How to Choose a Health Insurance Plan
Your health insurance plan can impact your physical, mental, and financial health. Choosing the right one can benefit your peace of mind, help you navigate the healthcare system, control costs, and, in some cases, put extra cash in your pocket.
Start by familiarizing yourself with the types of health insurance plans to get an understanding of general plan designs and features. Scrutinize the plans that are available to you. These may include employer-sponsored (or work-based) plans associated with your job or your spouse's or parent's job (for those who are married or are under 26 years) and private insurance plans. Look at costs and coverage as well as features that make the plan easy to use. Then, make a choice that best fits with your needs, preferences, and financial goals. (See also: How to Find Free (or Cheap) Health Resources)
Evaluate Financial Aspects of Plans
Understand the cost structure of the plans that you are considering. Evaluate how the plan design will affect your finances.
Look at the Provider Network
Your selection of medical providers (either in or out of the plan's network) plays a major role in your health expenses. Typically, copays (flat fees for visits) and coinsurance amounts (fee percentages of list prices) will be the least expensive for in-network providers. Charges toward deductibles and out-of-pocket limits are applied differently between in-network and out-of-network providers, with a lower threshold for network usage. HMO and EPO plans, in particular, pick up most of the tab when you see an in-network provider, but you might have to pay the entire bill for out-of-network visits (except for emergency situations).
Look at the provider list offered by the insurance company; request the listing if it’s not made available to you automatically. Check if your primary care physician is in the network and see if others you use or might use (such as labs, pharmacies, hospitals, and specialists) are included.
Kim Lankford of Kiplinger’s Personal Finance tells me that sticker shock associated with out-of-network providers is one of the biggest surprises people have in regard to healthcare costs. In many cases, consumers don’t choose to go outside the network intentionally but receive a referral from an in-network primary care physician to an out-of-network specialist.
What does the health insurance plan cover? A priority for most people is preventive care, but that can mean different things to different people (and different insurance companies).
I asked Kim what was considered preventive under the Affordable Care Act, and she pointed me to Healthcare.gov, which lists services for all adults, women and pregnant women, and children. For new plans or insurance policies (created after September 2010), preventive care must be covered “without your having to pay a copayment or co-insurance or meet your deductible,” but this rule applies “only when these services are delivered by a network provider.”
Check whatever plan you are considering to see what’s covered for preventive services. Also review coverage for pre-existing conditions, mental health services, and maternity care, especially if you think you may need such coverage in the next year or so.
Compare Expected Costs
Look at fixed and variable costs of comprehensive health insurance plans. Your fixed cost is your monthly premium, the amount you’ll pay no matter what just to have insurance coverage. The variable costs are your usage costs, such as copays for office visits that you’ll incur only if you actually use products or services.
Your monthly premium should stay the same during the plan year. But copayments and coinsurance might vary based on:
- The type of healthcare service you use
- Whether you have met the annual deductible (per person and family)
- Whether you use in-network or out-of-network providers
It’s impossible to predict your healthcare needs with complete accuracy, year after year. But you can consider how often you visit the doctor and try to predict what services you may need in the upcoming year to get a general idea of expected costs.
Consider Worst-Case Scenarios
When comparing plans, look not only at expected costs, but also consider worst-case scenarios.
The numbers that are relevant to this evaluation are:
- Annual per person and family deductibles
- Annual out-of-pocket (OOP) limits
- Annual maximum limits
- Lifetime maximums aka lifetime caps
Deductibles and OOP limits apply to you and your family, and help control your costs. Lower numbers are better. After you reach the deductible, you’ll pay a lower percentage of medical fees. And, generally, after you reach the OOP limit, you won’t have to pay any more during that plan year. The exceptions are the situations when payouts for annual maximums and lifetime maximums are reached.
Annual maximum limits and lifetime caps control costs for insurance companies. Higher numbers (or unlimited) are better for you. Though catastrophic medical events are uncommon, they can be financially devastating if your maximums are set too low.
Note that The Affordable Care Act raises these limits in 2012 and 2013, and eliminates them (for covered expenses) by 2014. Kim points to Lifetime & Annual Limits on Healthcare.gov as a resource for this information. However, grandfathered plans and plans with waivers may still have limits, so you should ask about maximums.
Look at Plan Perks
There may be some less obvious benefits to certain plans, especially those offered by your employer. Kim mentions a few features that can lower your overall costs:
- HSA eligibility and funding
- Wellness incentives, paid directly to you
- Employer contributions to health accounts
When comparing plans, consider the potential impact of these features on your bottom line. Contributions to a Health Savings Account (HSA) can lower your tax bracket and reduce your tax liability while allowing you to save money on future medical expenses and build wealth over a working lifetime. Wellness incentives may be available if you achieve, maintain, or show improvement in certain indicators (BMI or blood pressure, for example); or you may get discounts associated with joining a gym or participating in a fitness program.
Finally, your employer may make a contribution to your health account, helping you to pay for healthcare costs. Kim points to a report from AHIP citing a 2011 Kaiser Family Foundation study showing that "69% of employees with employer-sponsored HSA/HDHPs received contributions to the accounts from their employers."
Consider Intangible Aspects of Plans
Beyond financial benefits, there are intangible aspects of health insurance plans that you should consider when choosing a plan. These areas can impact your overall wellness.
Consider the Quality of Providers
Figure out whether you will be happy and healthy with the network providers, consisting of physicians, hospitals, surgical centers, labs, pharmacies, etc. Consider their credentials, accessibility, and professional reputations. Talk to friends, family members, co-workers, and neighbors to assess whether they have had positive outcomes with these providers.
Measure Freedom and Simplicity
Consumer-directed health plans (CDHPs, aka high deductible health plans or HDHPs) generally give you a lot of freedom in making healthcare decisions. You can choose any medical provider, schedule an appointment with a specialist (that is, if the specialty physician accepts self-referrals), get screening tests, etc. based on what you think is appropriate. Greater freedom often means greater responsibility, though, for making decisions and more accountability for controlling lifestyle-based health risks.
More restrictive HMO and EPO plans limit what’s available to you in terms of provider choices and other aspects of your medical care. Such plans typically involve less decision making on your part, making things simpler for you (which may useful if you do not have health problems).
Simplicity can also be measured in terms of handling details. Anticipate how much effort you may need to expend for the purpose of locating the right provider, arranging appointments, obtaining pre-certifications, and filing insurance claims, all based on plan designs.
Choose the Best Option for You
Ideally, you want to pay as little as possible and get the highest quality and easiest-to-use health insurance plan. There may be a clear winner in your evaluation — a comprehensive plan that has low monthly premiums, deductibles, and OOP along with a variety of choices and unlimited maximums from the insurance company. But, in many cases, you'll have to decide what's best for you even if you can't get all that you want.
Rank Your Financial Priorities
Consider what's most important to you:
- Would you rather pay a higher fixed monthly cost (higher premiums with lower usage costs) for budgeting purposes?
- Does the opportunity to pay as little as possible (through a low monthly premium but high deductible) seem attractive?
- Are you concerned about potential risk associated with an accident or health crisis?
- Would you like to reduce your tax liability with an HSA?
Determine your priorities; then figure out how plan designs fit with your financial goals.
Think About Personal Priorities
You may really enjoy having lots of freedom in accessing healthcare services; or, at the other end of the spectrum, you'd rather keep things simple.
If you are relatively healthy, the type of health plan may have little impact on your lifestyle. But if you have a chronic condition or unusual risks, then more freedom could allow you to get diagnostic and treatment services more readily. Though you can't foresee everything that will happen to you in the future, you can gauge what you may need based on past experiences. So, think about how the plan helps you deal with health concerns.
Consider Special Scenarios
You may have a situation that warrants special consideration. A few that I discussed with Kim:
- If you are a young adult (under age 26), the least expensive option may be your parent’s health insurance plan. However, Kim cautions that you need to consider whether network providers are available in your town, if you happen to live in a different city than your parents.
- If you are unemployed, you may think about buying a temporary policy to get coverage from now until you get a job and obtain a work-based policy. Kim recommends getting a regular policy now and dropping the policy after you have landed a job (and become eligible for employer-based coverage). In this way, you don’t have to worry about the temporary policy lapsing.
- Employer-sponsored health insurance policies may cover pre-existing conditions and high-risk situations. However, if you are having difficulty getting coverage or the price is unusually high, you may be able to find a policy using state resources (high risk pools or state-based insurance exchanges).
After you get a handle on the options and think about what's important to you, choosing a plan should be straightforward. Hopefully, there will be an obvious choice, and one that you can live with.
Are health insurance plans easy for you to understand? What is the most important factor in making the right choice for you?