Like many of you, Ben and I are going through open enrollment right now. Our current insurance carrier is no longer an option under Ben’s employer, so we have to pick a new plan.
Despite being pretty knowledgeable and familiar with this stuff, I found myself sitting in our living room for two hours with three different print outs, sevens tabs open on my computer and an annoyed Ben when trying to determine which plan meets our needs.
I know I’m not the only one who gets stressed trying to decipher the best option to choose. And, as always, my goal is to make these personal finance decisions as easy as possible for all of you. So today I’ll discuss four key terms that you need to know when picking your health insurance, as well as considerations you should make when choosing your plan.
Your deductible consists of the costs you have to pay before your plan begins helping out with covered services. It’s usually a fixed dollar amount and varies based on individuals, families and whether you receive care from an in-network or out-of-network provider.
For example, your plan could have $1000 deductible for individuals who get care in the provider’s network 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 and copay.
Usually, a health insurance plan with a high deductible has a lower premium, while plans with lower deductibles will have a higher premium.
Like a deductible, your copay is a fixed amount that you pay for your care. However, you incur this expense when you receive a service or fill a prescription and have met your deductible. The amount of your copay fluctuates depending on the service or type of prescription.
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 the costs of a health-care service. 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 – 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 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: A lot of your decision may be based on accessibility. Ben and I want 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, will have lower premiums. So while the potential cost may be higher with the high-deductible plan, if you don’t use it that much, 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 looming 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.