Insurance, Accident Insurance & Other Indemnity Insurance Benefits

Critical illness and specified disease insurance pays you money in the event an employee is diagnosed with a critical illness or specified disease. Accident insurance pays benefits directly to the insured for covered services related to an accident, while other indemnity insurance programs offer payments for other medical services not covered by health insurance plans.

Articles about critical illness you can read here on my site:

• Definitive Guide To Critical Illness Insurance Policies
• Nine Reasons To Buy A Critical Illness Insurance Policy
• Guide To Accident Insurance
• Eight Reasons 24 Hour Accident Insurance Coverage Is Best For Your Employees

Long Term Care Insurance Benefits

Long term care insurance is a little understood insurance benefit that some employers choose to offer their employees.

Saving Money, Retirement Plans and Financial Planning

Saving money for emergencies, for retirement and planning for the future.

• Direct deposit
• Premium direct deposit
• Savings bonds
• Social Security
• Retirement plans
• Stock options
• Financial consulting

Other Workplace Benefits

In addition to insurance benefits, there are a number of other benefits that employers offer to their employees. Here are a few additional workplace benefits you might see offered.

• Benefit statements
• Purchasing programs
• Home & auto insurance discounts
• Prepaid legal plans
• Employer sponsored identity theft protection
• Pet insurance
• Educational assistance
• Achievement awards
• Adoption assistance
• Dependent care assistance
• Employee discounts
• Transportation (commuting) benefits
• Cell phone
• Moving expense reimbursement
• Unemployment insurance
• Meal plans

The above guide to workplace benefits is a good foundation for the types of programs that employers might choose to offer their employees.

What are Voluntary Benefits?

You might think of voluntary benefits as insurance benefit plans that employees can purchase "voluntarily" through their employer if they decide they want to enroll in them. While technically this is true, it also implies that some insurance benefits are required to be purchased by the employee. But this is not the case. Employees are not required to buy any insurance benefits at work. All insurance products offered for purchase through an employer are optional benefits as far as the employee is concerned.

Mandatory Benefits: The Employer Must Provide Them By Law

For an employer though, it's different. There are some benefits that the employer must provide to employees. Mandatory benefits are things like:

• Paying social security taxes
• Providing unemployment insurance
• Providing workers' compensation

It's the law - or mandatory - that an employer provide the benefits listed above. They have no choice.

Voluntary Benefits: The Employer Can Offer Them If They Choose To Do So

However, it's not the law that an employer offer a product like life insurance that employees can purchase and so life insurance is a voluntary benefit as far as the employer is concerned.

So, the main reason we use the word voluntary is because there are some benefits employers must provide to employees that are mandatory. Anything not required by law is voluntary. The employer can offer them if they want but they don't legally have to.

Just Because A Benefit Is Voluntary Doesn't Mean There Are No Underwriting Requirements

I make the distinction between mandatory benefits and voluntary benefits being used in terms of whether an employer has to offer them by law for a very important reason. The reason is that most employers often use the word voluntary in a different context.

The context is that the word voluntary seems to mean that it's voluntary that the employee buy it and therefore there are no underwriting requirements on the employer to offer programs to their employees when there are.

It's important to understand that any program you offer to your employees does come with underwriting requirements attached to them, even if the employee pays the full premium.

Old School View Of Voluntary Benefits - Worksite Benefits

Traditionally, employee benefits have been broken down into two distinct categories. Those two categories are:

1. Group insurance This is insurance provided through group contracts that are owned and controlled by the group. These would be things like basic group term life insurance, group dental and group disability. While enrollment in these types of group benefits is voluntary, aside from the group health insurance, group contracts are often labelled ancillary benefits to differentiate them from the second category of insurance benefits.
2. Worksite benefits This is insurance provided through an individual insurance contract that is owned and controlled by the employee offered through work. These would be things like life, cancer and accident insurance. These types of insurance have historically been called worksite benefits or "voluntary" benefits. Typically, worksite products have their roots in individual contracts. Since employees owned these contracts, they could continue them after they left employment as well.

Both group and individual insurance offered through an employer help the employee. That's because the employer uses the group's buying power to negotiate a better deal than employees can get on their own for insurance they feel they need. This could be seen in:

• Lower insurance premiums
• Reduced underwriting requirements
• Both lower premiums and reduced underwriting requirements
• The convenience of paying premiums through payroll deduction

These are the true benefits that employers offer when offering voluntary benefits.

What I see in practice is that most employer groups often look at the group insurance contracts as the real benefits and focus most of their time on those. They often gave little thought or importance to the old school worksite benefits.

The insurance companies and agents offering those benefits through an employer were typically the second class citizen of insurance benefits with employers. More times than not, it was implied that the worksite benefits are available but we aren't going to do much to facilitate their purchase.

With the rising costs of health insurance, this attitude is changing because employer groups are reducing their contributions to the overall costs of an employee's benefits. Since the financial burden on the employee is increasing significantly, employers are under a lot of pressure to help employees find ways to assist them in paying these rising costs at their own expense.

The answer is a bigger focus on voluntary benefits to help fill those financial gaps.

The New Voluntary Benefits - Workplace Benefits

A transition has been made over the last few years from the old school of group contracts and individual worksite contracts. Those lines are being blurred. Today, the new landscape is that you've got the health insurance and then everything else is referred to as workplace benefits, aka "voluntary" benefits. These benefits are written through group contracts more than individual contracts like in the past.

These workplace benefits are now broken down into five different types of insurance plans. Those are:

1. Life insurance Life insurance provides money to employee's beneficiaries in the event they die to soon. The types of life insurance offered can be term, universal or whole life insurance.
2. Disability income insurance Disability income insurance provides income replacement in the event of a disability. There are two types of disability insurance, short term and long term.
3. Supplemental health insurance Supplemental health insurance provides medical coverage for gaps in an employer paid health insurance plan.
4. Accident insurance Accident insurance provides cash paid directly to the employee in the event of specific accidents.
5. Critical illness/specified disease insurance Critical illness coverage provides a lump sum payment to the employees in the event of certain catastrophic illnesses like cancer, heart attacks, and strokes.

Rising health insurance costs have put voluntary workplace benefits in the spotlight. Employers have figured out they can reduce health plan benefits or raise deductibles in the main health plan and then reduce their overall premiums. Employees then have the choice to fill the gaps important to them with the menu of workplace benefits but now at their own cost.

Conclusion

That's a summary of what the industry's view of what voluntary benefits are today.

In my view, I believe that if the employee has to pay the full cost of a voluntary benefit, then the benefits of ownership should also be included. So, while the industry has shifted their focus more on using group contracts to fill the need of the old worksite benefits, I still prefer individually owned insurance contracts at work whenever possible.

If you have any questions, feel free to let me know in the comments below.