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HSA, HRA, FSA, "high deductible"... If your eyes glaze over when you see terms like these, and if you run the other direction each year when your HR rep tries to hand you an open enrollment guide, then you'll appreciate the following interview with PolicyGenius CEO and co-founder Jennifer Fitzgerald.
Jennifer recently spoke with Sam Zabell on the "Adulthood Made Easy" podcast and explained not only what the terms mean, but what you should be focusing on when it comes time to review and make changes to your health insurance coverage this year.
Read the full transcript below.
Adulthood Made Easy:
Your Non-Scary Guide to Open Enrollment
Sam: Welcome to Adulthood Made Easy. A podcast from RealSimple Magazine that will not only help you navigate real life but win at real life. I'm your host, Sam Zabell.
And if you're anything like me, around this time you've gotten an email from your employer, from your company that has said something like, "The enrollment period is coming, 2016 benefits now available," or something that made you panic because you realized you have no idea how to begin dealing with the open enrollment process. Or at least that's what I realized, even after a year at the company, the idea of a health benefits package still completely mystifies me. I'm not 100% confident on what my current package is, even though I know I enrolled in something last year. So I figured now would be the perfect time to talk about how to pick a package that's perfect for you and then actually use it.
So I've asked Jennifer Fitzgerald to join me today. She is the co-founder and CEO at PolicyGenius and she's gonna help us figure out, what all of those terms mean like HSA, FSA, HRA. What's the perfect plan for you and how to actually shop around. So welcome, Jennifer!
Jennifer: Thank you, Sam. Glad to be here.
Sam: And we're catching you in your Brooklyn offices, correct? That's where PolicyGenius is?
Jennifer: I am. Yes, we are in Williamsburg, Brooklyn.
Sam: Very cool. So can you tell everyone a little bit PolicyGenius? I know it's relatively new and it sounds like exactly what we need today, is a PolicyGenius.
Jennifer: Thank you. So PolicyGenius is an early stage company, we've been around for a couple of years. And our mission is to make insurance much easier and much more simpler to understand for today's digital consumers. So we're taking everything that still is paper based and, you know, insurance agent based and trying to make it into a friendly web based experience for people who don't want to go through, you know, booklets that are hundreds of pages long and, you know, talk face to face over the kitchen table with an insurance agent so, that's what we do.
Sam: I remember printing out the benefits package last year when I was dealing with my very first enrollment period. And it was something like 117 pages or something and there was a PowerPoint and there was all this stuff and I...it was like how can you even get through 1 page let alone 50 to 100 pages? So I think that sounds like a great business plan.
Jennifer: And literally, 0% of people read those booklets.
Sam: Yeah, I don't think I read very much. And I know that people often create businesses and companies to solve a problem that they have encountered in their own lives. So I'm curious, do you remember what it was like to deal with this kind of stuff when you were, you know, just out of college and at your first job and enrolling in your first benefits package?
Jennifer: Absolutely and I might be aging myself but, you know, my first job out of college was in the late '90s, so everything insurance based was paper based. And I remember getting handed that, you know, that big booklet with 150 pages and words like "disability insurance" and "deductible" and I had no idea what to do, who to talk to about it, nor could I even be bothered. I just kind of assumed that I'm sure whatever it is, it's fine which is actually what a lot of folks to do or what young people do which is often...like turn to the other person next to you and say, "What are you signing up for?" And just doing that.
Sam: That's exactly what I did. I was like, "What are you doing?"
Sam: I kind of like crowd source my benefits package. This is embarrassing to admit. But the goal would be...my goal is that 2016 is gonna be the year that I own my benefits package and that I know exactly what to do and when I go to the doctor and they ask me what my insurance is, I can say with confidence what it is. Instead of like, fumbling through it. And so that's what you're gonna help me with today.
Sam: So for someone just starting out, can you explain a little bit about what the open enrollment shopping experience is? What they're really looking for.
Jennifer: So open enrollment is typically in the fall and it's that time of the year when you can sign up for benefits, you can change your benefits and it's usually a couple of months, right? So whether you are getting benefits through your employer or you're shopping for yourself on the exchanges, it happens around the same time and that's this part of the year. And so we'll tackle the employer situation first. So you'll get an email, you know, from your HR benefits manager saying, "Open enrollment's coming up. This is your only time of the year to make any changes to your benefits." And people have no idea what that means or how to go about it.
So the first thing you wanna do is to understand what types of decisions are on you and what your benefits are that the employer offers, right? To make it complicated, there's kinda no one size fits all. For some employers open enrollment is very easy and there's really nothing to do because there's just kind of a default health insurance plan that everybody gets who's eligible, there's default benefits that everybody gets who's eligible so there's is really nothing for you to do, right? On the far extreme of the case, there are employers who offer, you know, two or three different health insurance plans options. They might offer voluntary benefits like life insurance or disability insurance or dental and vision insurance that you have to opt into and then, you know, pay for out of payroll deductions, right? So there's kind of the full gamut. So, you know, the very first question to ask and, you know, the person you wanna ask of your HR manager is, "Do I actually have to make decisions or is this just FYI, you know, telling me what I have for this year?"
Sam: I know that a lot of companies offer, like you said, different plans and not every company has a one size fits all scenario but from your experience what are you gonna get 99.9% of the time with any health insurance plan you choose? What are we all guaranteed?
Jennifer: So with any health insurance plan, everybody is guaranteed to have the 10 essential benefits covered. These are defined in the Affordable Care Act but for our purposes it's basically anything that you'd go to a hospital or see a doctor for, right? Sos that's, you know, that's illnesses, that's injuries, that's wellness checks and going to primary care doctor, to your annual exam with your gynecologist or, you know, going to the emergency room if you have, you know, if you were hit while riding your bike. So all of those things are covered. Everything that we think of in terms of healthcare is covered, right? So what's gonna be different is how much you have to pay whenever you go use the health care system. And then how much you pay on a fixed basis, which is the premium, right? So your bearing of those costs is what varies but, you know, all health plans required by law are required to cover, you know, the things that we think of in terms of health care.
Sam: I think one big question on people my age's mind would be, "What would be the point of getting off my parent's insurance right now?" Like why might some people decide to opt into their company's benefits package? Are some people doubly insured? Does that make even a difference to have two types of insurance?
Jennifer: Sure, that's a great question and one that I've helped a lot of people with. So it depends, some young people under the age of 26 who still get covered under their parents' plan, their parents actually want them off, because their parents are paying for that coverage, right?
Sam: Right. Okay, that's fair.
Jennifer: Otherwise, you know, if you are covered under your parents' plan, your parents are paying for it so it's no out-of-pocket cost to you and it provides coverage in your state, meaning that if you go to the doctor, you go to the hospital in your state, that that's covered. I think the big problem that young folks run into that I've seen is that their parents are in one state and then they live in another, right? So a lot of times the health insurance that your parents have in that one state, unless it has, you know, an affiliate plan in your state, it actually doesn't cover you and you'll end up paying out of network costs if you use, you know, a doctor or go to the hospital in your state. So if you are on your parents' plan and your parents live in a different state, you absolutely should make sure that that provides good coverage to you in the state that you live in.
Sam: That's a really good point and that definitely is true to my situation. My parents live in Ohio and I'm here in New York, so that's why I am shopping around right now for my benefits package. And something you mentioned before that I just want to clarify because it sounds like a really important thing is this is the only time that you can change this, correct? Like If I decided later. Like if you get really sick later and you, God forbid, get diagnosed with some kind of disease that will require more insurance, you can't like change it later and be like, "Oh, actually, I want to elect for more coverage."
Jennifer: That's exactly right and that's exactly the reason why. Because, you know, if the insurance companies just let people enroll whenever they wanted to, people would wait until they needed it to enroll. Insurance works because healthy people pay into it and not just, you know, people who need the care so that's why there is a limited enrollment window. Now there are things that allow you to make changes or enroll in a plan outside of that window and those are what's called special enrollment event or qualifying events. So it's things like if you get laid off from your job, or your job drops health insurance coverage, that's one. If you move out of state, that's anther one, If you get married, or have a child, those are other events as well that allow you to do something outside of that open enrollment window.
Sam: So, let's talk about some of the terminology that I don't understand every single time it comes up and which things that we should be worried about versus which things maybe we can opt out of. So the first probably is premium. Can you tell us about premium?
Jennifer: Sure, so premium is just the monthly fixed cost that you pay to be a member of your health insurance plan. Think of it as just the monthly bill, you pay for it regardless of whether you use the insurance or not. It's like your cellphone membership plan, right? There's just a fixed cost. You pay every month, regardless of how much you use it. Now, if you're lucky and work for a company that pays a 100%, then you actually don't contribute anything to premium. But most companies will require some employee contribution to that premium.
Sam: Okay and then what is the deductible? More people might be more familiar with it from the auto insurance context. So that's basically, whenever you use the insurance, right, you go to the hospital, you go see a doctor, the deductible is the amount of expenses you're responsible for paying before the insurance kicks in. So let's use an example, let's say that your health insurance has $1,000 annual deductible. That means that the first $1,000 of health care expenses that year, you have to pay for before the insurance kicks in, right?
Sam: Okay. But there's some strategy, so this is where some strategy that comes in, that you kinda have to know the system. So in theory, like to me as a young person, any time I hear money, I'm like, "Okay, what is the lowest amount of money that I can spend?" So I'm automatically like, "Okay, low deductibles, low everything, low plan like less money." But what's the strategy in having a lower deductible, so a lower amount you have to pay before insurance kicks in versus a higher deductible, and like how does that show up?
Jennifer: It's a great question and the complicated thing is the lower deductible you want, the higher the premium is, right?
Jennifer: So a low deductible plan where the insurance kicks in sooner is actually gonna cost you more a month in terms of you know, the monthly premium. So the strategy is, and what we advise folks is, if you think you're gonna use a lot of doctor visits, you know, if you have a chronic condition that requires you to go see the doctor regularly or if, you know, you think you're gonna have to use health care a lot then opt for a lower deductible plan because in that case, the insurance kicks in sooner and you're not on the hook every time that you have to use health care versus if health insurance is basically just the worst case scenario safety net for you. You're healthy, you don't have any chronic conditions, you only go maybe once a year, you know, for an annual check-up or exam then a higher deductible is probably gonna be better for you. Because with the higher deductible, the monthly premium you pay is gonna be much lower and if you're young and healthy, you'll never...the deductible will never come into play because you're just not going to the doctor, to the hospital.
Sam: And a lot of plans, I feel like, are organized like bronze, silver, gold or there's definitely three levels and level one is maybe less coverage. So if you're a generally healthy person, like you were saying, should you be opting for those lower level plans when you're looking at a type of a care provider?
Jennifer: Exactly. If you're looking to save money, right, and who isn't?
Sam: Right, me!
Jennifer: And you're, you know, a young, healthy person who doesn't have any regular reason to go to the doctor or to the hospital, then you'll wanna look at a higher deductible plan, like a bronze plan or a silver plan. They're gonna have a lower fixed costs, you know, the lower monthly premium and it's a good coverage alternative for younger, healthy people
Sam: There's all these acronyms that end in an "A" and they all look the same. So the first is HSA which is a Health Savings Account. So what does that do?
Jennifer: So it's a good segue, actually. So a Health Savings Account is a savings account from which you can pay for health expenses, right? You can only open an HSA if you actually have a high deductible plan so the two go hand in hand right? So let's say you opt for a plan with a high deductible, like a $2000 deductible. Hopefully, you'll never have to use it and hit the deductible but if you do, like let's say, you know, you get appendicitis and you have to go to the emergency room and get your appendix out like, you know, that's probably gonna be a $5,000 visit, minimum. So you're gonna hit that $2,000 deductible at once. If you have money in your HSA, you can use that to pay the deductible. And the nice thing about an HSA is that the contributions are...you can either do it pre tax or do it tax deductible. So it will also lower your income tax bill by the end of the year if you use it on health care expenses.
Sam: So it only works after your deductible's kicked in. So sometimes I've heard that you could use an HSA for certain, like you can get a new pair of glasses or you can use towards like a gym membership, but you can't do any of that until your deductibles kicks in?
Jennifer: No, that's not true. So there's gonna be a set of things called...I know, it's very...
Sam: That's what I mean, I don't know anything.
Jennifer: All good questions. HSA, you're gonna look at, there's a list of qualified health expenses. So there's any number of things that go in there. So usually prescription, co-pays to your doctors, you know, medical equipment or supplies like crutches, eyeglasses and things like that can go in there as well. So any of those expenses, if you have money in your HSA, you can pay for those with your HSA.
Sam: Okay, so HSA, Health Savings Account, now I understand better, since you explained it to me. What about an HRA? Health something Account, Health Reimbursement Account? Okay.
Jennifer: Yup, that's exactly right.
Sam: What is that?
Jennifer: A health reimbursement account is an arrangement between you and your employer. So an HRA is something that only your employer can set up versus the HSA which you can set up and you can control, right? If you have a high deductible health plan. So with an HRA, a lot of times this is...you could think of it as the employer version of your HSA. So an employer might say, "Hey, we're going to give all of our employees a high deductible plan, right? In order to save on the monthly premiums we pay for the group health insurance but if you actually have to, you know, use the health insurance to go to the hospital, to go to a doctor, we'll reimburse you for your out of pocket expenses, right? So they'll basically help you pay the deductible and pay for certain expenses if you have to actually use it.
Sam: And is that a similar thing where you can be paying for prescription eyeglasses or is that only for paying for very specific doctor related expenses?
Jennifer: It depends, your employer dictates what's eligible expenses.
Sam: Okay, and something I think was cool about the HSA, and I don't know if it's the same for the HRA, was my company, and I'm sure other companies do the same, you can do things like, you can take a survey saying, "Here's how healthy I am today," or like, you can say, "I vow to eat one apple every day." And there's money that goes into that like you get money for taking certain initiatives for your own health. That's like free money that then they put into your account. Does the HRA have similar...have you heard of that before? And does the HRA have similar things?
Jennifer: I have heard of that before. Those are like corporate wellness incentives and programs, right?
Jennifer: So it's in everybody's incentive to have their employees healthy so, again that's gonna be employer defined. So some companies will have it and some won't and some might give extra incentives, you know, in your savings account that you have with the employer to do that. Or the insurance company might actually, you know, reduce rates if a certain percentage of employees are, you know, showing that they are compliant in the wellness program.
Sam: I think that's kinda cool. I liked that when I figure that out. And my last acronym ending in "A" is the FSA. What's that?
Jennifer: Now, that...they're all pretty similar right?
Sam: Yeah, they're all starting to sound a little similar
Jennifer: Yeah, and it's tough to keep them straight. So the FSA is a Flexible Spending Account, right? It's very similar to the Health Savings Account but with a couple differences. So one is, you can use an FSA with any type of plan, the HSA you can only have if you have a high deductible plan. So even if you have a really nice health insurance plan with zero deductible, you can still open up an FSA. Typically, you can only have the FSA through a company. So that's something that your employer will set up then you contribute pre tax dollars to it.
The FSA will also have a similar category of expenses that you can spend on, right? So co-pays, prescriptions, eyeglasses things like that. The other thing to know about the FSA if you sign up for one through work, is that most of the money, if you decide to put money in there, you have to use in the year, like it will have a use it or lose it feature. You can roll over, I think maybe $500 from your FSA one year to the other but, you know, keep that in mind if you're setting up and funding in FSA at your company. I know that in my last company, we had an FSA option and a lot of people signed up for it and, you know, put the maximum amount which was like $2000 of pre tax money into their FSA and then we realized at the end of year that there is a use it or lose it feature, so everybody started buying like a whole bunch of like eyeglasses and stuff with the money.
Sam: You had great vision that year.
Jennifer: Yeah, or really nice glasses.
Sam: I mean, do you think that that's something that young people should be opening or do you think that maybe like, of those things, what do you think is most...I guess some it depends on which plan you're buying but like is that something that someone my age should have an FSA, a Flexible Spending Account?
Jennifer: I think so but it depends on if you wear eyeglasses. If you have any sort of recurring prescription, an FSA is a good idea because the contributions are pre taxed and when you pull it out and spend it on eligible expenses, it's also untaxed. So it's a nice tax favored set of money, you just have to be careful to make sure that, you know, you'll spend however much you put in. Usually, the contribution is capped around $2,500 so just make sure that if you put, you know, money in it that you'll be certain to use it.
For the HSA, if you have a high deductible health plan, I absolutely encourage folks to open up a Health Savings Account because it is your account and not tied to your company. You can roll over unused balances year over year, right?
Sam: Got it.
Jennifer: You can always use it on an eligible healthcare expenses. And especially if you have high deductible plan, that you know hopefully, you'll never have to use but if something happens, like you have to go to the hospital emergency room, you know, on most plans, you're gonna hit the deductible with just that one ER visit. So make sure you have some money set away if the unlikely event you'll have to hit that deductible on your high deductible plan.
Sam: That makes total sense. And I mentioned those, what you said and I can't remember what you call them. Employee...
Jennifer: Wellness programs.
Sam: Wellness programs, okay. I've mentioned wellness programs as a way to kind of access free money that you didn't really realize you could access through your company. What are some other benefits of these programs or things people might not realize are covered often by insurance that people should be looking into, either when they're purchasing or after they purchase?
Jennifer: Sure. So one of the incentives to open up that big employee benefits handbook that you get during open enrollment is to see what kind of, you know, programs and freebies there are. So a couple of the common ones, wellness incentives like that, reimbursements for gym memberships which are very common on health insurance or any corporate wellness programs. Sometimes, either the health insurance or the employer will set it up. You get kind of 24/7 doctor or nurse hotline. So if you have something that...you need to see a doctor to get an antibiotic prescription but you don't want to go to a doctor or go visit the hospital because it's gonna cost you money. A lot of times there'll be a nurse or a doctor hotline that you can call and a lot of times they can prescribe over the phone for non serious things like strep throat. So that's a nice way, one it's super convenient and two is it saves you the co-pay from, you know, having to go to the doctor or the urgent care clinic.
Sam: That a really good one. I have no idea of Time, Inc. I do know that they reimburse you for gym memberships but I have no idea about the hotline. I guess, I should just consider myself very lucky that I've been healthy in the last year because it sounds like I didn't have all the information I needed to be unhealthy. So I think I should just consider myself on the lucky end of things. And you mentioned also way earlier when we were talking that there are some opt-in insurances like life insurance, like vision and dental we've talked about. I mean, what else, other that the basic health insurance stuff, what else are you shopping for during open enrollment? I know this is when a lot of people make changes like their 401k elections and things like that. But what else comes with this period that you should paying attention to?
Jennifer: Sure, so the big thing to look at is, you know, any decisions you have to make run your health insurance, which we just talked about. Also, take a look at what additional insurance coverage you can sign up for through your employer. Group insurance is usually a very good deal. You don't have to qualify medically for thing like life insurance and disability insurance if it's a group policy through your employer, so you should absolutely take advantage of that. So dental and vision insurance you know, easy. Dental insurance, for sure you should do it. It's a great deal through your employer even if you have to, you know, pay a little bit for it. Vision insurance if you need corrective lenses, for sure. Both of those are usually very, very inexpensive. You know, in the order of $10, $15, $20 a month if you have to contribute anything.
The other two things that we encourage young people to look at are disability insurance. It's got a terrible name, nobody knows what it is. But it's probably, after health insurance, the most important insurance coverage for young, working persons to have. And what disability insurance is, it's basically income protection, right? So if you actually get too sick or too injured to work for a long period of time like six weeks, eight weeks you know, six months. At some point, you're gonna exhaust your sick days from work and then you're out of a paycheck until you're well enough to work again. And what disability insurance does is in those cases it will cover your income and give you something to live on while you are, you know, recovering and before you can get back to work.
Sam: Yeah, I would have never have never thought about that one. I guess, I would have never thought about it in that way. I feel so much more prepared going into the open enrollment period which I cannot say of myself 20 minutes ago before we started talking. And I'm also surprised to say that I had so much fun talking to someone about insurance, which I don't think has ever happened to me before. Usually, when I try to talk to my dad about it someone just ends up frustrated or bored or something like that. So Jennifer, it's been great to talk to you and thank you for making this easy to understand and entertaining and not as scary as it could be.
Jennifer: Well, thanks for having me Sam and it's certainly not intimidating and even just 20 to 30 minutes of a little bit of decision making around open enrollment, it makes a huge difference.
Sam: I completely agree and this was incredibly helpful. Like I said, Jennifer Fitzgerald is the Co-founder and CEO of PolicyGenius. So thank you so much Jennifer, I really appreciate your time.
Jennifer: Great. Thank you for having me on, Sam. I enjoyed it.
Photo credit: Sergio Alavarez