Open enrollment for University of Illinois employees begins in May. For many, health insurance selection is one of the most important decisions they can make. Selecting the right plan can impact your access to healthcare providers and out-of-pocket costs during the next plan year. While many employees may stick with their current plan, some may find benefits by reconsidering their selection. We will explore in more detail the differences in two major plan offerings, including calculating the financial and out-of-pocket costs of each.
For more information on Open Enrollment, we encourage you to check out our blog post on Navigating Benefit Decisions during the University of Illinois Urbana-Champaign’s Open Enrollment.
Overview
Health insurance and most other benefits for University of Illinois employees are offered through the State Employees Group Insurance Program (SEGIP) administered for all employees of the State of Illinois. There are nine different offerings for health insurance as of this writing, seven of which are available to those working and living in Champaign County and employed at the U of I. As it would be too complex to compare all the plans, we have narrowed down to two different plans for this comparison.
Full details on all plans, benefits, and costs can be found at the MyBenefits website. The following rates are based on Fiscal Year 2024 benefits. Premiums, deductibles, and applicable limits will likely change for future plan years.
open access plan (OAP)
We find this is the most popular type of plan selected for our clients, as it is the most flexible. It allows for low out-of-pocket costs and co-pays when you use providers under their preferred network, but also allows you to choose your own doctor or specialist if needed, and at a higher cost.
These benefits are offered based on these tiers:
Tier I: offers a managed care network which provides enhanced benefits and operates similar to an HMO
The annual deductible is $0.
Co-pays include $30 for visiting a general practitioner and $275 for emergency room visits.
Annual out-of-pocket maximums are $3,000 per individual and $6,000 per family.
Tier II: offers an expanded network of providers and is a hybrid plan operating like an HMO and PPO
The annual deductible is $300.
Co-pays are typically 10% for most visits.
Annual out-of-pocket maximums are $3,000 per individual and $6,000 per family.
Tier III: covers all providers which are not in the managed care networks of Tiers I or II.
The annual deductible is $400.
Co-pays are typically 40% for most visits.
There is no limit on out-of-pocket costs per year.
Consumer Driven Health Plan (CDHP)
While this plan is not commonly selected by our clients, it could be worth considering in the right circumstances. This plan qualifies under the IRS rules as a High-Deductible Health Plan (HDHP), which is important for the Health Savings Account (HSA) benefit (which I will discuss below). Like the OAP plan discussed above, there is a preferred network of healthcare providers that results in lower costs and access to out-of-network services if you wish.
The main difference is this plan has higher deductibles. Except for annual preventative care such as physicals, you would be responsible for covering all costs up to your deductible before insurance would pay. The tradeoff being a lower annual premiums and access to the HSA, you pay more for utilizing services.
Here is a summary of the plan tiers:
In-network providers
The annual deductible is $1,500 per individual and $3,000 per family.
Co-pays are 10% for most services.
There is an out-of-pocket maximum of $3,000 per individual and $6,000 per family.
Out-of-network providers
The annual deductible is $1,500 per individual and $3,000 per family.
Co-pays are 35% for most services.
There is an out-of-pocket maximum of $3,000 per individual and $6,000 per family.
Paying for Medical Costs Pre-Tax
With either of these plans, you will want to consider pairing with a plan designed to help you pay for out-of-pocket costs on a pre-tax basis. Both plans allow you to save into an account that you can use to pay for or reimburse yourself with pre-tax dollars for any qualified medical expenses.
Medical Care Assistance Plan (MCAP)
The MCAP is a type of Flexible Spending Account that allows you to defer a portion of your paycheck into on a pre-tax basis. Once funds are in the account, you can pay for qualified medical expenses using a debit card linked to the account or later request reimbursement with proper documentation. You are allowed to contribute up to $3,050 to the plan (Fiscal Year 2024).
The downside of the account is you must elect how much to put into the plan during open enrollment and only $610 can be rolled over if unused by the end of the plan year. This means if you contribute the maximum amount and do not use all the funds, you lose the balance above the carryover limit. You must plan ahead and contribute only the amount you are confident you will use.
Health Savings Account (HSA)
The HSA is like the MCAP, but better. Here is how:
Contributions: It also allows you to contribute a portion of your paycheck on a pre-tax basis. Unlike the MCAP, you can also add to the account at any time. Annual limits are determined by calendar year, and you can contribute to the account at any time until the due date of your tax return (generally April 15th). This means no guessing about what medical expenses are going to be. You can always add more if medical expenses are higher than anticipated!
Further, as an incentive to use the CDHP, the state will contribute to this account on your behalf. They will contribute one-third of your annual deductible to the plan. For the 2024 Fiscal Year, this means the state will add $500 to the account for individuals and $1,000 for families.
Limits: Annual limits are also higher under the HSA. For individuals, the maximum annual contribution limit is $4,150 and $8,300 for families. Additionally, a participant over the age of 55 is allowed to contribute an additional $1,000 above those limits. These limits are based on the 2024 tax year.
Unused Dollars: Unlike the MCAP, there is no deadline to use the money. The balance can be used in the same plan year or rolled over indefinitely, including saved to be used in retirement. If you or your spouse use the accounts during your lifetime, there is no penalty or loss of balance. If you die, the balance can go to heirs, but income tax will be assessed on the balance of the account.
Investments: Finally, the best feature of the HSA is the ability to invest your excess balance. If you contribute more money than you use each year, the excess balance of your account can be invested for the potential to grow in the future. Any growth in the account is tax free if used for qualified medical expenses in the future. For those who have otherwise maximized other retirement savings vehicles, this can be a powerful way to build even more tax qualified money to be used in retirement!
Choosing your Plan
Selecting the right plan is difficult because we cannot predict the future. Whether you need medical care and to what extent will greatly influence the best choice. In the absence of that information, we must make the decision based on what we do know. Here are some factors to consider:
Risk Preferences
The CDHP has higher deductibles, which means you will be responsible for more out-of-pocket costs up to annual deductibles. For some, this would create discomfort in having to weigh the financial burden of seeking care. This concern could be mitigated by building up funds in your HSA, which would give you an emergency reserve to cover those costs. However, not everyone would be comfortable with that. If you tend to be more risk averse, paying a higher premium for the OAP might be worth not having to make this choice.
Existing Medical Conditions
You might also consider how much you expect to utilize the plan. Someone with pre-existing, chronic, or ongoing needs may have routine visits to their doctor and specialists. Paying a series of small co-pays of $30-35 per visit under the OAP may result in much lower costs than having to pay $1,500 out-of-pocket to hit your deductible under the CDHP.
I think a couple examples are the best way to illustrate the pros and cons of each plan.
Example 1
To start, let’s consider a scenario of Professor Jill and her two children, Amelia and Parker. We will assume Jill’s spouse has his or her own coverage and will not be considered in this example. Jill’s annual salary is $180,000, putting her in the top tier of premiums. The monthly and annual costs are summarized in the table below.
Jill and both kids receive annual physicals, which are covered by insurance with no out-of-pocket expenses.
Jill falls getting out of her car when her driveway is ice-covered. She visits the emergency room to have her wrist examined. They give her a splint and recommend six sessions of occupational therapy to ensure the injury is fully healed. All services are provided by in-network providers.
Estimated costs¹ are summarized in this table:
The OAP appears at first glance to be the less expensive plan when comparing the out-of-pocket expenses. However, when you factor in the savings on the reduced premiums and employer contribution to the HSA, the CDHP results in a slightly less expensive annual cost.
In addition, with the savings summarized above, Professor Jill could choose to add an additional $6,725 to her HSA account. Using the same tax rate as above, she would save $1,950.25 on her federal and state taxes. Further, those funds could be invested, grow, and be used tax free later!
Example 2
Assume same facts as Example 1, except add that Parker also visits the Emergency Room due to a pain in his stomach. He is admitted to the hospital with appendicitis and receives emergency surgery. He is released from the hospital the following day and instructed to visit his pediatrician in two weeks for follow up.
Estimated costs² are summarized in this table:
The result is the net annual estimated costs under the CDHP are higher than the OAP because the premium savings are not enough to offset the higher deductibles and co-pays under this plan.
Final Thoughts
Choosing between the various plans is a nuanced decision that requires thoughtful consideration of personal circumstances. In the absence of crystal ball foresight, it is essential to weigh the known factors such as risk tolerance, medical history, and potential usage of healthcare services. The goal is to strike a balance between managing out-of-pocket costs and optimizing financial benefits.
As open enrollment approaches, we encourage University of Illinois employees to delve deeper into the details, consult with benefits specialists, and make informed choices that align with their unique needs. The right health plan not only ensures access to necessary healthcare but also contributes to financial well-being in the long run.
We encourage anyone with questions or wanting personalized guidance to reach out to us for help. Our team of financial advisors has experience working with State of Illinois university employees and can help you create a comprehensive retirement plan that suits your unique needs and goals.
¹ER Visit: $275 Co-Pay for OAP; Counts towards deductible for CDHP. Jill Occupational Therapy: $35 Co-Pay per visit; $300 counts towards deductible, remainder has 10% Co-Pay for CDHP.
²Parker's Hospitalization: $425 Co-Pay under the OAP; paying the remainder of the $1,500 Deductible plus 10% Co-Pay results in hitting Out-of-Pocket maximum of $3,000