No one loves reading the fine print on health insurance policies, but it's important to understand what you've got (or what you're getting) before you sign on the dotted line. Contrary to what you might think, it's not always the best move to jump into the plan with the lowest monthly premiums. Before you make a choice that will impact your healthcare costs and options for the next year, read Healthline's guide to the basics.
First Things First: Find Out If You Should Use an Exchange
Are you confused about where to start? The first thing to consider is if you should buy insurance through an exchange, which is a health insurance marketplace run by the government. You don’t need to use an exchange if your job offers insurance, if you qualify for Medicare or Medicaid (or similar programs), or if you’re under 26 and on your parent’s insurance. If none of these apply to you, an exchange is the way to go.
Exchanges can help you browse and buy the plan of your choice online (you can also call in if you prefer). They’ll also show you if you’re eligible for tax credits. Many states have their own exchanges. Check to see if your state is one of them at Healthcare.gov. If not, Healthcare.gov is also home to the national exchange, which serves people who don’t have access to a state-run exchange.
Don’t Get Dinged
Whether or not you use an exchange, make sure you’re covered or you may be charged a penalty fee on your next income tax return.
Mark Your Calendar
Exchanges have an open enrollment period that usually lasts from the beginning of November to the end of January. If you don’t apply during the enrollment period, you may have to pay a fine. Be sure to check with your exchange for specific dates so you don’t miss out.
Types of Plans
Perusing your health insurance options can seem like trying to read a bowl of alphabet soup. Here's what it all means.
Health Maintenance Organization (HMO)
An HMO is a limited network of doctors and facilities that may be restricted by geographic area and usually offers no coverage for out-of-network providers. In many HMOs, you're required to choose a primary care physician (PCP), and to get a referral from your PCP any time you'd like to see a different kind of specialist. HMOs are usually less expensive than other types of health insurance because you have fewer options.
Preferred Provider Organization (PPO)
A PPO has a broader network of doctors and facilities, plus limited coverage for out-of-network providers. You usually don't need a referral to see a specialist. This option is typically more expensive than an HMO.
Exclusive Provider Organization (EPO)
An EPO is a more limited type of PPO in which there is no coverage for out-of-network providers unless you have an emergency.
Point of Service (POS)
This is a mix of HMO and PPO. There's typically a broad network of doctors and facilities, but you may have to get a referral from your primary care physician before seeing any of them.
High Deductible Health Plan (HDHP)
An HDHP is a plan in which you pay a higher deductible before the plan starts to cover medical expenses, although preventive care may be completely covered. These plans are cheaper than other plans, but you may be responsible for more out-of-pocket costs (costs not covered by your insurance that you have to pay for yourself) if you see the doctor frequently. HDHPs often come paired with Health Savings Accounts (HSAs). This allows you to save pre-tax money for medical expenses.
Bronze, Silver, Gold, and Platinum Plans
If you’re using an exchange to buy insurance, you will see EPO, HMO, and PPO plans categorized as bronze, silver, gold, or platinum. The cheaper the metal, the cheaper your monthly payment and the higher your copayment, or copay. A copayment is a pre-set amount that you pay for a medical service that’s covered by your insurance, such as doctor’s visits or filling prescriptions). According to Healthcare.gov, you would pay an average of 40 percent of out-of-pocket medical fees for a bronze plan, 30 percent for silver, 20 percent for gold, or 10 percent for a platinum plan.
A basic rule is that the higher your out-of-pocket payments, the less you pay in your monthly premium. It’s important to weigh how much you can afford per month against how often you need medical care.
If you are under 30 or have what’s called a “hardship exemption,” you may qualify for a catastrophic plan. This is a bare-bones type of plan, often with very low monthly premiums. What is the catch? You are responsible for most or all medical expenses up to a set amount, which is usually several thousand dollars.
Which Plan Is the Best One for You?
Unfortunately, there's no easy answer to this question. The ideal plan will depend on your particular health and medical needs. “It really depends on what kind of services you have historically needed and which plan is going to provide you with access to the doctors and hospitals that you need at the lowest cost,” says President Andrew Miller of KBM Management. KBM Management is a consulting company that specializes in employee health plans.
To compare and choose the best plan, start with the steps below.
Dig Out Your Paperwork
To the best of your ability, track down your doctors' visits and prescriptions from the past five years. If you don't save medical bills, you may be able to piece your history together using bank and credit card statements and canceled checks. You may also be able to get that information from your current and former insurers.
Ditto for Your Family
Do you have a spouse? Do you have kids? You'll have to think about their last several years of medical history as well.
Check Your Doctors' Networks
Do you have a favorite doctor? Check to see what insurance your doctor accepts. Make sure the plans you’re considering cover your visits to that doctor. If not, you may be able to narrow the field by eliminating the plans that don't cover those visits.
Compare Plan Costs
Take your medical history (and your family's, if applicable), and estimate how much it would cost you to join each plan. Include premium costs, copays, coinsurance, deductibles, and prescription costs. If you’re using an exchange, much of this will be done for you based on your application, and you can compare plans side-by-side. If you're young, single, and rarely see the doctor, a health plan with a high deductible may be the most cost-effective approach for you. If you see the doctor frequently, a plan with higher premiums and lower copays may be cheaper in the end.
Think About the Future
A look at the past five years should give you a fairly good indication of your average health insurance needs. If you've got a big expense coming up, such as the birth of a baby, braces for a child, or planned corrective surgery, don't forget to factor it into your calculations.
Flexible Spending Accounts (FSAs)
Many employers offer a Flexible Spending Account (FSA) in which you can save pretax money and use it to pay for medical expenses that aren't covered by insurance.
FSAs are a great option if you have predictable medical expenses, such as contact lenses or ongoing prescription medications. “You'd be crazy not to take advantage of it if you can afford to put some money into it,” says Larry Boress, president of Midwest Business Group on Health. “It's all pretax dollars, which means it reduces your taxable income, and yet you can put it toward medical expenses. It's a win-win.”
There are limits to FSA perks. For example, there is a $2,550 per year limit on how much you can put in the account. Plus, the money is considered “use it or lose it.” This means that if you don't use all of it within the calendar year (or, with many employers, before the last day of March the following year), you lose it. There are also limits on how your stash can be used. Keep in mind that you'll need a doctor's prescription to be reimbursed for most over-the-counter items, like allergy medication or aspirin.
FSAs are not all bad. Many employers offering FSAs give you the option of a 10-week grace period to use your funds after the year’s end or to carry over $500 to the next year.
You Be the Judge
It’s OK to ask questions. Call a local health insurance broker (be sure to ask if they charge a broker fee), or log on to your state exchange website or Healthcare.gov for more information and helpful phone numbers. There are many resources to help narrow your options, but remember that you are the best judge of what works for you. Choosing a plan can feel overwhelming, but understanding the terms, your personal health requirements, and the health requirements of any family members is a big step in demystifying the process.