How To Navigate Health Insurance Choices: Part 1

It’s open enrollment season for health insurance at my company, and with it brings a load of stress. The woman who manages our company insurance policy is fending off phone call after phone call from irate employees wanting to know why the insurance has once again jumped in price. The rest of us are trying to figure out how to pick the least expensive option that will give us the most bang for our buck, but rising premiums, copays, coinsurance, deductibles, and out-of-pocket costs typically leave everyone feeling like a loser.

How To Navigate Health Insurance Choices: Part 1

In my case, I’m healthy, so every year I contemplate just dropping health insurance altogether. And yet, every year I still manage to pick the “best plan” for me in case something catastrophic happens. It’s taken me a long time to figure out the best method for picking a health care plan, and I’m excited to share that information with you in this two-part series.

Note: I am not a healthcare provider. Any opinions or advice provided are my own and based on my own experience. If you have questions regarding a specific plan or health condition, please speak with the representative for your own insurance policy.

Start With The Basics

The biggest issue with open enrollment comes with the many different options that are often offered. In our case, we have three: a basic HSA plan (health savings account), a PPO plan (preferred provider organization), and what we refer to as the “Cadillac” plan (also a PPO plan that offers lower deductibles and out of pocket limits). Every company that I’ve ever worked for has had similar options.

Understanding Health Insurance Terminology

It’s easy to get overwhelmed with all of the terminology used in the insurance world, so let’s start by breaking it down into bite-sized chunks. There are a lot of terms involved, but I feel that the following are the most important to familiarize yourself with.

Open Enrollment

Unless you have a major life change (lose a job, gain a new job, have a baby, get married, etc.) open enrollment is the only time during the year you can make changes to your health insurance, except for purpose of dropping it completely. Depending on the company, open enrollment can happen at any time of the year, so check with your own company for specific details.

Provider

The doctor or health care organization you go to for medical attention.

Premium

The amount that you pay out of pocket (or your paycheck) in order to have health insurance. Often, if you are under an employer account, they will pay a certain portion of that total amount.

Deductible

The amount you pay out of pocket before the insurance provider will pick up the cost (or a percentage of the costs, depending on the plan).

Out-Of-Pocket Maximum

This is the total amount that you can pay out of pocket before the plan covers all of the remaining expenses for the year. Copays and coinsurance costs are included in this total.

Copay

A copay is a flat fee that you pay to cover a certain expense. For example: if you go to the doctor, you may be required to pay a copay of $25 each time you go. Hospital and emergency room visits often have copays as well. Depending on your plan, you may owe coinsurance (see below) and/or the deductible on top of this copay, which is why it’s so important to read the fine print before you choose a plan.

Coinsurance

Rather than paying a flat fee (copay), coinsurance involves splitting the total amount of any provider visits with your insurance. For example, if your coinsurance is 70%/30%, then your plan would immediately pay 70% of the total cost of the doctor visit and you would be left responsible for the remaining 30%.

Types Of Plans

In order to understand how to pick a plan, it’s important to know the difference in how each plan operates.

HSA Plan (Health Savings Account)

A Health Savings Account plan is exactly what it sounds like: a savings account specifically for health costs. It’s most often money that is redirected out of your paycheck BEFORE taxes. As long as you use it for approved medical purposes (including deductibles, out-of-pocket expenses, and prescriptions), then you won’t be required to pay any taxes on it. You do have to make sure to save your receipts as proof the money was spent for those purposes only.

Keep in mind, though, that while you can contribute only the money that you have to this account, it’s not actually an “insurance plan”, in that, if you run out of money, no one else will step up to pay for it. Also – there are limits on how much you can deposit tax-free into your account, so you’ll want to make sure you are following the guidelines.

Enter the HDHP Plan.

HDHP Plan (High Deductible Health Plan)

An HDHP plan can also be referred to as a catastrophic plan. It is intended to be an inexpensive plan with a very high deductible. Except for preventative care, nothing is covered until that deductible has been reached. So, if your deductible is $6,000, then you will pay $6,000 out of pocket before the plan covers anything.

The nice thing about an HDHP is that it can be (and usually is) used in conjunction with that HSA Plan we just discussed. In fact, most of the time you cannot have the HSA plan without the HDHP.

The purpose of the HDHP is to cover you if a major medical expense comes up, for example, you end up hospitalized for a long period of time or need multiple treatments for cancer or another disease. It caps the amount that you will be responsible for. Ideally, your HSA is completely funded to the point that regulations allow, and you will just use that money for your expenses until the HDHP kicks in.

This is a great option if the HDHP premium is significantly less than one of the more comprehensive plans. If you are an unhealthy person though, this would not be the right plan for you.

HMO Plan (Health Maintenance Organization)

An HMO plan offers a network of providers for your primary health care and requires that you pick a primary provider to manage your care.  That care provider serves as a “gatekeeper” in that you won’t be able to see a specialist without their referral. Out-of-network expenses are not covered, with the exception of emergency care.

PPO Plan (Preferred Provider Organization)

A PPO Plan is probably the most common plan offered by an employer. A PPO Plan is a more flexible version of an HMO Plan. The PPO Plan allows you to pick from any of the providers within the preferred network though it also allows you to also go “outside” the network of preferred providers. Of course, if you do step outside that “preferred” network, you will pay more, but the reassurance that you have coverage, no matter where you are, is worth it for many.

Although your primary physician can refer you to specialists, it’s not necessary in order to receive insurance coverage, meaning that you can choose to visit a specialist on your own.

EPO Plan (Exclusive Provider Organization)

It works exactly as it sounds, with an exclusive group of providers you can visit. It’s one difference from an HMO plan is that you do not need a referral from your primary care provider in order to receive specialist care. Like the HMO plan, emergency care is the only out-of-network cost that the plan will allow, and many EPO plans don’t offer that option either.

Of course, there are varying degrees of each of these plans, so be sure to check your own plan carefully for the details. Due to several job changes over the past 12 years, I’ve personally had HMO, PPO, and HSA/HDHP plans during that timeframe. Each served a purpose for the time, but I regret some of my earlier choices because I didn’t take all of the costs into consideration and ended up spending a lot more money than I should have for my family.

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