Tips for Choosing Health Insurance Plans
If there is one word that can accurately sum up the American health insurance system it is ‘confusing’.
There are a wide variety of plans, coverage types, participating providers. Add to that the puzzling differences between premiums, deductibles, and all the different costs for treatment and prescription medicines. No wonder many people just choose the first plan offered to them, or even opt to have no health insurance at all.
That’s why we made this short guide – if you are choosing health insurance, we hope this can provide some help!
What Is a Health Insurance Plan?
‘Health insurance’ is the term commonly used to describe any program that helps pay for medical expenses.
While several types of health insurance exist in the United States, the two main types include private and public coverage. There are also social welfare programs such as Medicaid that can assist people who are unable to afford health coverage.
If you receive health insurance through your employer, you might not have an option of which type of health insurance plan you can choose.
Some companies will only offer one health insurance plan to their employees, while others will offer multiple health insurance plans to choose from.
Get to Know the Health Insurance Lingo
To best understand health insurance coverage, and which plan is best for you, it helps to understand some of the vocabularies used.
A lot of the confusion of choosing health insurance is that the terms used make it difficult to understand the differences. If you are familiar with the meaning of the main words used by health insurance companies, it makes everything easier to understand.
Here are the most common terms you will read when looking at health insurance options:
Out of Pocket – This is the total amount of expenses for medical care that aren’t reimbursed by insurance. This includes premiums, deductibles, coinsurance, and copayments for services covered by insurance as well as all costs for not covered.
Premium – This is the amount of money that must be paid to your insurance provider. You and your employer will usually pay a portion of the premium monthly, quarterly, or annually. In many cases the amount you pay is deducted from your paycheck.
Deductible – This is the amount you owe for health care services in a new plan year before your insurance carrier begins to pay. For example, if your plan renews on January 1st, and your deductible for the year is $1,000, then your plan won’t pay for anything until you’ve first met (i.e paid for) $1,000 worth of medical costs in that calendar year. Typically, the higher your deductible, the lower your premiums are.
Coinsurance – The percentage of costs you pay for a covered health care service, i.e. a doctor’s visit (e.g. 25%). For example, if a visit to the doctor costs $100 and your coinsurance is 25% – you would pay $25. The insurance company would then pay the remaining $75 owed to the doctor office.
Copayments (or copays) – The fixed cost you pay for a covered health care service, i.e. a prescription (e.g. $20). For example, your insurance plan may say for a given prescription that costs $200, your copay is $20. This means you would pay $20 when you fill the prescription and your insurance plan would cover the remainder. Insurance plans will always list the cost of copays for all services.
In-Network: This is the group of facilities, providers, and suppliers that your health insurance plan has contracted with to provide health care services. Most in-network services cost less or have a smaller co-pay and/or deductible.
Out-of-Network: This is the group of facilities, providers, and suppliers that your health insurance plan does not cover. Most of these services must be paid out-of-pocket (i.e. entirely by you) or will have a very high deductible cost.
What are The Different Types of Health Insurance Plans?
Each type of Health insurance plan works in a slightly different way. It is good to understand the differences, and what each of the names stands for.
Exclusive Provider Organization (EPO)
Exclusive Provider Organization plans (EPOs) offer a network of providers for you to choose from.
These plans have no coverage for healthcare providers considered ‘out-of-network from their plans. You can only visit the providers in the network to be covered unless there is a medical emergency.
If your visit to an out-of-network healthcare provider is considered a non-emergency, the visit won’t be covered and you are responsible for all costs. You may also be responsible for a deductible, copayments, and/or coinsurance under EPO plans.
Health Maintenance Organization (HMO)
A Health Maintenance Organization will offer a list of providers that are covered with your insurance and will usually require that you choose a primary care physician or provider.
This primary care provider is then responsible for coordinating all of your healthcare needs. With a limited network of providers and having a primary care provider, this helps to keep the HMO premium costs lower.
If you need to see a specialist under an HMO plan, you’ll need to go see your primary care provider for a referral first before you can visit the specialist.
HMO plans are very popular and often have deductibles as well as copays for non-preventive care visits. However, they usually prohibit you from seeing out-of-network healthcare providers unless it is an emergency, or is prearranged by your primary care provider and approved by the insurance.
Preferred Provider Organization plans (PPOs)
A Preferred Provider Organization plan (PPO) offers a list of providers that the insurance company allows you to see as in-network providers.
These providers have pre-negotiated rates with your health insurance plan, which helps to keep the insurance plan costs down. You may also be able to visit out-of-network providers, but at a higher cost than in-network providers. Unlike with HMOs, most PPOs don’t require you to visit a primary care provider to get a referral to see a specialist. Instead, you can visit the specialist directly.
You will typically have copays or coinsurance for any non-preventative care and an annual deductible with a PPO plan.
High Deductible Health Plan (HDHP)
The High Deductible Health Plan (HDHP) is another type of health insurance plan, similar to a PPO, but with a high deductible.
These types of health insurance plans require you to pay the deductible before they cover most services, but are usually much cheaper than other types of plans. Additionally, you can usually qualify for a health savings account (HSA) with many HDHP plans.
HSAs can offer additional tax savings on your medical costs by allowing pre-tax contributions or a tax deduction for money contributed to an HSA. Money in an HSA account can be used for qualified medical costs without paying taxes.
Point of Service (POS)
Point of Service (POS) healthcare plans offer flexibility that other types of plans do not. These plans typically require you to have a primary care provider that you visit for preventative care visits as well as to get referrals.
However, rather than being limited to in-network providers only, you can usually visit out-of-network providers if you’re willing to pay the higher cost for their services.
Visits to the primary provider and the referred specialists may not be subject to the deductible, but visits outside of those guidelines usually require you to pay the deductible first. Out-of-network visits can also require you to pay the provider directly and file paperwork to be reimbursed by the plan.
Should you Choose the Cheapest Health Insurance Plan?
Choosing health insurance with the lowest possible premiums might seem like the best option. However, there are several potential drawbacks to this approach.
Instead of buying based on premiums alone, the monthly cost should be just one criterion you consider when choosing health insurance.
Take a look at the projected out-of-pocket expenses you will likely incur as part of your health insurance plan (i.e. sum of premiums, deductible, coinsurance, co-pay, and out of network costs).
Generally speaking, the lower the premium, the higher the out-of-pocket expenses will be. This is especially true for plans with large deductibles. Many people are attracted by lower premium plans but are then surprised that they must pay a large amount of money upfront before their health insurance plan will start to pay any costs for their medical treatment.
Figure out what your individual needs will likely be throughout the year and then choose the plan that best fits you!
Getting Answers Before You Choose
If you are looking to compare different types of health insurance plans, then a great place to start is Healthcare.gov.
This website will give you an overview of the basics, and help answer many questions that you may have when looking at purchasing health insurance.
As you learn more about the different plans, their costs, and what is (or isn’t) covered, you will start to get a clearer idea of what health insurance plans work for you.