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

Manage Your Risk: Step 5 of 5 Fabulous Steps to Financial Freedom

  

What’s the goal of this step? Prepare for the inevitable but unexpected twists life throws your way in order to protect your wealth.

Why is this important? Humans have an optimism bias; each of us tends to believe that we are less at risk of experiencing a negative event compared to others. It’s a beautiful term that puts our financial health at risk.

Our optimism bias makes us less prone to expect (and save/insure for) events like disability, illness, divorce and death. And, data indicates that women are under-insured - 43% of adult women have no life insurance, yet we comprise 57% of the labor force in the US.  

Appropriately mitigating risks improves your financial stability and makes you less prone to catastrophic costs associated with unexpected life events, which can drain your hard-earned wealth. Let me be clear - I don’t believe we should over-insure or purchase extravagant, complicated policies to manage risk. However, I do believe it is critical to have an appropriate level of insurance that you understand.  Let’s dig in.

When and how do I do it? There are four types of insurance I’d like you to consider.  

Let’s start with health insurance. This is a non-negotiable, as healthcare costs continue to rise. Your health insurance options will depend on factors like your employer, your income, and your health. Put this at the very top of your priority list if you are currently not insured. If health insurance is new to you, check out this summary of health insurance basics.

Life insurance is next. Many of you will be just fine with a term insurance policy, which provides coverage for a set amount of time (the term). The two big decisions you’ll need to make with this policy is which term to select, and how much coverage to purchase.  Don’t let analysis paralysis freeze you! This Investopedia article provides a succinct overview to the common factors people consider when determining insurance needs.

If you’re a parent who doesn’t work outside the home, please don’t skip insurance because you’re "not bringing in any income.” You are likely providing a valuable service, be it child care, household management, elder care - so consider a policy that would allow your survivors to continue to receive care.

Disability insurance is something I recommend considering if you don’t have a partner, and your own work is your primary source of income. When your financial security is solely on your shoulders, an unexpected disability could hinder your future trajectory. If you were to face a disability that put you out of work, you’d have enough to deal with - don’t add undue financial strain to the list. This article from Clark Howard provides a simple primer on disability insurance.

Auto insurance - if you drive - is last on my list because it's often required by law for vehicle owners, so you’ve probably already purchased a policy. My advice? Increase your deductible (the amount you pay out of pocket before your coverage kicks in) if you can afford to do so. That change will save you money on your premiums. Also, shop around at least once a year to see if you can secure a better rate.

There are many other types of insurance, but if you’ve explored these four, you’re far better off than many, and you’ve taken steps to mitigate your risk. Are there any of these you don’t have today? What insurance advice do you have?  

xoxo, Ms. Financier