The Basics of Choosing a Health Insurance Plan
How to Strike a Balance Between Quality of Coverage and Your Budget
Many times, if you have health insurance it's through a group plan offered by your employer or your spouse's employer. Others purchase their own individual policies directly from an insurance company or have COBRA coverage. Some people have no coverage at all, which can potentially be problematic for your finances.
If you're married, single, have children, young, or old, you need some level of health insurance to protect yourself against financial disaster in the event of a serious illness or accident. Whether you choose a group plan or an individual plan, there are important choices to be made that will affect not only the quality of your medical care coverage but also your wallet. Reviewing some of these choices can help you make an informed decision that fits both your specific needs and your budget.
Types of Health Insurance Plans
There are quite a few confusing terms to weed through when considering health insurance plans, and they all come with their own implications to consider. While it is important to know the difference between HMOs, PPOs, POS Plans, and Indemnity plans, for instance, it is most helpful to start with the most common health insurance plan types. The most common types can be grouped into one of three categories:
- Indemnity of Fee-for-Service Plans
- Health Maintenance Organizations (HMOs)
- Preferred Provider Organizations (PPOs)
Let's take a deeper dive into these three categories, along with their basic advantages and disadvantages.
1. Indemnity or Fee-for-Service Plans
Traditional plans that allow you to go to any doctor or specialist you choose without the need for a referral are called indemnity, fee-for-service, or point of service (POS) plans. With these plans, the insurance company will pay for a set portion of your charges and you pay the rest. These plans provide the most flexibility as they do not set restrictions on the providers you can use and generally do not require that you select a primary care physician (PCP).
Advantages of Indemnity Plans
The primary advantage of an indemnity plan is that you can choose to get your medical care anywhere you want and from whoever you want without getting referrals or prior approvals.
Disadvantages of Indemnity Plans
To control costs, insurance companies shift more costs to you through higher premiums and deductibles, making indemnity plans more costly to you than HMOs and PPOs. Additionally, you may be expected to pay for your medical services upfront and then submit a claim to your insurance company for reimbursement, which ties up your money and puts you at risk of not getting it back.
Indemnity plans are becoming increasingly hard to find and may be among the most expensive health insurance options.
2. Health Maintenance Organizations (HMOs)
An HMO or Health Maintenance Organization is an association of healthcare professionals and medical facilities that sell a fixed package of health care services for a fixed price. Within an HMO insurance plan, each patient has a primary care physician, who is often referred to as a gatekeeper because services provided by a specialist are not covered by the plan unless the gatekeeper (PCP) determines that the specialist is necessary and issues an in-network referral. As such all of your care is coordinated through your PCP.
Advantages of HMOs
The primary advantage of an HMO is that your out-of-pocket costs are often lower and more predictable. Another advantage is that claim forms aren't usually necessary.
Disadvantages of HMOs
Services provided by healthcare professionals outside the network generally aren't covered except in the case of a true emergency. Another disadvantage for some is that services provided by specialists require a referral from your primary physician, which may require an additional doctor's appointment. Under an HMO plan, some services may be limited to outpatient mental health services. While this risk exists under any insurance plan, in an HMO, you might not receive the medical care you need either because is it not covered or because your PCP does not issue the necessary referral.
3. Preferred Provider Organizations (PPOs)
A PPO or Preferred Provider Organization contains the managed care aspect of an HMO but with the added flexibility of being able to go outside the network of healthcare professionals and facilities to any health care provider of your choice when you feel it's necessary. When you go outside the network, your benefits are less and you pay more out of your own pocket than you would if you had stayed within the network, but you do still receive some coverage (unlike an in an HMO). If flexibility and choice are important to you, a PPO may be a good choice if it's available to you.
Advantages of PPOs
The primary advantage of a PPO is that you have more flexibility than you would in an HMO, but not as high of costs associated with an indemnity plan.
Disadvantages of PPOs
The primary disadvantage of a PPO is that it can be more difficult to predict your out-of-pocket costs.
Compare Premiums and Deductible Costs Carefully
When evaluating health insurance plans, consider whether it makes more sense to pay a higher deductible in exchange for lower premiums or accept a higher premium for lower out of pocket deductible costs.
Where Can I Get Health Insurance?
Most people get their health insurance through a group plan sponsored (and often at least partially paid for) by their employer or a spouse's employer. But many small employers don't offer health insurance. If your company is one of them, you might be able to get group insurance through membership in a labor union, professional association, club, or other organization that offers health insurance to members.
If you're unable to find group coverage, you can buy an individual policy, which in the past were extremely cost-prohibitive for many. One of the primary objectives of the Affordable Care Act (also known as ACA and Obamacare) was to overhaul the individual health insurance market and make individual plans for affordable. You can now search through the ACA's health insurance exchanges (also called marketplaces) through HealthCare.gov where you can search and compare policies and see if you are eligible for any subsidies.
You can still opt for individual plans that are offered directly from an insurance carrier or an agent or broker (referred to as off-exchange plans).
Health Care Sharing Offers an Alternative to Traditional Insurance
If you're not covered by an employer's plan at work or you can't afford the high premiums often associated with COBRA coverage or plans offered directly by an insurer, there's one more option.
Health care sharing plans aren't traditional insurance. Instead, you pay in a set monthly share amount, which is determined by your family size. That share amount is then pooled with share amounts from other people covered by the plan. When you have to visit a doctor, your health care sharing plan uses money from the shared pool to cover eligible expenses.
The primary advantage of a health care sharing plan is cost. These plans tend to be more affordable than purchasing health insurance directly. If you don't go to the doctor that often, it could make more sense to choose health care sharing over traditional insurance.
There are some disadvantages to keep in mind, however. If you're self-employed, you wouldn't be able to deduct your health care sharing amount the way you would health insurance premiums you pay out of pocket. These plans can also have limitations on which health care expenses they cover. Dental and eye care costs, for instance, typically aren't eligible for sharing.
Finally, some plans require you to sign a personal statement committing to abiding by certain moral, ethical or religious standards to participate in the plan. Reviewing different health care sharing options and comparing them to what's available elsewhere for health insurance can help you decide which one is right for you.