Health Insurance

The content contained on or made available through this website is not intended to and does not constitute as legal or investment advice. Please use and refer to the information at your own risk, and consult with a professional before making any finance-related decisions. Refer to the full Terms & Conditions here. Last updated January 1st, 2020.

Takeaways

  1. Understand the basics and terminology of health insurance

  2. Educate yourself on the coverage options available to you

  3. Choose the health plan that best suits your needs

  4. Utilize flexible savings accounts (FSA/HSA/HRA) if available

  5. Take full control of your health care expenses

Healthcare in the United States is both expensive and constantly changing. The majority of working individuals today receive health insurance through their employer. Since most employers tend to heavily subsidize employee premiums, many people do not realize the actual cost of their health insurance. 
 

However, as the cost of care continues to rise, employers have begun to shift more of the burden to their employees. In this new environment of High Deductible Health Plans (HDHPs) and more expensive coverage, it is more important than ever to approach healthcare decisions with a solid understanding of the fundamentals.

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Terminology

 

  • Premium: The monthly payments made to your insurance company. If you receive coverage through your employer, a subsidized premium rate will often be deducted directly from your paycheck each pay period.

 

  • Deductible: The amount you must pay out of pocket before insurance kicks in. For instance, if you have a $500 deductible and your first service of the plan year is a $100 x-ray, you will be responsible for the full $100. If you then receive a $1000 MRI, you will be responsible for the next $400 (to reach the $500 deductible), before your insurance begins to pay a portion of the bill.

 

  • Copay: Health plans may have you pay a low flat dollar amount (copay) for many routine services, such as Primary Care and Specialist visits. Copays will often count towards your deductible (i.e. paying a $20 copay will make you $20 closer to meeting your deductible).

 

  • Coinsurance: Once your deductible has been met for the current plan year, any non-copay services will be covered at a certain percentage of their costs (e.g. 80%) by your insurance company. So a $100 blood test will only cost you $20 out of pocket with 80% coinsurance, as long as your deductible has been met.

 

  • Out of Pocket Maximum: A dollar value that represents your total liability for the plan year. For instance, if your out of pocket maximum is $3,000, your insurance company will pay 100% of claims once you have personally paid $3,000 in a single plan year.

 

  • In vs. Out of Network: Most insurance plans have a network of contracted doctors and hospitals. It is often cheaper and in your best interest to receive care from your plan’s “In Network” physicians. If you choose to utilize services “Out of Network,” you are at risk for higher payments and lower (if not zero) coverage from your insurance company.

 

  • Enrollment Periods: The most common time to enroll in a health policy is called “Open Enrollment.” In the U.S., Open Enrollment runs from November 1st to December 31st. During this time each year you may elect new benefits, change existing benefits, or cancel benefits altogether. Lastly, you are also eligible to change benefits after certain “life events;” for instance, getting married, having a child, or turning 26.

 

  • The Affordable Care Act (ACA): The ACA was enacted in 2014 in an effort to: reduce the number of uninsured people, lower the cost of providing health care, and improve the affordability of receiving coverage. The ACA created online health care “exchanges,” through which individuals may receive coverage regardless of their health status.

 

Types of Plans

 

  • Health Maintenance Organization (HMO)

    • An HMO is a health plan that is centered around a Primary Care Physician (PCP). Upon enrollment, people will choose or be assigned to a PCP, through which they will receive the majority of their care. In order to see a specialist, members in an HMO must first receive a referral from their PCP. Any care received out of the HMO network or without referral may not be covered by the plan.

 

  • Preferred Provider Organization (PPO)

    • A PPO plan offers much more flexibility than an HMO. There is a network of providers that members may choose from; one that is often much larger than that of an HMO. Members do not require a referral to see a specialist, and out of network care is covered as well, albeit at a slightly higher out of pocket expense.

 

  • Exclusive Provider Organization (EPO)

    • An EPO is similar to a PPO. The exception is that an EPO does not cover out of network services.

 

  • Point of Service Plan (POS)

    • POS plans can be described as a mix between an HMO and PPO. A PCP must be assigned, and any specialist services require a referral. However, a PCP may refer members to physicians that are out of network (again, at a higher out of pocket expense).

 

  • High Deductible Health Plan (HDHP): HDHPs can come in the form of any plan type listed above. However, as their name implies, they have a deductible that is materially higher than those of traditional health plans. The goal of HDHPs is to introduce consumerism into the healthcare marketplace. To help out with the higher out of pocket expenses, HDHPs come paired with one or more of the following savings account options:

    • Health Savings Account (HSA): An HSA is a pre-tax savings/investment vehicle that can be withdrawn from tax-free for qualified out of pocket medical expenses. You own your HSA, so it will move with you if you change jobs. Your employer will often also contribute an annual dollar amount to your account. Once you turn 65, money can be withdrawn from an HSA for any reason with no penalty (and will be taxed as regular income). As a result, HSAs are a fantastic medical and retirement savings vehicle.

    • Health Reimbursement Account (HRA): An HRA must also be used only for qualified out of pocket medical expenses. However, unlike an HSA, it is owned by your employer. This means that it will not stay with you if you change jobs, and its availability and contribution limits are both up to the discretion of your employer.

    • Flexible Spending Account (FSA): FSAs are similar to HSAs in that you technically own the account, and both you and your employer may contribute pre-tax dollars. An FSA can be used more liberally than HSAs and HRAs, and may cover certain expenses that the others do not. However, funds are use-it-or-lose-it. From year to year, only a small portion (and sometimes none) of the balance may be rolled over.

If you are relatively healthy, electing a High Deductible Health Plan with accompanying HSA is often a superior option to HRA and FSA plans. However, if you anticipate high future healthcare expenses, a copay plan with HRA or FSA is likely your best bet.

Where to Obtain Coverage

 

  • Group Insurance: The most common and affordable way to obtain coverage is through your employer. These plans will often be heavily subsidized, having you pay only a fraction of the full premium.

 

  • Individual Insurance: If you are unemployed or self-employed, individual coverage may be your only option. The ACA created online exchanges that can aid you in receiving affordable health care. Visit healthcare.gov to learn more about your options.

 

  • Gap Coverage: Certain coverage options will be available to you only at certain times in your life. For instance, if you have just turned 26 and are no longer eligible to be a member of your parents health insurance plan, you may receive what is called “gap coverage” for the remainder of the plan year. Most insurance companies and employers offer gap coverage as an affordable way for members to receive health benefits for limited periods of time. 

 

  • Consolidated Omnibus Budget Reconciliation Act (COBRA): Under COBRA, employers are required to offer continuing coverage to employees under the following circumstances:

    • The employee is fired/terminated or has voluntarily quit their job

    • Employee’s working hours have been reduced enough to influence coverage options

    • When individuals are transitioning between jobs

    • Some other qualified major life events (death, divorce, etc.)

​Considerations in Selecting a Plan

  • Price: The most obvious consideration in selecting a health plan: what’s the premium? Richer plans (i.e. plans with lower deductibles and higher coinsurance) will have higher upfront premiums.

 

  • Health Status: How healthy are you? How often have you been to the doctor’s office in the past few years? These are the questions you should ask when selecting a health plan. Richer plans have higher premiums, but they will cost you less out of pocket overall if you plan on heavily utilizing health care services.

 

  • Network: If you have a particular doctor or set of doctors that you are emotional or medically tied to, you may want to make sure that they are considered In Network for the plan you choose. Plans with broader networks are typically more expensive, but maintaining your current health care providers may be worth the additional cost.

 

  • Predicted Future Expenses: Are there any life events you foresee that will require high utilization of health care services? For instance, if you (or a spouse) plan on having a child, or you require an expensive surgery in the near future, the best decision is often to select a rich health plan for the year in which you plan to utilize (typically during Open Enrollment).

 

Conclusion

 

Healthcare costs in the U.S. are growing at a very high rate. As a result, employers and insurers are searching for ways to reduce utilization and lower costs. One way they have found is to shift the financial burden onto the members (you). The idea is to increase peoples’ awareness of costs, and to have them utilize fewer services and choose less expensive facilities. The best approach in this new environment: do your research, find less costly providers, utilize services intelligently, and take control of your wellbeing.

The content contained on or made available through this website is not intended to and does not constitute as legal or investment advice. Please use and refer to the information at your own risk, and consult with a professional before making any finance-related decisions.

© 2020 London Levinson LLC