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 immediate family. Insurance helps to protect you from high health care costs, especially those related to chronic medical conditions or the need for hospitalization.

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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 a woman 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 as an employee benefit (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 or work for a small company that does not provide health insurance, you will need to buy it on your own. You can get it through the health insurance exchange in your state, or directly from an insurance company, but 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 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 little or no income, you may qualify for health insurance provided by the government, such as Medicare or Medicaid. Children, and in some states, pregnant women, 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.

There are some exceptions to that, however. Some are a result of design flaws in the ACA, including the family glitch and the fact that premium subsidies are capped at 400% of the poverty level, resulting in unaffordable coverage for some people with income just a little over that limit. But some are a result of regulations, court decisions, and resistance to the ACA, including the Medicaid coverage gap that exists in 13 states that have refused to accept federal funding to expand Medicaid (note that two of those states, Oklahoma and Missouri, will expand Medicaid in mid-2021, thus eliminating their coverage gaps). 

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 one of several employer health plan options or buying your own health insurance.

Do your homework before you buy 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 among several health insurance plans. Most often, these plans include some type of managed care plan, 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 doctor 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 doctor 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. 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 doctor 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. 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 2021, the maximum allowable HSA contribution amounts (including employer contributions) is $3,600 if you have self-only coverage under an HSA-qualified plan, and $7,200 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). If you contribute the maximum amount, and depending on your income level, this 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, 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 who may be able to help you find health insurance that fits your needs.

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 doctor's 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 doctors or hospitals outside of the PPO's network? Note that in many areas, there are no PPO plans available in the individual 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 $8,550 for a single individual in 2021, 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 doctor 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 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.

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, 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.

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Article Sources
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