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How to Choose a Health Insurance Plan


Health Insurance Plan Options
Budget and need are the two keys to finding the right health plan for your family.
Budget and need are the two keys to finding the right health plan for your family.
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Health management organizations (HMOs) are essentially low-cost, but low-choice, health plans. You choose a primary care physician (PCP) who coordinates all of your health care needs. Therefore, whenever you need a specialist, you must go to your primary doctor first and get a referral. This can be time-consuming, but one advantage of having a primary doctor is that if you have several health issues, there is one person who can be sure you are pursuing the right type of treatment. Also, you are confined to doctors and hospitals that are included in the HMO network. If you choose to wander outside of the network, none of your expenses will be covered. In these types of plans, your co-pay is usually low, if you have one at all. So, if you have several doctor's appointments each month, this makes good financial sense.

In a preferred provider organization (PPO), health care providers (like doctors and hospitals) have made an agreement with the insurance companies to offer substantially discounted fees. The system has a kind of "you scratch my back and I'll scratch yours" feel to it. The insurer gets a discount from the provider, which theoretically is passed along to you, and in return, the provider gets a much larger group of patients to bill. A PPO does not require you to maintain a PCP, so you can seek care from a specialist without a referral. Also, you can use a provider outside of the network -- but the expenses can be substantially higher.

A point of service plan (POS) combines the formulas used by HMOs and PPOs. Like in an HMO, your PCP must refer you to in-network specialists in order to maintain the lowest expenses possible. When receiving care from a provider within the network, you are responsible for a small co-payment, but you don't have to meet a deductible. It is when you go outside of your network that a POS acts more like a PPO. A POS will allow you to self-refer outside the network. In this scenario, you must first meet the deductible, and then you'll probably have higher ­coinsurance. A PPO offers a strong financial incentive to remain within the network, but does not forbid it the way an HMO would.

Catastrophic insurance is a type of fee-for-service policy that is designed to give protection against, well, a catastrophe. It is sometimes referred to as a High Deductible Health Plan because low monthly premiums, usually around $25, are traded for a significantly higher deductible, usually between $500 and $5,000. This means that with this plan, out-of-pocket expenses like routine doctor's visits and prescription costs are higher, but monthly and annual premium fees are lower. By opting to lower your monthly premiums, you are taking on a greater responsibility for covering your own health care costs.

Fee-for-service plans, or indemnity plans, are what older generations know simply as "health insurance." They are the most traditional, expensive and liberal type of coverage. They work by reimbursing you for around 80 percent of what you pay out of pocket. You pay the bill for services, then your insurance company pays you back. It works out to be the same as paying a 20 percent co-pay, but you are responsible for all of the up-front costs. You can seek any type of care, wherever and whenever you want. Most plans of this sort do have a lifetime maximum to the benefits you'll receive, though. If flexibility and freedom are more important to you than minimizing your out-of-pocket expenses, this plan might be just what you're looking for.­ ­

Finding that equilibrium between budget and need is a delicate balance. Maybe one type of plan would be better for you in the long run but is financially out of reach at the moment. Anticipating health care needs is a great way to extend your own life as well as that of your checking account. What is most important is for you to know what you're getting, and what you're giving up, when you enter into a health insurance policy. There are plenty of options, and one of them is bound to be the right one for you.

To find out more about how to choose a health insurance plan, check out the links on the next page.