Factors to Consider When Choosing Health Insurance

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There are a variety of factors to keep in mind when you're choosing a health insurance plan.

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It is important to get health insurance for yourself and members of your family. Insurance helps to protect you from high health care costs, and helps to ensure that you'll be able to receive medical treatment if the need arises.

But the process of selecting a health insurance plan can be confusing. This article will explain what you need to keep in mind so that you can choose a plan that best fits your needs.

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You should get health insurance for the same reason that you have auto insurance or homeowners insurance—to protect your savings and income. But you also need health insurance to ensure that you'll have access to high-cost medical care if and when you need it.

For hospitals that accept Medicare (which is most hospitals), federal law requires them to assess and stabilize anyone who shows up at their emergency departments, including someone in active labor. But beyond an assessment and stabilization in the emergency department, there is no requirement that hospitals provide care to people who cannot pay for it. So a lack of health insurance can end up being a significant barrier to receiving care.

How Do You Get Health Insurance?

Depending on your age, job status, and financial condition, there are many ways that you can get health insurance, including:

  • Health insurance provided by an employer. Large companies in the U.S. are required to provide affordable health insurance to full-time employees (or face a penalty), and many small employers also offer coverage to their workers. You will likely be required to pay some portion of the monthly premium, or cost of the health insurance, particularly if you add your family to your plan. But most employers that offer health coverage do tend to pay the majority of the premiums.
  • Health insurance that you purchase on your own. If you are self-employed, work for a small company that does not provide health insurance, or retired prior to being eligible for Medicare, you will need to buy your own health insurance. You can get it through the health insurance exchange in your state, or directly from an insurance company, but income-based premium subsidies (to lower the amount you have to pay for your coverage) and cost-sharing subsidies (to lower the amount you have to pay when you need medical care) are only available if you get your coverage through the exchange.
    (Note that in most areas, there are also plans available for self-purchase that aren't compliant with the Affordable Care Act, such as short-term health insurance, fixed indemnity plans, health care sharing ministry plans, direct primary care plans, etc. But in general, these are never suitable to serve as stand-alone coverage for any significant length of time.)
  • Health insurance provided by the government. If you are 65 or older, disabled, or have low or no income, you may qualify for health insurance provided by the government, such as Medicare or Medicaid. Children, and in some states, people who are pregnant, are eligible for CHIP with household incomes that can extend well into the middle class. Depending on the coverage and your circumstances, you may or may not have to pay monthly premiums for your government-sponsored health coverage.

If you have no health insurance or health insurance that is not adequate, you will be responsible for paying all your health care bills unless you can access care at a charitable clinic. The Patient Protection and Affordable Care Act (ACA), which was enacted in March 2010, assures that most Americans have access to affordable health insurance.

And some of the design flaws in the ACA, including the family glitch and the "subsidy cliff" have been addressed in subsequent regulations and legislation. The IRS finalized a fix for the family glitch in the fall of 2022, and the "subsidy cliff" has been temporarily eliminated by the American Rescue Plan and Inflation Reduction Act.

As a result, some employees' family members are newly eligible for premium subsidies in the exchange/marketplace even when they have an offer of employer-sponsored coverage. And there is no set income cap for subsidy eligibility until at least 2026.

But some coverage obstacles that still exist stem from regulations, court decisions, and resistance to the ACA, including the Medicaid coverage gap that exists in 11 states that have refused to accept federal funding to expand Medicaid. (Note that South Dakota will expand Medicaid in July 2023, as a result of a ballot measure that voters passed in the 2022 election. This will eliminate the coverage gap in South Dakota.)

How to Choose a Health Plan

There are many factors to consider when choosing health insurance. These factors may be different if you are choosing from among several employer health plan options or buying your own health insurance.

Do your homework before you enroll in any health insurance policy! Make sure that you know what your health insurance plan will pay for... and what it will not.

Employer-Sponsored Health Insurance

If your employer offers health insurance, you may be able to choose from among several health insurance plans. Most often, these plans will include one or more types of managed care plans, such as a health maintenance organization (HMO) or a preferred provider organization (PPO).

If you choose an HMO, the plan will generally only pay for care if you use a healthcare provider or hospital in that plan's network. If you choose a PPO, the plan will usually pay more if you get your health care within the plan's network. The PPO will still pay a portion of your care if you go outside the network, but you will have to pay more.

Your employer may offer a number of different health plans that cost more or less depending on the amount of out-of-pocket costs you have each year. These costs may include a copayment each time you see your healthcare provider or get a prescription filled as well as a yearly deductible, which is the amount you pay for healthcare services at the beginning of each year before your health insurance starts to pay for most services.

In general, a plan that requires that you use a network provider and has a high deductible and high copayments will have lower premiums (the amount that's deducted from your paychecks to pay for your coverage). A plan that allows you to use any provider, and has lower deductibles and lower copayments will have higher premiums.

If you are young, have no chronic disease, and lead a healthy lifestyle, you may consider choosing a health plan that has high deductibles and copayments since you are unlikely to need care and your monthly premiums may be less.

If you are older and/or have a chronic condition, such as diabetes, that requires many healthcare provider visits and prescription drugs, you may consider a health plan with low deductibles and copayments. You may pay more each month for your share of the premium, but this may be offset by less out-of-pocket costs throughout the year.

But you don't want to assume anything. Sometimes a person with significant medical needs will actually come out ahead with a low-cost, high-deductible health plan, as long as its network includes their doctors and its drug formulary includes the medications they need. This is because you have to account for the total cost, including the premiums, and it might end up being a better deal overall if your premiums are lower, even if your costs are higher when you need medical care.

So crunch the numbers to see how much you might be expected to pay in out-of-pocket costs (pay attention to the maximum amount here, if you think you're going to need a lot of medical care), and add that to the total premiums so that you can compare multiple plans. You don't want to just assume that a higher-cost plan (or, depending on the situation, a lower-cost plan) will work out better—you need to run the numbers to see how each plan is likely to play out in terms of total annual costs.

If one of the available options is an HSA-qualified plan, you'll want to include the tax benefits of HSAs when you're deciding which plan to choose, as well as any available employer contribution to the HSA.

If your employer offers a contribution to employees' HSAs, that's essentially free money, but you can only receive it if you select an HSA-qualified health plan. And if you enroll in an HSA-qualified plan and make contributions to the account yourself, those contributions aren't taxed.

For 2023, the maximum allowable HSA contribution amounts (including employer contributions) is $3,850 if you have self-only coverage under an HSA-qualified plan, and $7,750 if your plan also covers at least one other family member (if you're 55 or older, you can contribute up to an additional $1,000).

Depending on your income level, contributing the maximum amount to an HSA can result in considerable tax savings. So if an HSA-qualified plan is among the options, you'll need to include these factors in your side-by-side comparison of the plans.

To learn more about your health plan options, meet with a representative of your human resources department or read the materials supplied by the health plan.

If both you and your spouse/partner work for companies that provide health insurance, you should compare what each company offers and choose a plan from either company that meets your needs. Be aware, however, that some companies include a surcharge if your spouse has access to their own employer's plan but decided to be added to your plan instead.

Individual Health Insurance 

If you are self-employed, your employer does not provide adequate health insurance, retired prior to age 65 (when Medicare becomes available) or you are uninsured and do not qualify for a government health insurance program, you can buy health insurance on your own.

You can buy health insurance directly from a health insurance company, such as Anthem or Kaiser Permanente, through an insurance agent or broker, or through the health insurance exchange in your state (you can start at HealthCare.gov, which is the exchange that's used in most states; if your state runs its own exchange, HealthCare.gov will direct you there). 

Consult with your insurance agent or broker who may be able to help you find health insurance that fits your needs. Be sure they are certified with the exchange in your state, so that they can help you enroll in a plan through the exchange if that's your best option—and it likely will be.

If you're in a state that uses HealthCare.gov, you can use this tool to find exchange-certified brokers and enrollment assisters. The states that run their own exchange platforms have similar tools you can use to find someone who can help you pick a plan and get enrolled.

Since cost is often the most important factor when choosing a health plan, your answers to the following questions can help you decide which plan to purchase.

  • How much is the monthly premium (after any applicable premium subsidy, if you're eligible for one)?
  • How much is the copay for healthcare provider visits and prescription medications? And what specific services are covered by a copay, versus which ones will count towards the deductible instead?
  • How much is the deductible? And is there a separate deductible for prescription drugs?
  • If you choose a PPO, how much will you have to pay if you use healthcare providers or hospitals outside of the PPO's network? Note that in many areas, there are no PPO plans available in the individual/family market; you may be limited to HMOs and/or EPOs, both of which generally only cover out-of-network care in emergency situations.
  • What is the most you'll have to pay in out-of-pocket costs if you end up needing a lot of care? This is capped on all ACA-compliant plans at $9,100 for a single individual in 2023, although many plans have out-of-pocket limits that are lower than this.
  • Does the health plan have a drug formulary that includes the medications you use?
  • Is your healthcare provider in the health plan's provider network?

Government-Sponsored Health Coverage

If you're eligible for government-sponsored health insurance, you'll likely still have some choices to make.

If you're enrolling in Medicare, you'll need to choose between Original Medicare and Medicare Advantage (there are some rural areas of the country where Medicare Advantage plans are not available).

If you select Original Medicare, you'll then need to pick a Medicare Part D plan and a Medigap plan, unless you've got comprehensive supplemental coverage from an employer or you'll dually-eligible for both Medicare and Medicaid (in that case, your drug coverage is still provided by a private Part D plan).

If you're eligible for Medicaid, you may have to select a managed care plan from among the options that your state offers (the majority of people with Medicaid are enrolled in managed care plans, although some states do not use this approach). You'll want to check the provider networks and covered drug lists for each of the available options to make sure that the one you select will best meet your needs.

Beware of Non-ACA-Compliant Plans

All individual major medical health plans with effective dates of January 2014 or later are required to be compliant with the ACA. This applies in every state, and it applies to plans sold inside the exchange as well as plans purchased directly from health insurance companies.

But there are lots of plan options that aren't ACA-compliant. And sometimes those plans are marketed with questionable tactics, leading consumers to believe that they're purchasing real health insurance when they actually aren't.

If you're looking at short-term plans, limited benefit plans, accident supplements, critical illness plans, health care sharing ministry plans, medical discount plans, Farm Bureau plans, or any other type of non-compliant plan, you'll want to pay very close attention to the fine print and make sure you understand what you're actually buying.

Be aware that these plans don't have to cover the ACA's essential health benefits, don't have to cover pre-existing conditions, can limit your total benefits in a year or over your lifetime, and generally have a long list of coverage exclusions.


There is no one-size-fits-all when it comes to health insurance. Depending on your needs, you'll want to consider the monthly premiums, each plan's provider network and drug formulary, and expected out-of-pocket costs. These will all factor into determining which plan will best fit your needs and budget.

A Word From Verywell

Selecting the best health insurance plan to fit your needs can be a challenging process. But it's important to review your options each year during open enrollment, to make sure you've noticed any changes for the coming year and considered any new plans that might be available. It might be tempting to just let your current plan auto-renew, but that's never in your best interest.

Unless you work for an employer who only offers one health plan, you likely have choices to make each year, regardless of whether you get your health plan from an employer, from the government, or purchase it on your own. Things like premiums, provider networks, drug formularies, and out-of-pocket costs all need to be considered when you're choosing a plan, and they can all change from one year to the next.

10 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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  2. Kaiser Family Foundation. 2022 Employer Health Benefits Survey.

  3. Medicaid.gov. Medicaid, Children's Health Insurance Program, & Basic Health Program Eligibility Levels.

  4. Treasury Department, Internal Revenue Service. Affordability of Employer Coverage for Family Members of Employees. October 2022.

  5. Garfield, R.; Orgera, K.; Damico, A. The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid. Kaiser Family Foundation. January 21, 2021.

  6. Norris, Louise. healthinsurance.org. South Dakota and the ACA's Medicaid Expansion. November 9, 2022.

  7. Norris, Louise. healthinsurance.org. How can I choose the best health insurance for me? November 1, 2021.

  8. Internal Revenue Service. Revenue Procedure 2022-24.

  9. HealthCare.gov Glossary. Out-of-Pocket Maximum/Limit.

  10. Kaiser Family Foundation. Total Medicaid MCO Enrollment. 2020.

Additional Reading

By Michael Bihari, MD
Michael Bihari, MD, is a board-certified pediatrician, health educator, and medical writer, and president emeritus of the Community Health Center of Cape Cod.