Health insurance is one of the essential investments we make.
Injuries, diseases, and other medical incidents can be extremely expensive if they require hospital visits or surgery.
Securing health coverage is the only way to be sure you aren’t stuck with enormous medical bills that you have to cover out-of-pocket.
According to the Kaiser Family Foundation, over 47 million non-elderly Americans, which is approximately 15% of the population, were uninsured, as of 2012.
They paid about 1/3 of their medical expenses out-of-pocket and received higher bills than those who had health insurance.
According to an article from CNBC in 2013, over 2 million U.S. residents faced bankruptcy because of high medical bills.
Becker Hospital states that hospital stays only generated $387.3 billion in 2011.
This is about $10,000 per visit.
To obtain the right level of coverage, you should understand how insurance works.
In this article, we will cover the fundamental concepts that manage the industry of health insurance and common sources of health coverage.
We aim at easing this burden by providing you more information about health insurance options and various insurance policies.
Article Table of Contents
- 1 Glossary
- 2 Where Can You Get Coverage?
- 3 Understanding Your Plan Options
- 3.1 HMO (Health Maintenance Organization):
- 3.2 EPO (Exclusive Provider Organizations):
- 3.3 PPO (Preferred Provider Organization):
- 3.4 POS (Point of Service Plans):
- 3.5 HSA (Health Savings Account):
- 3.6 HRA (Health Reimbursement Arrangements):
- 3.7 FSA (Flexible-Spending Account):
- 3.8 Catastrophic Health Insurance:
- 4 Final Considerations Before Choosing a Plan
Let’s first explore some essential definitions.
Understanding the terminology related to health insurance is the first step to getting a cost-effecting plan that will meet your and your family’s needs.
Premium – the amount of money you pay monthly for your health coverage to your insurance company.
Deductible – the amount of money you pay out-of-pocket before the coverage takes place.
Deductibles are typically fixed and rounded amounts ($500, $1,000, etc.).
Usually, the lower your premium is the higher the deductible is.
Coinsurance – the amount of money you have to pay a medical provider after the deductible is paid.
Coinsurance is usually a set percentage of the bill.
If the coinsurance of the policy is 15% and the bill is $100, you owe $15.
Co-pay – the type of insurance similar to co-insurance, with one key difference: instead of waiting for a deductible to be paid out, you should make the co-payment when you receive the service.
These amounts are usually set by your plan, which means that every time you see a healthcare provider, you pay the same amount (e.g., $30).
Out-of-pocket maximum – the amount that you pay for coinsurance charges and deductibles within a certain year before the insurance starts covering expenses.
In-network – refers to medical establishments and physicians that deliver services covered by the insurance plan.
In-network providers are usually the most affordable option for policyholders.
Typically, insurance companies negotiate lower rates with in-network providers.
Out-of-network – refers to medical establishments and physicians that are not covered by your insurance plan.
Out-of-network providers’ services are more expensive because these providers did not negotiate lower rates with your insurer.
Pre-existing condition – a chronic disability, disease, or another condition you have as you apply for insurance.
Sometimes, ongoing treatments or symptoms that relate to pre-existing conditions lead to a higher than usual premium.
Waiting period – refers to employer-sponsored insurance plans that have a mandatory 90-day period before employees can enroll in their plans.
Enrollment period/open enrollment – the period when you can apply for health insurance or change the plan to include your children or a spouse.
Before the next open enrollment, policyholders can’t modify their plans, unless they face a qualifying life event.
Such events include marriage, divorce, childbirth, interstate residence relocations, or individual/household income changes.
Dual coverage – the act of maintaining health coverage with more than one insurance company.
For instance, married couples can receive coverage from both their employer and the employer of the spouse.
Others can have single coverage from more than one company.
Coordination of benefits – the process applied by individuals with two or more policies to ensure that their beneficiaries don’t get more than the combined maximum for the plans.
Continuation of coverage – an extension of insurance plan offered to those who aren’t covered under a certain plan anymore.
Often it applies to retirees of companies or former employees.
An example of continuation coverage is COBRA benefits.
Referral – an official notice from a physician to an insurer that recommends the treatment by a specialist for a given policyholder.
Where Can You Get Coverage?
All health coverage options fall under one of the two general categories in the US.
You can get individual coverage for you and/or your family by contacting insurers directly or get a group coverage as an employee or a student.
After the Affordable Care Act arrived, the regulation and parameters for both types of coverage were significantly altered.
Typically, the availability and the costs of individual coverage were variable.
After the ACA, now individual health insurance plans should cover you despite your pre-existing conditions or health issues.
With this type of coverage, the insured can choose their physicians (regardless of the network).
You can choose between three options:
- Policies that provide short-term coverage.
- Providers within the ACA healthcare exchange.
- Providers outside the ACA healthcare exchange.
Insurers INSIDE the ACA Healthcare Exchange:
The ACA Healthcare Exchanged was created by the Obama Administration as a marketplace for shoppers of individual health coverage.
It has various coverage options that refer to one of the five categories (the percentages below are average):
- Bronze – Holders pay co-insurance of 40%, plans pay 60%.
- Silver – Holders pay co-insurance of 30%, plans pay 70%.
- Gold – Holders pay co-insurance of 20%, plans pay 80%.
- Platinum – Holders pay co-insurance of 10%, plans pay 90%.
- Catastrophic – Holders pay co-insurance of 40% or more, plans pay 60% or less.
This is usually the option only for people under 30 or those who qualify for a hardship exemption.
The exceptions may include individuals who receive insurance for nine months or more of the year (but not all year), U.S. citizens living abroad, and others who meet the criteria.
In general, Gold and Platinum plans are the most cost-effective for those who need regular prescriptions or doctor’s visits.
Silver, Bronze, and Catastrophic are better for individuals with a lower risk who don’t require frequent doctor visits.
Keep in mind that the initial open enrollment for ACA Healthcare Exchange plans finished on March 31, 2014.
After that time, people can only buy this coverage if the face a qualifying life event.
However, subscribers can enroll in the next open enrollment period.
Insurers OUTSIDE the ACA Healthcare Exchange:
According to the ACA, those who don’t have group coverage should apply for an individual plan.
If they don’t, they will receive a penalty that gradually increases for every year that they are uninsured.
However, those who aren’t required to use the ACA Healthcare Exchange can purchase insurance from companies that are not listed on the site.
The Exchange is created to make the process of choosing an insurance plan easier.
Whether one chooses health insurance within or outside the Exchange, the decision should depend on their annual income.
Those who make 400% of the federal poverty level (approximately $46,000 per year for individuals or $94,000 per year for a household of four members) or less can qualify for a tax subsidy that will help them pay for their insurance.
This is only available through Exchange plans.
There’s no such tax benefit in the off-marketplace plans.
On the contrary, those who make more than $46,000 annually (therefore, they are ineligible for the subsidy) may find a more affordable plan outside the marketplace.
If you choose to look for a plan outside the marketplace, it’s recommended that you use the services of an insurance broker.
They can help you find a plan that meets your needs the best.
Their services are free because they receive a commission from the insurance companies on plans they sell.
This is the option also known as ‘gap policy’ made for individuals who are uninsured or are waiting for their group or individual coverage to take place.
This is a cost-effective option.
The short-term coverage rates of the eHealthInsurance marketplace lists start at 85 cents a day.
However, it does not meet the requirements of the ACA most of the time, and policy-holders who don’t get a more sound coverage may be penalized for not enrolling.
Contrary to an individual coverage plan, where policy-holders should pay for the entire premium, group coverage is divided between the institution that facilitates it (a company, a university, etc) and beneficiaries.
Holders of group coverage plans are bound to a physician network, but the coverage for pre-existing conditions can be denied for them.
Usually, employers pay more than 50% of the monthly premium.
Also, they may support premiums for the dependents of employees (spouses or children).
Similar to subsidies available to individuals through the ACA Exchange, business owners can receive some tax benefits for providing group coverage.
Unlike individual coverage, group coverage is usually much cheaper for policyholders since employers pay for most of the premiums.
Employees may choose the coverage within or outside ACA Exchange instead of obtaining a plan sponsored by an employer.
However, in general, group coverage tends to be the most cost-effective option.
One big exception may be for individuals who regularly visit specialists from out-of-network or those who need prescription medication that the employer plan doesn’t cover.
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), those employees who lost their group coverage due to certain circumstances can obtain continuation coverage for some time.
These might be more expensive plans than short-term individual plans since subscribers have to pay the full premium.
The circumstances can include:
- Death, divorce, and other life events.
- Individuals whose hours are reduced and impact the coverage availability.
- Individuals who are transitioning between jobs.
- Individuals who were laid off or fired or quit their jobs voluntarily (does not apply to those who were terminated for ‘gross misconduct’).
Understanding Your Plan Options
After you chose the coverage that meets your individual or family needs, you need to pick a suitable structure of the plan.
This can be a confusing process since there is a significant overlap between plans.
Also, there can be a fair share if ‘fine print’ related to every option.
Below, we explore some of the most common plan structures US residents can use.
HMO (Health Maintenance Organization):
- An HMO requires policyholders to select a primary-care physician (PCP), and only after that, they can receive treatment from specialists from the established provider network.
- The PCP has to coordinate the treatment of the plan-holder and care services.
Policy-holders should receive a referral for most care services.
- A visit to a specialist without the referral of the PCP may result in paying the expenses out-of-pocket.
- This plan is usually recommended for those who don’t have preexisting conditions that might need the services of a specialist besides those appointed by PCP.
EPO (Exclusive Provider Organizations):
- An EPO and HMO are similar, with one key exception – a PCP isn’t appointed.
- Plan-holders are bound to a network of specialists and physicians.
- If they go outside the network, they will pay higher out-of-pocket costs, but they aren’t bound by the PCP recommendations.
PPO (Preferred Provider Organization):
- The PPO is almost the same as the EPO.
The key difference lays in out-of-pocket expenses that come from visiting providers out-of-network.
- PPOs cover visits like those but at higher rates than visits to in-network providers.
EPOs, on the other hand, don’t cover such visits at all.
- You can benefit from a PPO if you require regular visits to specialists outside the network.
POS (Point of Service Plans):
- Under a POS plan, a PCP should be appointed, which means you can only visit other physicians after your physician provides you with a referral.
- Your PCP can refer you to specialists outside of the established network.
- Out-of-pocket expenses are higher, but the visits to out-of-network specialists can be partially covered for those who need regular visits to out-of-network physicians.
HSA (Health Savings Account):
- If you have an insurance plan with a high deductible, you can open an HSA.
This is an account used only to save unused money to cover future medical expenses.
- The funds stored in an HSA used for medical expenses of the account holder or their dependents are not subject to taxation.
- The funds not used for medical expenses are included in your gross income on your tax return and can receive an additional tax penalty of 20%.
- After 65 of age, account holders should withdraw all funds with no tax penalty.
HRA (Health Reimbursement Arrangements):
- This is a savings account used only to collect funds for medical expenses.
- HRA must be purchased by your employer on your behalf and maintained by them.
- When these funds are disbursed, you must declare the amount on your tax return as long as the funds are used for medical expenses.
- The availability if an HRA is the responsibility of your employer.
They are also responsible for establishing the contribution limit to the funds.
- To contribute to the HRA, employers cannot reduce your salary.
Self-employed individuals cannot get an HRA.
FSA (Flexible-Spending Account):
- An FSA and HRA are similar in terms of tax-advantaged savings provided by the employer.
- With FSA, though, you, not your employer, technically own the account and make regular additions through paycheck deductions.
- Similar to HSA, the funds in an FSA are not taxable, but annual contributions can’t be more than $2,500.
- The funds in the FSA can be used to cover a wider range of medications and medical expenses than HSA and HRA.
- FSA funds should be used while the account is active.
Recently, amendments allowed employers to change the plans so that employees could roll over up to $500 of funds they didn’t use to the next year’s plan without losing the maximum contribution.
Catastrophic Health Insurance:
- This plan allows you to have three covered primary medical care visits a year.
- This premium is usually lower than the plans that provide more benefits, but coinsurance and deductible in a catastrophic plan can be relatively high.
- Typically, catastrophic plans don’t meet standard requirements for health plans imposed by the ACA.
- Only adults under 30 and those who have a hardship exemption from marketplace employer-sponsored or individual health plans can get catastrophic coverage.
Final Considerations Before Choosing a Plan
In the end, the health insurance plan you choose should be the one that suits your own and your family’s needs.
Some factors you should consider:
Ideally, your insurance should allow you to receive treatment whenever it is necessary.
Some insurers limit the number of primary care visits per year you can have.
Others allow you to schedule as many appointments as you need.
Before you get a new plan, it’s essential to understand if there are any restrictions concerning primary care visits, and if there are, how many visits to a physician you can have.
If you are generally healthy and visit a doctor only for a yearly check-up, a high-deductible plan with a low premium can be cost-effective for you.
If you have any preexisting conditions and require much treatment, therapy, and medication, a plan with a low deductible will be more suitable.
The monthly premium can be higher, but in the long run, you will save more money on out-of-pocket expenses.
Physicians and Specialists
If it is essential for your health to visit the same physician, you need to check the coverage for the physician’s network and the costs of visiting one outside the network.
You should also consider if the plan requires a PCP and whether or not your trusted physician can be your PCP.