How to choose health insurance plans
For American’s not covered by their employer, there are two main challenges when trying to figure out how to choose health insurance plans. The first is navigating the available options. The second is affordability.
An insurance policy is a way to smooth out the costs of minor and major hardships. It brings Health Care coverage within reach of individuals. Individuals that would largely be unable to access it otherwise. Here are some of the key things to know when choosing health insurance on the healthcare exchange.
Navigating the available options
There’s a handful of acronyms that cause the most confusion. These are the types of insurance plans available. It’s worth running through these a few times - it’s the first step in choosing health insurance.
EPO, or ‘Exclusive Provider Organization.’ This is a plan that covers your visits to doctors or hospitals within their network (with exceptions for emergencies). You won’t need a referral to see a specialist.
HDHP or ‘High Deductible Health Plan.’ This plan is built around having lower priced premiums than the other plans. These require a higher deductible payment when you do incur health expenses. Meaning that over the course of the year, you’ll have to pay more before the plan kicks in to cover the balance.
HMO or ‘Health Maintenance Organization.’ Like the EPO your plan covers visits to doctors or hospitals within their network (with exceptions for emergencies). You’ll usually be required to choose a primary care physician and any referrals to specialists will come through them. People tend to go this route because premiums can end up being lower.
POS or ‘Point of Service.’ Works very similar to an HMO. You’ll likely need to select a primary care physician to coordinate your care. You visit professionals/hospitals in the network, but if you’re willing to spend a little more, you can receive health care outside the network, should that be something you need or desire to do.
PPO or ‘Preferred Provider Organization.’ The premiums are likely a bit higher than HMO’s, but you do not need to select a primary care physician, nor do you need referrals to see a specialist. You save money by selecting care professionals in the network, but you can visit professionals outside the network (with some extra expense). The extra cost equates to more flexibility.
A note on taxes
Using a HDHP can make you eligible for a Health Savings Account (HSA). Meaning you can choose health insurance with a Tax incentive. Funds you contribute to your account can be deducted on your tax return. The funds roll over year over year and can be withdrawn tax-free to pay for qualified medical expenses. I.E. to cover the deductible in the year the health expenses are incurred, incentivising people to set aside savings for future health expenses.
For 2017 the IRS will allow you to contribute up to $3,400 for yourself or $6,750 for your family.
Navigating affordability: premiums v.s. deductible
Like most places you spend your money, the more you spend the more you get - in this case, more coverage. But at the same time, you will need to think about the balance between how much coverage you think you will need and what’s within your financial reach.
The first level to consider is the trade-off between the premiums and the deductible. This first level of costs will need to be considered for any of the above mentioned plans.
Think of the premium as a monthly membership fee. It will smooth your potential healthcare costs out over the course of a year and will need to be paid to keep the policy in good standing.
Think of the deductible as the fee you will pay if and when you actually need to use healthcare services. If your healthcare costs go higher than the yearly deductible, that’s when the insurance company steps in to start covering the costs.
There’s a whole lot of information the insurance provider considers behind the scenes to come up with these numbers, but you can generalize and say there’s an inverse relationship between the two. The lower the cost of the monthly premium, the higher the cost of the yearly deductible. The higher the premium, the lower the deductible.
Navigating affordability: Levels of coverage and the metallic tiers.
Now it’s true that there is an inverse relationship between premiums and deductible. It’s also true that the higher the level of coverage, the higher your premiums to be. This is the second factor to consider when thinking about your monthly bills versus your (potential) yearly healthcare costs.
Insurance companies group plans into metallic colored tiers. There are four basic options, all plans fall into one of these buckets.
So you pay your monthly premium (which you select upfront). Then as you need services, you pay out of pocket until you reach your yearly deductible (which you also select upfront). After that, the insurance company steps in to start covering costs.
The tier you selected determines how much of those costs you will pay (called an insurance copayment) and how much the insurance company will cover.
There is a limit to your out of pocket costs. If your costs go high enough, the insurance company will then step in to cover 100% of the yearly costs up to the limit of the policy. The higher the tier, the higher the premium you can expect to pay for your plan.
How to choose health insurance plan that’s right for you
It’s ideal to choose health insurance based on your health care needs. You don’t necessarily know what your costs will be in the future, but you can start by looking at your current and past situation.
On the one hand, if you anticipate using health care more, it will likely make more sense financially to pay higher premiums and select a higher coverage tier.
If on the other hand you’re relatively young and healthy and don’t anticipate using health care beyond emergency situations, it will likely make more sense financially to purchase lower premium plans.
Of course there are other things to consider. Do you want to keep your current doctor? That may dictate which plan you select.
There’s a component of financial planning as well. If you’ve got better savings habits, looking at HSA options may be a smart move for those who don’t anticipate using using health care much in the near future, but want to plan for potentially needing more down the road and want to take advantage of the benefit to their income taxes.
Consider everything. All the different health care professionals / prescriptions you’ve needed in your past. What do your income / savings habits look like now, and what will they look like in the future? What about your dependents (if any)?
Other factors to consider to help you choose health insurance plan that's right for you
There is such a thing as a “Catastrophic policy.” For those under the age of 30 (or those with a hardship exemption) you can opt for a plan with very low premiums and very high deductibles that will cover you in the case of an emergency. Just about everything else will need to be paid out of pocket.
It’s also worth pointing out that you can potentially be covered under your parent’s plan until age 26.
There is a premium tax credit for those with very low incomes. Individuals earning 100% to 400% the Federal Poverty Line. Check Healthcare.gov to see if you qualify.
You’ll need to be aware of both the dates enrollment for the following year will begin. Usually early November as well as the deadline to secure your coverage for first calendar day of the following year - usually mid December. Healthcare.gov can help you navigate these dates, as well as navigating the appropriate healthcare exchange (marketplace) depending on where you live.
Remember to document your coverage for when you file your taxes -- and remember, if you’re not exempt and you chose not to get covered, there’s a fine to pay come tax time.