How to Choose a Health Insurance Plan

Choosing a health plan can be daunting. See more drug pictures.
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Choosing the proper health insurance plan is a huge decision for most families. There used to be one type of service (now known as a fee-for-service plan), but since then we've been bombarded by choices. Today, trying to find the best plan for you or your family is enough to make you reach inside your medicine cabinet. You need to know what options are available to you, what each of those options offers and whether or not you can afford them. In this article, we'll look at the two primary issues that most people face when trying to find the right health insurance plan: budget and need.

Keep in mind that there is no one-size-fits-all health insurance plan. To find out what kind of coverage you need, and to avoid paying for what you don't, there are several questions you should carefully consider before you sign on the dotted line. Once you've settled on a plan, it's your responsibility to thoroughly understand it and follow its guidelines. The variety of plans seems endless, so where do you begin to make sense of them all? There are several key factors to consider when purchasing a health care plan -- we'll wade through these factors to help you find out how to choose the best one for you and your family.

Finding the intersection of budget and need can be tough. The needs of a healthy twentysomething are vastly different from the needs of a family of four, which are vastly different from a baby boomer entering retirement. Luckily there are good options for each situation. Every kind of health insurance plan, be it a managed-care or fee-for-service plan, has different ways of handling every different kind of scenario. First, you need to determine what kind of coverage you need and whether or not you can afford it.

Let's take a look at the questions raised by finances. Those of us who are operating under a low financial ceiling need to pay careful attention to where our health care dollars are going. Do you visit the doctor very often? How much of a monthly premium can you afford? Can you meet your deductible in order to get full coverage? If you choose a managed-care plan, how much more will it cost to go out of the provider network? Is there a limit to the amount you'll have to pay and to the amount paid to you by your insurance carrier?

Of course, these financial concerns are made doubly important when you begin to factor in your own health care needs. Are you caring for any dependents? Do you have any pre-existing conditions? How comprehensive do you want your plan to be? Do you need dental and vision plans? Do you have a chronic illness that requires monthly treatment? What are your month-to-month medical expenses, like prescription drugs? What could happen should you require surgery? What if you were injured in an accident? How much preventative care do you want?

­­These are tough questions, but it's never a good idea to bury your head in the sand, especially where health is concerned. With careful consideration of these questions, you and your family will be able to find that health care sweet spot -- where you get the coverage you need at prices you can afford.­

In the next section we'll dissect each of these plans.

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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.

 

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Sources

  • U.S. Department of Health & Human Services. http://www.ahrq.gov
  • National Association of Insurance Commissioners. http://www.naic.org
  • National Committee for Quality Assurance. http://www.ncqa.org
  • Better Business Bureau. http://www.bbb.org