A Guide to Choosing a Health Insurance Policy

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A Guide to Choosing a Health Insurance Policy

It's no fun getting sick, having an accident, or landing in the hospital. The last thing you need to worry about is how to pay for everything from doctor's bills to bandages. Fortunately, there is a wide array of health plans out there, from the different healthcare tiers offered by the marketplace to private plans and health savings accounts.

One size doesn't fit all when it comes to healthcare. A person under 30 who rarely darkens the door of a doctor's office may be looking at catastrophic or high-deductible plans. If you want a balance of reasonable fees and some choice of doctors and specialists, you'll prefer a managed care plan. If you meet income guidelines, you might choose a silver plan in the marketplace that includes cost-sharing tax credits.

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It's vital to know how hard each plan will hit your wallet and if it's the best one for your long-term health. Here's a PolicyScout primer on where to buy health insurance, what types there are, and what to expect when it comes to deductibles and copays.

Where to Buy Health Insurance

Most Americans get insurance through their employers—around 49 percent in 2019.  Employers generally pay at least half of the premium cost, a significant benefit. You don't have to stick with your employer plan unless it's part of a union agreement, of course.

You can shop around for a better deal, with these caveats:

  • You can only buy a marketplace plan during open enrollment, generally near the end of the year

  • If your employer offers coverage that meets the standards of the Affordable Care Act (ACA), you might not qualify for a government subsidy on the exchange

  • It can be hard to beat the cost of a sponsored group plan

After employer-sponsored plans, the next largest group in the U.S. gets public insurance through Medicare or Medicaid. If you don't fit into either of these groups, then you'll be looking for coverage through the marketplace or a private insurance plan.

Insurance brokers can help you compare private and marketplace plans and get quotes on premiums. Reputable private plans exist outside of the marketplace.

You might need a private or marketplace plan if:

  • You just turned 26 and can no longer be insured under your parents' plan

  • You're self-employed, work part-time, or work for a small business with no insurance

If you feel stranded in one of these situations, the ACA no longer fines you for not having coverage; however, health insurance is something you can't afford to skip. The average cost of a hospital stay in the U.S. is around $10,000. And accidents are, by nature, unpredictable.

No stress, though—health insurance plans are available for a range of budgets.

Buying Through Insurance Exchanges

A broker can help you sort through the types of health insurance on federal or state marketplaces. You can also buy them directly from the marketplace.

The percentage of health care costs you'll pay for each plan varies—plans into four "metal" groups: bronze, silver, gold, and platinum.

This isn't like the Olympics, though, where the best quality is represented by the most expensive metal. The quality of care remains the same with each plan. It's just your cost share that differs.

  • Bronze insurance pays 60 percent of the total yearly costs of your care, while you pay 40 percent. You pay the lowest premiums with a bronze plan, but higher fees. You do get free preventive care under ACA law.

  • Silver is the "middle of the road" plan that pays 70 percent of costs, while you pay 30 percent. If you meet income guidelines for a cost-sharing tax credit, you must choose a silver plan.

  • Gold is for those who can afford higher premiums and pays 80 percent, while you pay 20 percent.

  • Platinum pays 90 percent, and you pay 10 percent, with the highest premiums. It's best for people who need a lot of care throughout the year.

Types of Managed Care Plans

Many private and marketplace plans are considered managed care plans. These differ widely on how much benefits cost and whether you can choose your own doctor. Use a broker or look into the fine print when selecting a managed care plan. Like Cinderella's ill-fitting slipper, you might be "shoehorned" into a plan that doesn't fit.

Do you want to choose your doctor or be part of a network? Do you want to pick a specialist on your own, or are you content to let your doctor decide? These choices dictate which managed care plan you should pick.

Managed-care plans come in an alphabet soup of acronyms, from HMOs to PPOs to POSs to EPOs. Here's a breakdown of each type:

  1. HMOs (Health Maintenance Organizations) deliver all services through a network of doctors and other providers. You have the lowest amount of choice regarding healthcare providers with an HMO. You're assigned a primary care doctor who manages all of your care and refers you to specialists when needed. HMOs can be cheaper than other plans.

  2. PPOs (Preferred Provider Organizations) give you some choice of providers, but you may pay extra. It's worth it if you want to hand-pick your specialists, for instance. You'll spend less if you use in-network providers, hospitals, and doctors.

  3. EPOs (Exclusive Provider Organizations) restrict you to healthcare providers in the plan's network.

  4. POSs (Point of service plans) allow you to go out-of-network if your primary doctor gives you a referral. Otherwise, you'll pay the most out-of-network costs.

High Deductible vs. Low Deductible Plans

If you're the hearty type who's self-sufficient and seems to manage everything from the flu to small injuries on your own, you can save money with a high-deductible plan. You pay low premiums but won't get coverage until you've met your annual deductible.

One bonus of a high deductible plan is that you can often pair it with a health savings account. When you deposit money into an HSA, you don't have to pay federal income tax even as the account grows.

This allows you to deduct health care costs from the account using pre-tax earnings. Translation: depending on your tax bracket, if you pay $100 for a medical bill, it'll actually only cost you $76.

And many preventive services, from immunizations to routine check-ups, are still covered before you meet your deductible under the ACA.

Scan the Fine Print for Extra Costs

Three things can trip you up financially with high-deductible plans:

  1. Prescription costs are budget-benders. Does your plan cover generic or name-brand drugs or any at all?

  2. Emergency room visits, hospitalizations, rehab, and mental health care are budget breakers. Look carefully at what percentage of these costs are covered so you won't be buried in bills.

  3. High-deductible plans are risky if you're pregnant. The average cost of a vaginal delivery is between $5,000 and $10,000 in most states, while a C-section will run you $7,500 to $14,500. And that's without costly complications.

Low-Deductible Plans

A low deductible plan means you get better coverage but pay higher monthly premiums. You don't have to agonize over how much your health care is going to cost because most of it is covered.

You don't have to skimp on prescriptions or skip doctor visits like people with high-deductible plans often do. That predictability can be very reassuring.

Other reasons people choose low-deductible plans are:

  • You're pregnant

  • You have a chronic illness that needs lots of care

  • You've scheduled a severe surgery like knee reconstruction

  • Your prescription costs are high

  • You or your children enjoy high-risk sports

Catastrophic Health Plans 

Anything with the word "catastrophic" in it doesn't sound like a good thing. But young people feel bulletproof, and for a fairly good reason—those under 30 are often healthy and don't take costly prescriptions. A catastrophic plan is a safety-net for worst-case scenarios like an accident or serious illness.

Deductibles are steep—around $6,000 or more per person—but once met, these plans generally cover the bulk of your healthcare costs. Premiums are low, so you can save for any expenses that do come up.

The ACA does require your plan to pay for preventive care like immunizations and test screenings before you meet your deductible.

You might also have a catastrophic plan because you can't afford better coverage. If that's the case, consider looking into a bronze or silver level ACA plan that's subsidized. Some are even cheaper than a catastrophic plan.

Types of Copays

Insurance plans sometimes have copays. That means you pay part of the bill when you go to a clinic, see a physical therapist, or fill a prescription.

Copays can pop up when you don't expect them or be right out in the open:

  1. A copay can be a fixed fee for care. You can't miss it when the receptionist asks for your check or credit card during the visit.

  2. A copay percentage is easier to overlook in a policy. These plans charge you a percentage of the service cost each time. You may not pay during a doctor's visit, but you'll get the bill later.

  3. An annual deductible is the fixed amount you pay towards your medical care each year. For example, if your deductible is $2,000 per year, you'll need to spend that first before you get insurance coverage.

Healthcare is an ever-changing business, just as your needs change over time. Whichever way the winds blow, you can turn to PolicyScout to find the solution and safeguard your physical and financial health.

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