Every year during my friends and family’s company open enrollment periods, I will get a couple of questions about the offerings that they have to choose from. This is because I am in the health insurance field and can help interpret some of the jargon contained within the summary of benefits. It seems fairly basic to me when looking through it, but that is probably because I deal with it every day. But when I step back and think of it from an outside person’s perspective, it can be pretty confusing. That is pretty scary when you consider the potential financial and emotional impact that can occur from a wrong choice.
The choice is even more daunting if your employer doesn’t offer coverage and you must search for an individual policy. The premiums are much higher, so it is important to understand your own risk tolerance and not get more than you need depending on your health and age. Here is some vocabulary and tips when reviewing your health insurance options. I will keep the definitions in simplest terms in trying to make them easier to understand.
HMO – stands for health maintenance organization. This is the most standard coverage. Patients only have coverage with in network providers and no coverage for non-participating providers (unless it is an emergency). HMO’s traditionally required a primary care physician (PCP) to be selected and to be referred to specialist. This requirement has gone away in many instances, so you’ll want to make sure you understand the PCP requirement on your plan.
PPO – stands for preferred provider organization. This coverage has in network and out of network coverage. The coverage for in network is better than for out of network. One thing to know about a PPO, the deductible for in network and out of network is separate from each other. For example, if you meet your in network deductible and then see and out of network specialist, you are still liable for the out of network deductible.
POS – stands for point of service plan. These products are pretty rare today and were meant to be a hybrid between an HMO and PPO. Once the PCP requirement started to go away on HMO’s, POS’s behaved no differently than a PPO and are generally not useful.
Consumer Driven Products (Flexible Spending)
FSA – stands for flexible spending account. This is money that can be set aside pre-tax for use in medical payments or child care. In its simplest form, you can benefit from a flexible spending account by accurately estimating your yearly out-of-pocket medical expenses and electing to set that amount aside via a FSA. Because it is pre-tax, you will, essentially, pay less for out-of-pocket items and eligible expenses. Be careful about how much you set aside because you can lose that money if you run out of eligible items to spend it on.
HRA –stands for health reimbursement account. This is money contributed by your employer. It can be used to pay for out-of-pocket expenses. A certain amount of this money will roll over year over year, so it is not the same “use it or lose it” scenario as the FSA.
HSA – stands for health savings account. This is pre-tax money that you contribute like the FSA and it rolls over like the HRA.
Out of Pocket Expenses
Copay – amount you owe at the time of a doctor’s visit. In most cases, if you have a copay, that means the visit will not be subject to a deductible, however, this is not always true. Check the summary of benefits to understand how your plan works.
Deductible – the amount you owe before benefits kick in. As mentioned above, in most cases standard doctor visits will go to a copay and the rest will be paid by the insurance. Any other type of service will go right to the deductible if you have one.
Coinsurance – After the deductible is met, you may also have coinsurance. This is a percentage split between you and the insurance. It is pretty standard to see 20% or 30% member responsibility.
Putting It All Together
Your options will be a combination of these elements above. Generally speaking, a HMO is the most expensive option but provides the most coverage. People with families, especially if the children are young choose this because of the frequent doctor’s appointments that they will have. PPO’s have less of a premium but have more member responsibility. So if the coverage is for someone who does not go to the doctor much and is healthy, this might be the way to go.
How You Choose Wisely
1. Determine your planned appointments for the year and compare your out-of-pocket expense for each.
2. Figure out how much annual savings in premium you will have with the lesser plan.
3. From there, based on your risk tolerance, you must decide if the potential premium savings is worth the gamble of having a higher out-of-pocket expense if a medical issue occurs.
4. If your employer offers it, seriously consider a HRA, HSA, or FSA to mitigate out-of-pocket costs.
Again, it is all about risk tolerance, but I consistently choose a high deductible PPO with an HRA account. Because I am healthy, I was able to go without services so that the amount in my HRA was as much as my deductible so if anything catastrophic happened, I had money available to cover the deductible and then the coinsurance kicks in. My new employer only offers a HMO. They pay for a lot of the premiums, so it works out to be similar, but otherwise, I would always go with the lesser option until I have children. At that point, I will look at the at-risk dollars if a medical issue would arise.
Ways to Save Money
1. Check into discount programs your policy has. Many sponsor gym memberships and other health living activities.
2. If you take a prescription medication regularly, look into using the insurance’s mail order program. The copays can be cheaper.
3. Look into 3 month supplies of prescriptions. The copay can sometimes be cheaper.
4. If possible, seriously consider generic drugs.
5. Check if your employer offers healthy living discounts on premiums.
Check out eHealthInsurance for some real examples of health insurance offerings. The site gives information on individual and family policies available outside of an employer. With the exchanges coming up, many more people may be comparing in this way.
Do you feel comfortable selecting the right health insurance coverage? What is your risk tolerance when considering the coverage that is right for you?