Small Business Health Insurance 101: Plan Year Versus Calendar Year

One of the most common health insurance questions involves the health plan 12-month period. Sometimes it corresponds to the regular calendar year, but often it falls on a different period altogether.

Why is there a different year for health insurance?

In general, health plans vary depending on whether you buy them directly from the health insurance provider or through your employer. They may also change if you’re renewing an insurance policy with the same plan and provider or picking a new one.

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In a nutshell, a calendar year is January 1-December 31. Simple enough.

A plan year (not to be confused with tax year or fiscal year) can be different. A company can offer employee health plans anytime in a given year. For instance, a plan that starts (and renews) on June 1 will continue for the 12-month-period through May 30 of the following year. Does that mean your deductible also resets to zero on June 1? Maybe. It depends on a few factors. Let’s look at the basics.

Is my deductible on a plan year or a calendar year?

Individual health insurance

All individual health insurance plans begin at zero on January 1 in terms of deductible and max out-of-pocket expenses. A deductible is the amount the insured has to pay before the insurance policy begins paying the covered medical costs provided in each plan. (Read more about How Deductible Work in this article.) The insured party will still be responsible for co-pays, non-covered expenses, and all or most out-of-network providers.

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Max out-of-pocket expenses mean the insured has paid all co-pays and other medical expenses up to a pre-determined amount in their plan, after which point they will no longer have to pay for qualifying, in-network medical costs (including doctor’s visits, scans, lab work, or similar).

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In the case of Individual health insurance plans, the plan deductible and out-of-pocket expenses always start at square one on January 1 and add up throughout the year until the insured has paid the max required amounts for each, all the way up to December 31. The plan year never varies, no matter when the insured begins coverage. Therefore, if you begin or switch to an individual plan during open enrollment (usually Nov 1 - Dec 15) you will still have to start with a new deductible on January 1. In this case, if you have an important electric surgery and have met your deductible, it may make sense for the insured to schedule the procedure before until January 1. Note, your health care premiums also remain the same during this period and until the new period begins.

Employee-sponsored insurance

The plan year is a bit more complicated when it comes to company health plans. This is why it’s essential to discuss the plan options and caveats with your HR representative before signing up, so you know what you are agreeing to.

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For some health plans, the plan year resets the deductible and out-of-pocket expenses when the plan renews, even if it’s mid-year. In other cases, any medical expenses that count toward the deductible may carry over and be included for the rest of the calendar year--provided the insured sticks to the exact same insurance provider and health plan. However, because this varies depending on the provider, there is no guarantee this is how your deductible will be handled.

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Other factors that may cause the insured to have a reset deductible include a change of health insurance providers or a Qualifying Life Event (which opens up a Special Enrollment Period). If the company changes providers from one plan year to another, the insured will have to begin coverage with the new plan starting back at zero. Sometimes companies, in an effort to either save the company money or offer better insurance plans for their employees--or both, will switch insurance plan providers. In this case, employees have no choice but to change over to the new plan and start the process of paying down their deductible all over again.

Confused, yet?

These are some of the reasons someone’s medical insurance coverage and possible plan year vs. calendar year deductible may be tricky to predict. That’s why it’s so important to check with your HR representative when you are signing up for a health plan. (Your HR rep should be able to answer most of your FAQs regarding employee benefits.) Make sure you find out when the plan year annual deductible resets and where your plan documents are located.

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Your healthcare is one of your most important employee benefits, and you’ll get the most out of it if you understand the details.

Interested in learning more about Decent’s health plans? Unlike most other small group health plans, with Decent, small businesses can get access to $0 medical deductible plans making them less complex and easier to navigate. That’s Decent. Contact Support@Decent.com to learn more.

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