Insurance is boring. No one likes to talk about it. We don’t even like to buy it. Most of the time, we only get it because the government requires it for our health or safety (and sometimes even then we don’t buy it) or our mortgage company wants to cover its asset.
Even if you’re not interested in insurance, though, it’s crucial to your overall financial security. If you don’t mitigate your risk with proper insurance coverage, your financial plan can go completely off track.
For the next few posts, I’ll highlight why insurance is important and give you guidelines for how to find insurance coverage that works for you. This week, we’ll talk about health insurance.
Why It’s Important
No one expects to get sick. Yet one unexpected illness can set you back a $1,000 ambulance ride, $30,000 hospital stay or $100,000+ cancer treatment. Health care costs without insurance are astronomical. Even one unexpected hospital bill can wipe out years of savings and investment.
Proper coverage is especially important for LGBTQ people. Policy Genius’ Health Guide for Gay Men highlights health issues that afflict our community more than others, including:
- Gay men make up more than half of the people living with HIV and experience two-thirds of all new HIV infections each year.
- In 2014, men who have sex with men accounted for 83% of primary and secondary syphilis cases in the United States.
- Gay men have a higher propensity for depression, substance abuse and suicide.
No doubt the healthy living habits provided in the guide can go a long way in keeping your financial plan in order. It’s especially critical to have adequate coverage. Here are some considerations when choosing your plan.
Your deductible is the amount you have to pay before your plan begins covering health costs like doctor’s visits, hospital stays and prescription drugs. It’s usually a fixed dollar amount. It will vary depending on whether your policy covers you as an individual or as part of a family. It may be different depending on whether you obtain care from an in-network provider or not.
For example, say you choose a plan with a $1000 deductible for in-network care and $2000 for out-of-network services. In addition, the deductible for a family could be something like $3,000 and $6,000 for in-network and out-of-network care, respectively.
Whichever limit applies, you’ll pay 100 percent of your medical and pharmacy bills until you reach the limit (with in-network preventive care and prescriptions copay usually excluded from that rule). Once you do hit your deductible, the insurance company will contribute to some of your health-care costs through coinsurance.
Usually, health insurance plans with high deductibles have lower premiums, while plans with lower deductibles have higher premiums.
Your copay is a predetermined, fixed amount that you pay for your care. You incur this expense when you receive a service or fill a prescription. The amount of your copay fluctuates depending on the service or type of prescription. Additionally, whether copays count towards your deductible depends on your insurer. (Something to keep an eye on when you’re choosing your plan.)
For example, a doctor’s office visit might have a copay of $20 per visit, while an urgent care facility would be $75 and an emergency room, $400. Despite the different amounts, the copay costs will always be a fixed figure.
Typically, a health insurance plan with higher copays will have a lower premium, while plans with lower copay rates will cost you a bit more.
Next, we have your coinsurance. Like your copay, coinsurance is your share of health care costs. But instead of a fixed-amount per service or prescription, you have to pay a percentage of a total charge for the service. You start paying coinsurance after you’ve paid your plan’s deductible. You may also incur a service that has both coinsurance and a copay.
With coinsurance, the amount you are responsible for is expressed as a fraction like 70/30, 80/20 or 90/10. For an 80/20 plan, the insurance company pays for 80% of costs incurred, while you pay 20%. A health insurance plan with a high percentage participation rate — such as 70/30 — will have a lower premium, while plans with lower percentages will have higher premiums.
Your Out-of-Pocket Limit
Last but certainly not least, you need to pay attention to your total out-of-pocket limit. As the name suggests, the out-of-pocket limit is the most you can pay during a coverage period (usually a year) for your share of covered costs. In other words, this provision limits the total amount that you have to shell out in case of a catastrophic event like a terminal illness or car accident.
This limit includes deductibles, coinsurance, copayments, and any other expenditure that is a qualified medical expense. Be careful though: this limit does not count premiums, balance billing amounts (i.e., billing from individual service providers) for non-network providers, other out-of-network cost-sharing, or spending for non-essential health benefits.
As with the other expenses, out-of-pocket limits can vary. A typical limit would be $3000-$4000 for an individual and $4000-$8000 for a family. The limits increase if you receive care out of network. After you reach your limit, the insurance company picks up the rest of the tab for any charges incurred during the remainder of the coverage period.
How to Choose the Best Plan for You
When you select a plan, compare each plan’s deductible, copay, coinsurance, and out-of-pocket limit to figure out which one best suits your needs. These amounts will vary whether you have an EPO, HMO, PPO or POS.
Here are a few of other issues to weigh:
- Accessibility: You’ll want to make sure that your plan covers the doctors and prescriptions that you know you’ll use. For instance, when Ben and I were comparing plans, we wanted to keep our current primary-care providers, and only one insurance company covered them both. That access was more important than cost.
- Cost: Consider the total costs to you, including premiums. A plan with a higher deductible should have lower premiums. The worst-case cost — if you have a major illness or accident, for instance — will likely be higher with the high-deductible plan. However, if you’re healthy and don’t use a lot of medical services, the total cost will be lower.
- Services: When considering the costs, you should also determine at what rate the services that you need — mental health, prescriptions, etc. — are covered under each plan. You want the plan that covers most of your actual costs.
- Risk: Ask yourself what the potential risk is worth to you. A high deductible plan or one with a high out-of-pocket maximum could cost you a lot in the worst-case scenario. If that type of situation scares you, a higher premium for more coverage may be worth it to you.
- Other Benefits: Many high-deductible plans offer other benefits like an HSA, which can help you far beyond the current year. Also, your employer may contribute money to your HSA increasing the potential benefit. Take that into consideration when choosing.
Overall, you have to look at your specific situation and make sure that your plan covers what you need at the most affordable cost.
This process is especially important given the possible repeal of the Affordable Care Act aka Obamacare. While I would love to believe that Donald Trump can keep the good parts of the Act, eliminate the parts he doesn’t like (including the individual mandate that pays for the plan) AND make the program better and cheaper, I’m not totally confident that will happen. So choose wisely.