Health Insurance Basics

Health insurance, something that is designed to reduce risk and mitigate costs, can be a source of stress and anxiety. Expensive plans, confusing coverage, and plenty of acronyms might cause you to throw your hands up in frustration, thinking you’ll never wrap your head around insurance.

Many Americans do just that. A 2016 survey indicated that only 4% of Americans can define the key terms that dictate how much they must pay medical costs; deductible, coinsurance, copay, and out-of-pocket maximum. That same survey found only a small difference (3%) between the knowledge of men and women; all of us struggle to wrap our heads around this topic. There is some good news: if you can grasp the very basics around health insurance, you can make big strides in your confidence in tackling this topic. The ladies at theSkimm, who produce a daily newsletter that makes it easier to stay informed, have put together a thoughtful, succinct guide on healthcare policy.

Currently, you must get health insurance in the US via your employer or independently during open enrollment (in 2017, this is from November 1 to December 15). However, if you become pregnant, or have another significant life event, and do not have health insurance, you are eligible to apply for a “Special Enrollment Period” that can allow you to add insurance at times other than open enrollment.

Once you have insurance, it is critical to understand is exactly how your policy works. I recommend using at least three sources to gather your information: your insurance provider, others that have the same plan (for example, your peers at work), and your medical providers (your doctors and preferred hospital).

Here are the questions you should answer; ask for documentation from medical providers and your insurer to confirm the details of your plan.

What type of insurance do I have? There are many types of health insurance. For example, Health Maintenance Organization (HMO) plans provide better coverage if you visit providers that are in their network but can cost you dearly if you go outside the network.

How does my insurance work, exactly? What health care costs are your responsibility, and which are covered by the insurer? Plans vary heavily and can include copays (where you pay a flat fee for certain services) or may require you to first spend a certain dollar amount on health care before insurance coverage kicks in.

What information can I access online? Today, many insurance providers have portals that will help you find doctors, examine your current coverage, and see how much you’ve spent towards your deductible (the portion of your health care costs that you are responsible for paying for). Taking time to understand the information you can access can save time and empower you to better manage your care.

Among the common insurance types – HMOs, PPOs, EPOs, high deductibles – what’s most likely to keep out-of-pocket costs down? What may come with hidden risks?

Health Maintenance Organization (HMO) plans are tightly linked to the network of providers that they have agreements with. If you have an HMO plan, your costs will be lower if every provider you visit is within the network. HMO plans usually require you to have a Primary Care Physician who acts as your health “quarterback” and refers you to other doctors/specialists. Speak with (and get documentation from) your healthcare providers about what happens in an emergency situation – is there any risk of you ending up being served by a provider that is outside the network?

Exclusive Provider Organization (EPO) plans generally do not require you to have a specific Primary Care Physician. However, similar to an HMO, they restrict coverage to providers in their network. Costs incurred out of network are often the patient’s full responsibility. There are some exceptions for emergencies, but each plan varies. EPO plan premiums are usually less expensive than HMO plans.

Preferred Provider Organization (PPO) plans generally have higher premiums than both HMO and EPO plans, but offer the patient more choice in health care providers. PPO plans rely on a network of healthcare providers; your costs (co-pays) are lower and coverage is better when you are served by providers that are in the network. However, unlike HMO plans, PPO plans may provide some level of coverage for non-network health care. I generally prefer PPO plans to all other options, if I can afford the premiums. PPO plans create cost savings through the network of providers, but aren’t as restrictive as HMO or EPO plans, nor do they require the highest deductibles.

High-deductible health plans (HDHP) incur the highest out-of-pocket costs, which mean you run the risk of paying more than other plan types. These are often intended for catastrophic situations, but I find many that select these plans do so for two reasons: HDHP plans have very low premiums and are often associated with a tax-free health savings plan. Health savings plans are often marketed as a fabulous way to save money, tax-free, for healthcare. However, there is no such thing as a free lunch and these savings plans are often paired with HDHPs because of the significant costs that are the patient’s responsibility. To be clear – a HDHP is far, far better than no insurance coverage. However, if given the option, I would strongly encourage new parents to invest in plans that they can afford with lower out-of-pocket deductibles.

In addition to the insurance options outlined above, Medicaid is available to provide health coverage to low-income citizens. Medicare serves a different community; focusing largely on senior citizens and providing support to disabled.

There’s certainly much more to explore on this topic, but I hope this helps you get started. What other health insurance resources do you recommend? I’d love to hear from you.

xoxo, Ms. Financier