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Aside from an insurance professional, nobody else finds essential health insurance exciting. A necessary evil? Sure! Something you have to research and make some decisions on? Absolutely! But fascinating and interesting? Probably not so much.
Sorting out the confusion
Aside from being a dry subject, most healthcare insurance material is peppered with industry jargon that makes people’s eyes glaze over before they get halfway down the page.
While there are many articles about different healthcare options, we have aggregated here the most essential health insurance options to be aware of. We have also included suggestions as to which plan fits any given situation best.
What is the best or most essential health insurance plan?
The short answer is – the one that fits your situation the best.
Typically you can choose from a few healthcare plans either provided by your employer or in the marketplace. The advantage of employer-sponsored plans is the employer paying for the majority (or sometimes entire) monthly insurance premium.
HMO vs. PPO
Two primary plans that employers often offer are HMO (Health Management Organization) and PPO (Preferred Provider Organization). HMO usually requires smaller copays and smaller (or no) deductibles making it ideal for those in good health who only need routine appointments. The disadvantage of the HMO plan is that you will need a referral to a specialist. The PPO plan allows you to see any doctors you choose without any referral requirements; however, these plans are usually more expensive. You will also need to pay higher copays and will likely have a bigger deductible before the coverage kicks in.
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According to the Kaiser Family Foundation, about 90% of all people in the US were insured in 2016. Even so, many enroll in their health plans without fully understanding what they are signing up for. There are many articles on the internet discussing the actual plans, and, usually, employers often set up informational meetings. However, rarely will these meetings address which plan is better for which situation.
The basics of essential health insurance
Let’s start at the basics and talk about the plans that are available and which plan might be the best for you.
If you are a full time, salaried employee, your employer will most likely offer you enrollment in one of their sponsored plans. Some employers offer only one plan, while others give you a choice between a few. Your cost to enroll in an employer-sponsored plan is heavily reduced as your employer pays the majority (or all) of the monthly premium.
If you are eligible – enroll!
You will save a good chunk of change as opposed to purchasing an individual plan in the marketplace.
The different options for essential health insurance explained
There are a few healthcare plans that you will encounter, and it is essential to understand how they work to make an informed decision:
- HMO (Healthcare Management Organization)
- This plan requires you to be seen by the providers within the network unless there is an emergency or there is no in-network provider within a certain distance of where you are at. The distance will be specified in your policy contract; typically, it is set at 100 – 150 miles.
- You will always see your primary physician first, and if you need to see a specialist, you will have to be referred to them by your primary doctor.
- Cost: One of the most significant advantages of this plan is the low copays and non-existent deductibles if you go to a provider within the HMO network. If you see somebody outside the network (for example a second opinion), you will have to foot the whole bill. The premium for HMO plans is also on the cheaper side, and this is the plan many choose to save money.
If you are generally healthy and do not require a specialist – this may be the essential health insurance plan for you. It works great for those who just need routine, preventive appointments, and need insurance in the case of a sudden illness or an injury.
- PPO (Preferred Provider Organization)
- This plan has a few different levels, but they all work relatively the same. If you choose PPO, you will have the freedom to go to whichever specialist you wish, without the need for a referral. Your plan will also pay for both in-network and out of network providers. However, if you choose an out of network provider, you will pay a higher portion of the bill.
- The ability to go to any doctor is a double edge sword. On the one hand, you have greater freedom in choosing your providers. On the other hand, doctors do go in and out of network pretty frequently so you will need to confirm their status, ideally before every appointment. If you don’t, you may get stuck with a more massive bill than you were expecting.
- Cost: The PPO plan will almost always have a higher monthly expense than an HMO plan. The copay could be either a flat fee or a split where you share the cost with the insurance company after the deductible is met. For example, if you have an 80/20 PPO plan, you will pay 20% of the visit’s cost and the insurance will pay 80%.
PPO’s are most advantageous to those who require specialized care or who have a preferred doctor that they really want to see and who might be out of network for an HMO plan.
- FSA (Flexible Spending Account)
- This “plan” has more to do with saving money than insurance, although you can use it in conjunction with your insurance plan. FSA is designed to allow you to save your pre-tax dollars for future health-related expenses not covered by insurance. Typically a pre-determined portion of your pre-tax paycheck will be deposited in the account. In 2019 the max contribution is $3,500 for an individual plan and $7,000 for a family. IRS has announced that these will go up $50 and $100 respectively in 2020.
- The IRS has clear guidelines on which items you can spend this money on. Typically it will include copays, deductibles, dental visits, etc.
Important! Any money left in FSA at the end of the plan’s yearly period will be lost. You can not withdraw the funds so you need to make sure to use it on approved medical expenses before the time runs out.
- HSA (Health Savings Account)
- This savings account plan works similarly to FSA. It is used to make pre-tax contributions that you can use for medical expenses throughout the year. Unlike FSA, this is not a use-it or lose-it savings account. The money left at the end of the year keeps growing tax-free. You will be taxed if you pull the money out to be used for non-medical expenses, along with a 10% penalty if you are younger than 65 years old. The max contributions for HSA are the same as we’ve seen for FSA ($3,500 for individual, $7,000 for family) with an additional $50 and $100 respectively approved for the year 2020.
- A savings account can only be used if you are enrolled in a High Deductible Health Plan.
- The high deductible plan is typically a PPO plan (where you can see any doctor); however, the deductible is $1,300 per person. Often that deductible can not be applied to preventive appointments.
High Deductible Plan is gambling that you won’t get sick. If you get sick, let’s say with the flu and need to see a doctor, you will bear the full cost for the visits until you reach your high deductible.
Proceed at your own risk
A health insurance plan is an important decision as you are locked into it for a year. Some people avoid going to preventive checkups to reduce the out of pocket cost. While it will undoubtedly reduce the cost at that moment, it has the potential to cost you much more if you develop a serious health condition.
Decide on a plan
Whether you are purchasing your plan through the marketplace or your employer, review the plan definitions in detail. Being familiar with how they work is half the battle in making the right decision on a plan that will work best for you and your family.
Research your doctor
If you want to keep your current doctor and are set on a PPO plan, make sure that your doctor is considered in-network. If they are not, are you willing to pay the extra cost associated with seeing an out-of-network provider? Will your doctor even accept your new insurance? PPO plans can include networks such as Blue Cross/Blue Shield, Aetna, Cigna, just to name a few.
Compare the benefits
When considering the health plans, compare the benefits and the costs (copays, deductibles, prescriptions).
About the Author
As a former insurance broker for over 10 years, Olga has deep knowledge of insurance concepts and policies. She is passionate about helping others understand the insurance policies they are purchasing and find policies that suit their unique needs.
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