Health Insurance For Dummies
Purchasing healthcare coverage can be one of the most daunting items on anybody’s “to-do” list. But the good news is that understanding your options can make the buying process much more manageable — providing you do your homework. Our series will cover the basics of life insurance, the health insurance marketplace, health insurance, disability coverage, and then finally home & auto insurance. This month we will be focusing on health insurance, including common policy benefits, and comparing the different network coverages.
How Does Health Insurance Work?
Overall, insurance is a risk management process. Risk is managed by buying the insurance policy to protect against a financial loss event. Most policies include a deductible that must be met before benefits are covered to prevent insurance abuse. The policy owner is responsible for the monthly premiums as well as the policy deductible. Better policies will have a lower deductible, so the insurance policy would start providing benefits sooner.
Any claims submitted above the deductible are typically covered via coinsurance or copay benefits detailed below. Coinsurance refers to the cost splitting of claims between the insurance provider and the policy owner. For example, a policy with 20% coinsurance would cover $80 of a $100 bill. The 20% is what the insured is responsible for paying for covered claims above the deductible. A Copay benefit is a flat fee for services. For example, a primary care visit may be a flat $30 regardless of the total cost rather than being covered by the 20% coinsurance benefit. Some policies offer copay or coinsurance benefits before the deductible, but this is not overly common, so it is always a good idea to double-check what benefits are covered before the deductible.
Most policies also include an Out-of-Pocket Maximum. This is the total amount that the insured will pay for covered services. The policy owner is responsible for the monthly premiums, deductible, and out-of-pocket expenses up to the maximum amount. Above this limit, the insurance provider will cover 100% of all covered claims. Much like the deductible, the lower the OOP Max, the better the policy is and the more expensive it will be.
Common Health Insurance Terms
The first type of network we will be summarizing is the HMO network. An HMO, Health Maintenance Organization, is usually more restricted than other network options. As a result, these policies are offered at a lower monthly premium. HMO’s do not provide out-of-network benefits and usually offer fewer in-network options. It’s essential to keep in mind that HMO’s require a referral from the primary care physician before the insured can see a specialist. This referral hurdle is also a reason why these policies tend to be cheaper.
A PPO, Preferred Provider Organization, is usually the most extensive network option available. The in-network options are vast compared to an HMO and these policies offer out-of-network benefits, even though the out-of-network coverage usually contains lesser benefits. This difference in benefits is why you should still focus on seeing an in-network doctor. Also, PPO plans do not require a referral to see a specialist. Because of this, PPO plans cost more than comparable HMO plans.
Lastly, an EPO, Exclusive Provider Organization is a hybrid of the two network options described above. An EPO has in-network benefits like a PPO plan. The network options are usually very broad. However, an EPO does not offer out-of-network benefits similar to an HMO. An EPO typically does not require a referral, similar to a PPO plan.
Understanding the Health Insurance Marketplace
Many individuals and families receive their health insurance through an employer, but that is not always an option. The Health Insurance Marketplace is an excellent place for individuals and families to purchase traditional health insurance coverage. If you qualify for Medicaid, Healthcare.gov will inform you of this and send your information directly to the local Medicaid office. You may also be eligible for premium tax credits, which is federal assistance in the form of reduced policy premiums. This means that depending on your family demographics and household income; you may qualify for traditional insurance at a reduced price if you apply through the Health Insurance Marketplace. There are many plans available through Healthcare.gov, so we recommend meeting with a qualified insurance advisor to discuss your most affordable health insurance options. If you’d like to check out the health insurance marketplace, you can do so here: https://www.healthcare.gov/
Choosing the Best Insurance Coverage
Every individual or every family has different health insurance needs. We always recommend consulting with a health insurance professional when making any important decisions. If the family is very healthy, it may be best to focus on lower benefits and a lower monthly premium, assuming not many claims will occur. If the family is older and unhealthy, then paying more per month may make sense since it should provide better benefits when claims do arise.
Ask an Expert
If you have any questions about taxes, your individual investment portfolio, our 401(k)-recommendation service, or anything else in general, please give our office a call at (586) 226-2100. Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, please give us a call to discuss it. We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.
Zachary A. Bachner, CFP®
with contributions by Robert L. Wink, Kenneth R. Wink, and James D. Wink.