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Choosing health insurance can be confusing, especially when you compare traditional plans with high deductible health plans (HDHPs). Buying insurance on the open market and comparing employer-sponsored plans taught me that choosing the perfect policy for varying health scenarios is impossible.
Still, I've learned that I can make a reasonable guess on the plan that might work best for my family. Here are some steps I've taken to clarify the pros and cons of health plans available to me:
- Identify crucial numbers that affect my family's overall health expenses (both the costs and incentives associated with various plans)
- Review policy design and features, such as the depth of the provider network or the availability of a vision plan
- Project our expenses based on past use and upcoming events that impact our family's health, such as bringing home a new baby or attaining a milestone age (and getting milestone-related health screenings)
- Decide on our anticipated satisfaction with the plan based on intangibles such as the inclusion of our family physician in the provider network
To help with decision making, I've created a spreadsheet in Google Sheets (available here). Keep reading to learn about the numbers and qualities to consider examining when choosing health insurance.
Evaluate the cost structure of the health insurance policy
Start with considering the key numbers influencing health care expenses. Examining what's required in terms of payments — both the minimum in the best-case scenario (involving payment of premiums only), and the maximum, worst-case scenario (in which we max out our out-of-pocket expenses) — has helped me in choosing a health plan that meshes with our budget.
Here are the main costs to consider:
- Monthly premium. The insurance premium is the monthly payment for insurance coverage. We'll pay this bill whether we're perfectly healthy and see a physician yearly or have a chronic illness and visit weekly.
- Co-pay. The co-pay is the flat amount we'll pay whenever we visit a physician or other health care provider. This number may vary, depending on whether we're visiting our primary care provider, a specialist (which may include physical therapy or mental health services), an urgent care facility, or the emergency room.Typically, we'll take care of the co-pay at the time of service. However, there are circumstances that deviate from this general rule. For example, we may not owe a co-pay for covered preventive care when we visit an in-network primary care physician.A policy may also have a co-pay schedule applicable to prescription drugs.The co-pay is a component of cost sharing between our family and our insurance company.
- Deductible. The deductible is the threshold we need to reach before our insurance company will pay or reimburse us for health care expenses.A policy may have multiple deductibles: one for each person, a combined family deductible, and possibly in-network and out-of-network deductibles. Note that monthly premiums are not included in the costs that accrue to reach the deductible.After we meet the deductible, a portion of our health expenses are paid by the plan according to a pre-established formula. In some cases, such as preventive care visits, our expenses are paid in full by the insurance company regardless of whether or not we've reached the deductible.
- Co-insurance. Generally, co-insurance is calculated as a percentage of a medical bill that our insurance company pays, leaving us to cover the remaining amount. For example, our insurance company may pay 70% of covered charges and require us to pay the remaining 30%.Along with the co-pay, co-insurance is a cost-sharing mechanism designed to encourage consumers to play a role in managing health care costs.
- Out-of-pocket (OOP) maximum. The OOP maximum is the most we have to pay in one year for health care expenses, not including our premiums. Typically, we'll have an OOP maximum relating to in-network services and another for out-of-network services.The annual out-of-pocket maximum is regulated for in-network services. For 2016, the max is $6,850 for individuals and $13,700 for families.
- Lifetime and other maximums. Our insurance company can limit its maximum payout for certain health care services over our lifetime or a designated time period, such as one year.For example, I once had a health policy with a maximum lifetime payout of $3 million. Statements from the insurance company listed its reimbursements along with my remaining lifetime balance. After I received $500 in benefits, the insurance company lowered my payout balance to $2,999,500 in coverage for the rest of my life.Notably, the Affordable Care Act (ACA) largely did away with these lifetime maximum benefits. According to Healthcare.gov, insurance policies can no longer carry a lifetime maximum for essential health benefits. However, two types of plans are allowed to define the types of essential benefits they cover: 1) grandfathered plans (ones in place before the Affordable Care Act); and 2) health care plans of large companies that self-insure (which is fairly common among large employers).So, an insurance company may place dollar or time limits on certain types of services in a certain year or over our lifetime. For example, the number of physical therapy visits may be limited.
- Allowed amounts, customary charges, etc. Insurance companies often restrict the amount they'll pay for certain procedures, types of visits, etc. This number may be called the allowed amount, customary charge, or eligible expense.Sometimes, the rate the insurance company negotiates with its roster of health care providers (aka in-network providers) mirrors the customary charge. From my perspective as a consumer, I may see a write-off of charges above this allowed amount or I may have to foot the bill for charges above the usual fee.
All of these numbers are relevant but the most critical that I have considered are: 1) monthly premiums, which represents the minimum we'll pay for health care and 2) the OOP maximum, which is the most we'll pay as long as we use in-network providers.
Consider the impact of employer and government incentives
Whether we've had a company-sponsored health plan or a private one, I've considered all costs and benefits. These have included:
- Wellness incentives. Incentives are one-time bonuses or ongoing discounts given to employees who take certain actions or achieve certain goals. For example, my husband may get an extra hundred dollars in his paycheck or a lower rate on monthly premiums for taking a smoking cessation class, showing improvement in certain health measures, or scoring within a desired range on screening tests.
- Employer contributions. An employer may contribute to all employees' health savings accounts (HSAs) or health care reimbursement accounts (HRAs), partially offsetting health care expenses.
- Tax benefits of HSA/FSA contributions. There are tax benefits to making HSA and FSA contributions, which I've considered when calculating the true cost of a health plan. If comparing a HDHP with a more traditional plan, for example, I've counted the tax benefit related to HSA contributions. From this benefit, I've subtracted expenses associated with managing the HSA as these tend to be significant.
- Tax credits and discounts. Buying health insurance through the Healthcare.gov marketplace may make you eligible for tax credits on monthly premiums or discounts on out-of-pocket charges.
When analyzing policies, I've identified what incentives or price breaks might be available to lower my cost on any or all health care plans.
Examine plan features that impact satisfaction and cost
When scrutinizing a plan and perhaps comparing two or more plans, my tendency has been to focus on costs. But there are factors that not only affect our happiness with a plan but also indirectly impact our expenses. These may include:
- Provider networks. These specify providers within the insurance company's network of primary care physicians, specialists, therapists, urgent care facilities, hospitals, etc. offering favorable rates.By sticking with these insiders, our co-insurance percentage is generally less compared to out-of-network charges. In addition, it's easier to reach (lower) in-network deductibles than higher out-of-network ones.Networks may be extremely limited, like with a health-maintenance organization that employs its own physicians, or generous in its reach, including the majority of physicians and facilities within our area. I've examined the list of providers in our network to determine whether a certain plan is suitable for our family.
- Formulary. A plan should have a formulary or list of covered prescriptions for which we receive a discounted price. The plan may have basic and specialty lists with tiered pricing, similar to the varying co-pays associated with various types of providers.
- Preventive care coverage. Most health plans should cover preventive care at no extra charge. Generally, preventive care covers an annual visit to our in-network primary care physician for health screenings such as cholesterol testing and blood pressure checks.To learn what is typically covered, visit Healthcare.gov to see a list of benefits.
- Essential health benefits and more. Healthcare.gov describes essential health benefits that are included in all of its marketplace plans. These include regular doctor's visits, emergency medical services, lab work, mental health services, and rehabilitative therapy.In addition to the essentials, health plans may also offer dental and vision care as well as specialty services such as weight loss programs or chronic disease management. I've reviewed our plans to judge whether they cover the types of medical services we anticipate accessing in the coming year.
- Referrals, pre-authorizations, etc. A plan may require referrals, pre-authorizations, pre-certifications, etc. before covering health care bills. As best as I could, I've tried to determine the complexity of the processes and the likelihood of following procedures to ensure bills are paid. In addition, I've affirmed the availability of a primary care physician who can make appropriate referrals.
Health care can be a major expense for many families, costing more than mortgage payments in some cases. Surgery for a family member coupled with a high deductible health policy (HDHP), for example, could devour thousands of dollars. Yes, we could pay as much as $15,000 yearly or as little as $3,000 depending on the insurance plan and health needs.
When examining plans, I've paid close attention to details. After gathering relevant information, I've compared health plans available through employers and other sources; I haven't looked at choices from the Healthcare.gov marketplace but would consider these if our workplace plan wasn't acceptable. To give you an idea of what I like to consider, here are elements I've examined in this spreadsheet.
Following this careful evaluation process has helped me to understand our choices and spend health care dollars as wisely as possible.
Updated July 7, 2016