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Listener Hal Verrell asked Marketplace this question:
While trying to make a year-end appointment with an orthopedic doctor for my aching shoulder in December and learning the calendar was full because so many people make year-end appointments due to deductibles or spending out FSA [flexible spending account], it made me wonder: why do health plan annual deductible years have to be based on the calendar year? Why couldn't it be your birthday or anniversary date with your company? This would smooth out the demand for medical services throughout the year.
December is known for a few things: holiday shopping, holiday travel and trying to get the most out of your health insurance.
And while most people have deductibles and FSAs to think of in December, there are some people who are in fact on a different deductible schedule — although, not one tied to birthdays or work anniversary days like Hal suggests. If you have work provided health insurance, the deductible schedule is based on the health insurance plan schedule set by your employer.
“It's really completely up to your employer,” said Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute. “They decide: ‘Do I want to have a calendar year deductible or do I want to start at a different date?’ They're never going to have different deductibles start dates for different people. It's going to be a group deductible that start on the same day for everybody in the group and it's most common to be Jan. 1st since it’s most common to have an open enrollment period in the fall.”
And while employers could potentially change the schedule your plan is on, they are probably not going to do so just so that you don’t have to try to squeeze in doctors’ appointments in December.
“Most employers are on a calendar year and that's not changing,” Fronstin said. “Having your plan year start on Jan. 1 is a lot easier these days because people are used to that. They're used to having open enrollment in the fall. They're used to their deductible switching in January. They are used to a lot of things changing in January. Tax year changes so maybe withholding is changing. It's hard to reengineer something after it's so set in stone for so long.”
Individual insurance plans that people can purchase on health insurance exchanges set up after the passage of the Affordable Care Act are also most often on a calendar year.
“The Affordable Care Act shifted the entire individual health insurance market to have an open enrollment period and with that all plan years are Jan.1st to Dec. 31st” explained Dania Palanker, associate research professor at the Center on Health Insurance Reforms at Georgetown University. “So if you enroll through a special enrollment mid-year, your plan ends at the end of the calendar year and if you want to remain enrolled, you end up on a Jan. 1st calendar year.”
The main reason why the Affordable Care Act is designed this way is because it required health insurance companies to guarantee access to health insurance to everyone, including people with pre-existing conditions.
Setting a set open enrollment period “prevents people from waiting until they get sick or injured to go shopping for coverage,” Palanker said. Knowing that they can only enroll in the fall, healthier people are encouraged to buy insurance because if they don’t enroll during that time, they cannot enroll until the next open enrollment. The idea is that this then helps ensure that it’s not just the “high risk” people who are buying insurance and driving up the price of health insurance.
Among the few organizations that offer health plans on different schedules are universities that offer plans tied to academic years and local and state governments that use the fiscal year for their health plan, according to Palanker.
However, for the most part keeping health plans on a calendar year is easier and more efficient for most involved: the insurer, the employer and even the employees.
One of the reasons that insurers don’t allow everyone on the plan to have a different plan schedules is because their system is not built for it. Also, it would increase cost and make changes to insurance plans and their prices more difficult. When health insurance companies price their insurance premiums and design their plans, they do so based on a calendar year.
Same goes for employers, explained Palanker.
“When employers are making changes in benefit design, they're changing it in order to reduce cost,” she said. If they were to go with a higher premium plan, it would seem unfair if that new premium kicked in earlier for some employees and later for others. It would also be an administrative headache and might not save as much money as it would if everyone were on the same schedule.
For employees, the benefit is that they can shop around for the best plan available.
Because most people on an employer provided health plan have approximately the same enrollment periods, households with two or more people who work and qualify for employer provided health care can compare their plans and choose the one that best suits their needs, Palanker said.
“It provides an opportunity for people to compare their options and not to have a situation where you can only look at your coverage and then a few months later you can look at your spouse's coverage after you've already made some decisions,” she explained. “Now that the individual market is on the same calendar it adds to it as well. You can shop for all your options outlined at once.”
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Deductibles, health savings accounts and the calendar year
Flexible Savings Accounts
FSAs are accounts where employees can put away pre-taxed funds for eligible medical expenses not covered under their health insurance. These accounts are run on a calendar year, since the IRS limits how much money you can put away each year. In 2018, the contribution limit for FSAs is $2,650.
It used to be that the money put away in your FSA had to be spent by the end of the year or otherwise you’d lose it. This rule was slightly changed a couple of years ago, when the IRS decided that employers could either let their employees roll over $500 in FSA funds every year or give them a 2.5 month grace period to spend the money in the beginning of the following year.
Health Savings Accounts
Similar to FSAs, HSAs are also accounts where employees can put away pre-taxed funds for eligible medical expenses not covered under their health insurance. However, these tend to only be offered to people with high deductible health insurance. These accounts also run on a calendar year. In 2018, the contribution limit for HSAs is $3,450 for self-only and $6,900 for a family.
HSAs contributions are not subject to the use-it-or-lose-it type of requirements that FSAs are. They are rolled over from year to year.
Deductibles are the amount that people have to pay out-of-pocket before their health insurance will kick in and cover their claims. Once you reach this amount, you might still be required to pay co-pays until you reach another threshold called out-of-pocket maximum. Deductibles are set based on your health plan schedule which is set by your employer and is not tied to a calendar year.