Health insurance is an important and sometimes confusing purchase for you and your family.
The first step in understanding health insurance is knowing where to get coverage, figuring out the different types of plans, seeing what's covered and defining the industry terms.
Once you have that information, you can compare health insurance plans and make an informed decision about the right health plan for you.
Where do you get health insurance?
Most Americans receive health insurance through their employer. Your job pays a portion of the plan, so it's usually more affordable to get health insurance through your job than going through the individual market. Premiums are also usually fairly stable when you get insurance through your job. In recent years, single coverage premiums have increased 3% annually. Family coverage has seen rate increases of about 5% each year.
You can also get insurance through the individual insurance market. The Affordable Care Act (ACA) created insurance exchanges to help people who want or need an individual or family plan, but don't have an employer-based option. You can buy an individual plan directly through the insurance company or you can get it through the exchanges.
These plans are usually more expensive than workplace health insurance. Kaiser Family Foundation said that the average premiums is $1,242 for single coverage in an employer-based plan. That's much more affordable to the average in the individual market (more than $5,000). You can be eligible for tax breaks and reduced premiums and out-of-pocket costs if your income is 400% of the federal poverty level or less and you have an ACA plan. In that case, an ACA plan might be more affordable. Otherwise, an employer-sponsored health plan is usually more affordable.
ACA/individual plans are divided into four types:
The differences are based on premium and out-of-pocket costs. Bronze plans have the highest out-of-pocket costs when you need care and the lowest premiums. Platinum has the lowest out-of-pocket costs, but higher premiums. So, you'll pay more upfront via premiums in a Platinum than a Bronze plan.
A good way to look at it is the higher premiums, the lower you'll have to spend on out-of-pocket costs during the year. If you want to find out more about these plans and individual insurance, check out "how to buy an individual health insurance plan" for more information.
Other common types of insurance sources are Medicare, Medicaid, and the Children's Health Insurance Plans (CHIP). These are all provided either through the federal government or a federal-state partnership.
What coverage is provided in every health insurance plan?
As part of the ACA, all health insurance plans must cover "essential health benefits." These covered benefits include:
- Outpatient care
- Emergency care
- Pregnancy and newborn care
- Mental health and substance abuse services
- Prescription drugs
- Rehabilitation services
- Lab tests
- Preventive and wellness services
- Dental and vision care for children
Essential health benefits provide a coverage baseline for all plans. However, there are still many variations of health insurance plans depending on plan type, deductibles, copays, out-of-pocket costs and provider networks. You can find out the specifics about each plan offered by reviewing the Summary of Benefits and Coverage on each plan's website. Your employer or the ACA marketplace should also provide side-by-side comparisons of available plans.
What is open enrollment?
Open enrollment is the time of year when you can sign up for health insurance or change your plan. Open enrollment varies by company, so if you get insurance through your job, you will want to check with your human resources department or benefits person for the dates.
Open enrollment for ACA plans goes from Nov. 1-Dec. 15, 2019 for 2020 health plans in most states.
Some states that operate their own exchanges have extended open enrollment dates:
- California – Oct. 15, 2019 to Jan. 15, 2020
- Colorado – Nov. 1, 2019 to Jan. 15, 2020
- D.C. – Nov. 1 , 2019 to Jan. 31, 2020
- Massachusetts – Nov. 1, 2019 to Jan. 23, 2020
- Minnesota – Nov. 1, 2019 to Dec. 23, 2020
- New York – Nov. 1, 2019 to Jan. 31, 2020
- Rhode Island – Nov. 1, 2019 to Dec. 31, 2019
During open enrollment for these plans, you can either keep the same plan or switch to another type. If you want an individual plan, go to HealthCare.gov, which will take you through the process of getting or changing your ACA health insurance plan.
For those eligible for Medicare, your open enrollment period is Oct. 15-Dec. 7, 2019. You're able to keep the same coverage, change Medicare Advantage or Part D prescription drug plans, switch Medicare Advantage plans, and swap from Medicare to a Medicare Advantage plan during open enrollment.
If you miss your plan's open enrollment period, you won't be allowed to change your plan unless you qualify for a special enrollment. Special enrollment-eligible events include if you get divorced, married, have a child, adopt a child, your spouse dies, your spouse loses a job or if you are in an HMO and you move outside its coverage area.
Also, note, Americans who qualify for Medicaid or CHIP can enroll at any time of the year. There is no limited open enrollment period for those plans.
Health insurance terms to know
When deciding on the right health plan, it's important to know the terms related to health insurance costs:
- Premiums -- What you pay to have insurance.
- Out-of-pocket costs -- What you have to pay when you get healthcare services.
- Copayment -- What you pay each time you visit a provider. Visits to primary care providers (PCPs) usually cost less than specialists.
- Deductible -- The annual amount you'll have to pay out-of-pocket for your medical expenses before the insurance company begins to pay claims.
- Coinsurance -- The percentage of medical costs you'll have to pay after you reach your deductible. Your insurer will pick up its own percentage.
Knowing these terms will help you balance the different plan offerings.
Types of health insurance plans
There are multiple different types of health insurance plans that vary depending on the copays, out-of-pocket costs, deductibles and which physicians take the plans.
The most common type of health plan is preferred provider organization (PPO) plans. Let's take a look at the three most common types of health insurance plans and the potential benefits and drawbacks of each. Knowing about each plan will help you as you compare health insurance plans.
Nearly half of Americans enrolled in employer-based health insurance plans have a PPO. The biggest benefit of a PPO is that you don't have to get referrals from your PCP to see a specialist. Also, PPO provider networks are usually larger, so you have more doctor options.
PPOs allow you to receive both in-network and out-of-network care. However, out-of-network care might cost more.
The downside of PPOs is that premiums are often much more than other plans. In fact, they could be as much as double the cost of premiums for a health maintenance organization (HMO) or high-deductible health plan (HDHP).
Why you would want a PPO: You want flexibility and don't want to get a referral to see a specialist. Plus, you want the ability to get care out-of-network even if it costs more.
Why you might NOT want a PPO: You don't want to pay high premiums, and you don't mind the added step of getting referrals from your PCP. Also, a larger network of providers isn't important to you.
High-deductible health plans have become the second most utilized health insurance plan as employers and insurance companies look for ways to contain healthcare costs. About one-third of Americans with an employer-based health insurance plan have an HDHP.
HDHPs have low premiums, but you pay more when you use health care.
As you may expect by the name, HDHPs have high deductibles. The IRS defines an HDHP as a health plan with a deductible of at least $1,400 for an individual and $2,800 for a family. Many HDHP deductibles exceed $3,000, which means you would need to pay that amount of out-of-pocket when you seek care before the insurer starts helping you pay for services.
These plans usually feature a health savings account (HSA), which is a pre-tax account to pay for qualified medical expenses. Many employers also chip in funding for HSAs. HSAs belong to you so you can take it with you when you leave an employer.
Why you would want an HDHP: You want low premiums and don't expect to need health services often.
Why you might NOT want an HDHP: You don't want to get stuck with a large medical bill because you haven't reached your deductible yet.
HMOs have low premiums and might not have have deductibles. In recent years, employers and insurers have increased HMO deductibles, so they're often similar to PPO's deductibles.
HMOs have a more limited network of providers, and you must get referrals from your PCP to see a specialist. You must stay in-network for care. If you get care outside of your network, you will pay for the care on your own unless it's an emergency.
The big trade-off for HMOs is that you're giving up flexibility for lower premiums and costs. Make sure your PCP and specialists accept the HMO plan before signing up. Not all providers take an HMO plan.
Why you would want an HMO: You want low premiums and don't want to pay high out-of-pockets costs for care.
Why you might NOT want an HMO: You want more flexibility to see specialists, get care out-of-network and don't want to get referrals from your PCP.
Those are the three most common kinds of health insurance plans. To find out about other types or to read more about the ones above, go to Guide to Health Plans.
How do you pick the right health plan for you?
The right health insurance plan depends on many factors, including your financial situation and health status. When comparing health insurance plans, you should review the past few years of your healthcare services, as well as the healthcare provided to your spouse and family.
Then, think ahead to the next year. Think about you and your family's health situation, healthcare use, prescription drugs and whether you have expendable income to pay out-of-pocket costs.
Here are a few questions that can help you:
- Would I rather pay high premiums or potentially higher out-of-pocket costs?
- Can I afford a high deductible?
- Would I rather a limited network of providers or be able to get my healthcare from more physicians?
- Are my healthcare providers part of the plan's provider network?
- Do I mind getting a referral from my doctor?
Once you answer those questions, you will have a good idea of what type of health insurance plan is best for you. Health insurance is one of your most important purchases so make sure you put in the time to compare health insurance plans, so you can make the right choice.