Definitions, tips and guidelines to evaluating health insurance plans, from HMOs to PPOs, and everything in between
It's that time of year again when many of us renew our employer sponsored insurance plans. Some of us spend a lot of time evaluating them each year, reminding ourselves "now why should we go with that HSA thing?" and many of us just "go default"... what we call SALY (same as last year) without any idea why. Here's a quick reminder on what to evaluate.
Quick refresher on definitions:
Premium: What you pay each month. Usually deducted from your paycheck. Regardless of hitting your deductible or when co-insurance kicks in, you will keep paying the premium each month. When you sign up for insurance, you're committing to making these monthly premium payments (or paycheck deductions).
Deductible: (Family / Individual) What you have to pay out of pocket before your co-insurance kicks in. Once you hit that deductible co-insurance begins and you only pay a percentage (usually the minor percentage) of medical care. An individual deductible is if it's just you and a family deductible is when you have a family; keep in mind that there are also individual deductibles outside of a family deductible.
Co-Insurance: What the insurance company pays, stated as a percentage. If the co-insurance is 80 percent, then your insurance company pays for 80 percent and you pay the remaining 20percent of all medical costs AFTER you pay your deductible.
Co-Pay: What you pay out of pocket for doctor visits. This is usually for office/ ER/ urgent care visits. The co-pays you pay count toward your deductible (hooray!)
Out of Pocket Max: The most you will pay, excluding monthly premiums, in one year before insurance covers 100 percent of medical costs.
HSA: Health Savings Accounts: We love these. Typically, the overall cost ends up being substantially less than PPOs and other plans. The downside is that you have to pay upfront at the start of the year and cash can be tied up in a heath savings account, where you can only access these funds for medical costs. If you are relatively healthy and can afford to tie up some cash for the year, really consider the HSA route. The annual savings can be in the thousands, especially with a family.
PPO: Preferred Provider Organization
HMO: Health Maintenance Organization
EPO: Exclusive Provider Organization
POS: Point of Service Plan
So what's the best plan? Like most things in finance, it depends on your unique situation. Here's how to figure out which plan is right for you.
First, we're assuming these are employer sponsored plans. This means insurance that is provided to you and subsidized from your employer. If you don't have employer sponsored health insurance, you're buying on the open market.
Which Plan: Know which benefits are generally different in HMOs, PPOs, EPOs and POSs.
High Premiums, Low Premiums? Some plans have lower premiums with higher out of pocket costs, and some have higher premiums with lower ongoing costs.
High premiums, low out of pocket costs: A plan that has higher premiums with lower ongoing costs may make sense if you have consistent medical expenses. These expenses include regular doctor visits, frequent emergency care, expensive or brand-name prescriptions or if you have/expect to have kids.
Low premiums, higher ongoing costs: A plan that has lower premiums with higher ongoing costs may make sense if you need lower monthly premiums, you are in good health and rarely see a doctor.
Coverage: Double check specific coverage for your needs: Make sure any medication you regularly take and your specific typical medical needs are covered.
Cost: So which plan "costs the least"? Well, it depends. There are various options in terms of co-pay, co-insurance and even "high deductible HSA." To deterine the cost of a plan, you'll have to determine which plan will provide the coverage you need, and be least expensive in the end. Cue this downloadable spreadsheet. It'll help you determine the lowest out of pocket costs for the year, making things a bit more straightforward.
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