Deciphering What Health Insurance Plan To Choose
It’s that time of year: Open enrollment. For many companies, it’s the small window of time you have to decide which health insurance plan you’re going to choose. It’s also the last day to enroll for January 2017 on the health exchange (the famed “Obamacare,” a.k.a. government plans).
I find the whole process of choosing and signing up to be difficult, frustrating, and very time consuming. I figured if I, given my job experience, find it difficult to decide, then others are likely experiencing the same thing. I find myself calculating out the premium differences vs. the deductibles and trying to make the best educated decision I can. With that said, sometimes you just choose poorly. For example, in 2016, I choose the high deductible plan. We were all healthy, didn’t anticipate any surgeries, and I figured I could medically address most problems. Of course, the first month, one of my kids got in a serious accident. Instantly, we were out the high deductible cash. Go figure.
Insurance is so expensive, should I get it?
While you may get lucky and not have a single medical problem with anyone in your family, chances are you won’t be that lucky. Choosing to have no insurance is a serious gamble. I have seen many times in my career, families become financially ruined by tragic medical problems. It’s bad enough having to deal with the tragic problem, but losing a house or life-savings is simply insult to injury. My advice, figure out how to at least get a relatively cheap catastrophic plan.
Types of plans
There are many types of insurance plans out there. In my entire career (and that of my husband’s), our companies have always offered either option 1 or 2 in the plans to choose from (PPO or high deductible). I’ve included the others to be most complete. FYI: PPO, HMO, and POS plans are all types of “managed care” plans. Common plans include:
- A PPO (preferred provider organizations) plan: These are the standard plans offered by many employers. In a PPO, the insurance company pays a portion of the medical expenses and the patient pays a portion (commonly 80% insurance company and 20% patient responsibility). PPOs have panel lists of doctors, hospitals, etc. that are considered “in-network.” Medical providers that are in network (hospitals, docs, etc.) have contracts with these companies to agree to accept payment at a certain level despite what is billed. The savings are passed on to the patient. For example, if a patient sees me for an office visit and I bill $100, the contracted rate may only be $60. By “taking” that particular insurance, I agree to accept $60 as payment in full (and not pass it on to the patient). Most of these plans have a relatively small deductible that applies to some types of care/coverage. They often also have a co-pay that is required before certain kinds of medical visits. Of note: In a traditional PPO, you can usually see anyone, but those providers may be “out of network” (meaning they don’t have those contracts). The insurance company passes on the extra expense, by not covering services “out of network” as well (e.g., maybe only 60% covered).
- High deductible plans: These plans are all the rage. They are generally cost containing plans. The premiums are cheaper, because the coverage is usually less. Before the insurance company pays out anything for any medical services (with the exception of well care), a large deductible has to be met first. The deductible is a big chunk of cash paid by the patient upfront before the insurance pays anything. Typical high deductible plans are $3,000 or $5,000.
- HMO (Health Maintenance organizations): These plans are a little tricky. In these plans, the health care system assumes the financial risk associated with providing complete care (both insurance and service risk) in a particular geographic area. Sometimes providers share in the financial risk (with fixed, prepaid fees). Generally speaking, these plans have lower out of pocket expenses, but amount to less flexibility and fewer providers/choices (often not covering any expenses out of network). With HMOs, you must designate a primary care physician who coordinates all other care (it’s a cost containment strategy). To see a specialist, a referral must be made to a specialist (it avoids you going to a more expensive specialist for a simple problem).
- POS (Point of service) plan: Essentially a PPO and HMO hybrid (a more “open ended” HMO). The plan still looks similar to an HMO for in network services, but has an out-of-network option.
- Indemnity plans: A plan that reimburses the patient and/or provider as expenses are incurred.
Terms to know:
- Benefit: The amount the insurance company is willing to pay for medical costs.
- Claim: The request to pay for medical services, made by the patient or provider to the insurance company.
- Coinsurance: The percentage of the medical bill you “agree” to pay, usually AFTER the deductible has been met. This is your 20% of the bill (the insurance company pays 80%). It’s another way insurance companies “cost share” with the consumer.
- Copayment: Yet another way to cost share with the insurance company. The copayment is a fixed dollar amount that the patient has to pay at the time of service (typically anywhere from $10-$50). Legally, the provider agrees to collect the copay at the time of service for the insurance company.
- Deductible: The dollar figure that the patient has to pay first before the insurance will pay (it applies to certain “eligible” expenses). For example, a typical deductible may be $1,500/year. So the first $1,500 worth of medical bills are paid by the patient (e.g., over the course of 3 office visits and an MRI) before the insurance company starts paying their portion of the bill (e.g., the 80%). Generally, the lower premium plans have higher deductibles (as the consumer, you’re going to pay for it somewhere).
- Explanation of benefits: Essentially the insurance company’s breakdown of how the medical bill was paid out.
- Flexible spending account (FSA): You can contribute a designated amount of money into an FSA to help off-set the costs of medical care that aren’t covered by the traditional insurance plan (say the deductible or co-insurance costs). The advantage is that the money is pre-tax (just like an HSA), but unfortunately, FSAs do not roll over from year-to-year. It’s a use it or lose it thing. So never put in more money than you are certain you will need (that is, underestimate).
- Health savings account (HSA): A savings account that allows you to pay for medical expenses with money you contribute to with pre-tax dollars. HSAs are only set up with certain kinds of high deductible plans (there are a bunch of government requirements to qualify). The money in an HSA can roll over from year-to-year.
- In-network provider: A healthcare professional, hospital, or pharmacy that is part of a health plan’s group of preferred providers. Those providers have negotiated discounted rates with the health plans/insurance. Consequently, using “in network” providers is always cheaper for the patient.
Tell me what to do.
Whenever I have a big decision to make, I find myself secretly wanting someone else to just tell me what to do. Then when it works out, I look brilliant. When it fails miserably, I have someone to blame. Ultimately, only you know what is best for you, your family, and your finances.
My quick tips:
- Choose the traditional managed care plan (PPO, HMO, or POS) if your family consumes a lot of healthcare dollars, anyone has a chronic underlying medical condition, or you anticipate medical problems in the near future.
- Of the managed care plans (if you have the option), choose a PPO if you want more flexibility.
- If there are different tiers or plan options (like a gold, silver, bronze; or 1, 2, 3 level plan), choose based on your willingness to pay more upfront or risk potentially paying more later. Again, choose the higher tier if your family tends to use more medical care.
- The time to choose the high deductible plan is when:
- Money is very tight (it’s better to have some coverage than none, especially in the case of a catastrophe).
- Your family is very healthy and unlikely to consume medical care.
- You can afford to take risk (having to pay the deductible isn’t too much of strain on your finances and/or you’re willing to gamble that the premium saved is more than what you’d spend on health care expenditures).
I chose a different plan and a different provider for our medical insurance this year. With a little luck, I’m hoping it turns out to be a better gamble in 2017. Good luck in your own decision making process!