Health insurance works by protecting your assets from the high cost of medical care. Without it, your entire life savings could be wiped out by a $300,000 medical bill. In fact, health care costs are the No. 1 cause of bankruptcies.
It’s very complicated, and many people are overwhelmed and annoyed with the process. Here’s an explanation of health insurance, and how it got to be the dominant delivery vehicle for health care in America.
Why You Need Health Insurance
Health insurance is necessary for Americans to pay for the high cost of health care. You need it unless you are very wealthy, over 65, or very poor. The very wealthy can afford the cost of even extraordinary emergency or chronic medical care. Those over 65 have paid into Medicare. The very poor can qualify for Medicaid.
Everyone else must either purchase health insurance or risk medical bankruptcy. Since it is so common, many people have lost sight of its underlying purpose. It’s just like insurance for your car, home, or apartment. It’s supposed to protect your life savings from the devastating costs of a major accident, medical emergency, or a chronic disease.
But, unlike other insurance, health insurance makes it possible for you to get that health care when you need it. If you don’t have car insurance, you can take the bus until you can afford to get your car fixed. If you break your leg, you can’t splint it yourself until you save up enough to go to the doctor.
How to Choose Health Insurance
- Choose your health plan marketplace
Most people with health insurance get it through an employer. If you’re one of those people, you won’t need to use the government insurance exchanges or marketplaces. Essentially, your company is your marketplace.
If your employer offers health insurance and you wish to search for an alternative plan in the exchanges, you can. But plans in the marketplace are likely to cost a lot more. This is because most employers pay a portion of workers’ insurance premiums and because the plans have lower total premiums, on average.
If your job doesn’t provide health insurance, shop on your state’s public marketplace, if available, or the federal marketplace to find the lowest premiums. Start by going to HealthCare.gov and entering your ZIP code during open enrollment. You’ll be sent to your state’s exchange if there is one. Otherwise, you’ll use the federal marketplace.
You can also purchase health insurance through a private exchange or directly from an insurer. If you choose these options, you won’t be eligible for premium tax credits, which are income-based discounts on your monthly premiums.
- Compare types of health insurance plans
You’ll encounter some alphabet soup while shopping; the most common types of health insurance policies are
HMO: Health Maintenance Organization
PPO: Preferred Provider Organization
EPO: Exclusive Provider Organization
PO: Point of Service Plan
The kind you choose will help determine your out-of-pocket costs and which doctors you can see.
While comparing plans, look for a summary of benefits. Online marketplaces usually provide a link to the summary and show the cost near the plan’s title. A provider directory, which lists the doctors and clinics that participate in the plan’s network, should also be available. If you’re going through an employer, ask your workplace benefits administrator for the summary of benefits.
When comparing different plans, put your family’s medical needs under the microscope. Look at the amount and type of treatment you’ve received in the past. Though it’s impossible to predict every medical expense, being aware of trends can help you make an informed decision.
If you choose an HMO or POS plan, which require referrals, you typically must see a primary care physician before scheduling a procedure or visiting a specialist. Because of this requirement, many people prefer other plans. Due to the restrictions, however, HMOs tend to be the cheapest type of health plan, overall.
POS and HMO plans may be better if you don’t mind your primary doctor choosing specialists for you. One benefit is that there’s less work on your end, since your doctor’s staff coordinates visits and handles medical records. If you do choose a POS plan and go out of network, make sure to get the referral from your doctor ahead of time to reduce out-of-pocket costs.
If you would rather choose your specialists, you might be happier with a PPO or an EPO. An EPO may help keep costs low as long as you find providers in network; this is more likely to be the case in a larger metro area. A PPO might be better if you live in a remote or rural area with limited access to doctors and care, as you may be forced to go out of the network.
- Compare health plan networks
Costs are lower when you go to an in-network doctor because insurance companies contract lower rates with in-network providers. When you go out of network, those doctors don’t have agreed-upon rates, and you’re typically on the hook for a higher portion of the cost.
If you have preferred doctors and want to keep seeing them, make sure they’re in the provider directories for the plan you’re considering. You can also directly ask your doctors if they take a particular health plan.
If you don’t have a preferred doctor, look for a plan with a large network so you have more choices. A larger network is especially important if you live in a rural community, since you’ll be more likely to find a local doctor who takes your plan.
Eliminate any plans that don’t have local in-network doctors, if possible, and those with very few provider options compared with other plans.
- Compare out-of-pocket costs
Out-of-pocket costs are nearly as important as the network. Any plan’s summary of benefits should clearly lay out how much you’ll have to pay out of pocket for services. The federal marketplace website offers snapshots of these costs for comparison, as do many state marketplaces.
This is where it’s useful to know a few health insurance vocabulary words. As the consumer, your portion of costs consists of the deductible, copayments and coinsurance. The total you can spend out of pocket in a year is limited, and that out-of-pocket maximum is also listed in your plan information. In general, the lower your premium, the higher your out-of-pocket costs.
Your goal during this step is to narrow down choices based on out-of-pocket costs. A plan that pays a higher portion of your medical costs, but has higher monthly premiums, may be better if:
- You see a primary physician or a specialist frequently.
- You frequently need emergency care.
- You take expensive or brand-name medications on a regular basis.
- You are expecting a baby, plan to have a baby or have small children.
- You have a planned surgery coming up.
- You’ve been diagnosed with a chronic condition such as diabetes or cancer.
A plan with higher out-of-pocket costs and lower monthly premiums might be the better choice if:
- You can’t afford the higher monthly premiums for a plan with lower out-of-pocket costs.
- You are in good health and rarely see a doctor.
5) Compare benefits
By now, you likely have your options narrowed to just a few. To further winnow down, go back to that summary of benefits to see if any of the plans cover a wider scope of services. Some may have better coverage for things like physical therapy, fertility treatments or mental health care, while others might have better emergency coverage.
If you skip this quick but important step, you could miss out on a plan that’s much better suited to you and your family.
Once you’re down to a couple of options, it’s time to address any lingering questions. In some cases, only speaking with a person will do, so it may be time to call the plans’ customer service lines. Write your questions down ahead of time, and have a pen or computer handy to record the answers.
Here are some examples of what you could ask:
- I take a certain medication. How is that covered under this plan?
- Which drugs for my condition are covered under this plan?
- What maternity services are covered?
- What happens if I get sick when traveling abroad?
- How do I get started signing up, and what documents will I need?
A final tip: Don’t forget to discontinue your old plan, if you have one, before the new one starts.