As we approach the open enrollment season for selecting health coverage for 2024, many people may be overwhelmed by the available options. Whether it be employer-sponsored group coverage, Affordable Care Act marketplace coverage, or the bevy of choices in choosing Medicare plans, knowing some basic health insurance terminology can help to make sense of the plan options and weigh costs and benefits before making a decision. This article will review some health insurance basics and hopefully allow readers to make a confident, well-thought-out decision on the coverage that makes sense for each individual situation.
The first piece of valuable information is the premium cost for a given plan. This is important because you pay this amount regardless of the level of care that you use. Monthly premiums can range widely, from zero with heavily-subsidized employer coverage into the thousands of dollars per month depending on how many people are covered by the plan. Workers enrolled in group coverage through their employer can typically pay their premiums with pre-tax dollars from their paychecks. After the premium amount, the next key thing to check is the annual deductible. The annual deductible is the amount that needs to be spent by the policyholder each year before any insurance benefits will kick in. Again, this can range widely by insurer and plan and is different depending on who is covered (options include single person, one person plus spouse/partner, one person plus children, one person plus family). There are often exceptions, such as preventive care being fully covered even without meeting the deductible first. Once a deductible is met, there is usually a form of cost sharing known as coinsurance for additional services. The coinsurance percentage is typically quoted as the amount that the insured person pays for additional expenses (i.e. 10%, 20%, 30%) with the insurer paying for the rest (usually 70-90%). It is possible to have coinsurance as low as 0% (i.e. insurer pays everything) but that is typically only available with high deductible plans where the policyholder is paying significant costs up front before the insurer pays anything. Then comes the worst-case scenario figure, the out-of-pocket maximum. This number represents the total amount that a policyholder will need to pay in a given year for medical services covered by the insurance plan. After spending this amount on deductible, copays, and coinsurance for covered services, the health plan is responsible for 100% of the future costs for that year.
Digging deeper into the policy coverage details, there may be different coinsurance rates or copayment amounts for specific services such as maternity care, diagnostic services, emergency/urgent care, and home health care/rehabilitation. A copayment is (typically) a flat dollar amount that is paid when accessing a specific service like a physician appointment or emergency room visit. These are paid even after meeting an annual deductible, as they are designed to deter people from obtaining medical care they may not really need.
With all these data in hand, itis also useful to research the network of care providers available to each plan as well as the prescription drugs that are covered. A Health Maintenance Organization (HMO)typically has a more limited network and requires a referral from the primary care physician to see any specialists. Preferred Provider Organizations (PPO) will usually have a larger array of providers included and not require a primary care visit to see a specialist. These two main types of provider organizations have different costs and benefits but it is important to check that the physicians and specialists typically seen are in the plan’s network, as costs can rise significantly for using services outside of the network.
The HMO plans are usually cheaper up front (lower premiums) but can be more difficult to use, as the available network of physicians is smaller and a referral is needed from a primary care physician to see any specialists. It is important to weigh the lower cost of the plan against the hassle of potentially needing multiple visits to get the care one needs. On the other hand, PPO plans typically engage wider network of providers and do not require that referral to see a specialist. These plans will likely have higher costs/premiums but provide a valuable benefit in potential time savings.
In addition to the type of provider network used, there is also the option of choosing higher or lower deductible plans. In exchange for being subject to a high deductible, regular premiums are typically lower than a plan with a lower deductible. Choosing between these options becomes a balance between known (regular premiums) and unknown (responsibility for a large amount of cost when care is used) costs. For some, it might be better to pay a higher premium amount but know that insurance benefits will kick in quickly since the deductible is lower. For others, especially younger, healthy participants, it may make sense to save upfront costs on premium payments and have a higher deductible that can be budgeted/saved for paying each year.
Selecting a high deductible plan may also qualify the policyholder to save using a Health Savings Account (HSA). This is a tax-advantaged account that allows people to set aside pre-tax dollars to cover qualified medical expenses. Some employers will also contribute to these accounts annually on behalf of their employees. More details about utilizing these plans are available in a previous blog post (using HSAs).
This article reviewed the basics of health insurance coverage and hopefully provides enough knowledge to make an informed decision about medical plan coverage for the new year. While there are a dizzying array of options and pros and cons to weigh, having a handle on terminology and what each plan provides can make the task more manageable. Contact us if you have any specific questions on the health care options available to you.
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