Health Insurance

About 6 minutes
 
Health insurance. It’s something we all should have, but unfortunately, the details of how it works can get a little complicated. Not to worry! That’s why we’re here. We’ll help you understand the basics so you can be sure to find a plan that makes sense for you.
 

But I’m healthy, do I really need it?

Good question. But yes.
 
Living a healthy lifestyle is certainly your first line of defense. However, health insurance is really more about protecting your finances from the big, expensive events we don’t plan for, like major accidents or extended time in the hospital.
 
And sure, most of the time it won’t seem particularly useful (which is a good thing). But when you need it, you really need, and it can make a world of difference.
 
Similar to other types of insurance, with health insurance, you make periodic premium payments upfront, and your insurance provider will cover future expenses, typically with some form of cost sharing (you pay some, they pay some). If you have health insurance through work, your employer may pay your premiums directly.
 
We should also mention that everyone is technically required by U.S. law to have health insurance or pay an annual penalty. But regardless of the law, it’s a good idea to have it.
 

How to get it

There are three basic ways to get life insurance; through your employer, through a healthcare exchange, or by buying private insurance.
 

Through your employer

If your employer offers health insurance, that’s usually a great place to start.
 
Employers who offer health plans will often pay a portion of the cost or will negotiate lower rates. So your workplace plan will likely be less expensive than non-work alternatives. If you aren’t sure what’s offered, check with someone in human resources. (Keep in mind, you may have a few options to choose from).
 

Buying through an exchange

If you don’t have insurance through an employer, that’s alright too.
 
You can now buy government regulated health plans through health insurance exchanges, which for the most part are online marketplaces that allow you to compare plans that are eligible for subsidies, or discounts, based on your income.
 
Some states have their own exchange, and some don’t, but if your’s doesn’t, you can go to the federal exchange instead. If you want to see what’s available, you can get started at HealthCare.gov.
 

Buying private insurance

You can also buy private insurance directly from an insurer (and not go through an online exchange). This won’t be eligible for subsidies, so you’ll have to pay full price on your premiums. However you’ll typically have more variety in plans.
 

Types of plans

Health insurance plans can vary significantly in terms of cost and coverage, so you’ll want to shop around. Be sure to consider your specific needs as you compare different plans and providers.
 
If you’re shopping through a healthcare exchange, it should provide a summary of benefits and costs for each plan to help you understand your different choices.
 
If you get your insurance through your employer, someone in human resources should be able to help figure out what plans are offered.
 
As you compare different plans, there are two main categories most fall under;

 
1) HMOs (Health Maintenance Organization) : HMO plans tend to be a more affordable option (lower premiums and other out-of-pocket costs) but also tend to offer less flexibility in terms of which doctors you can see. They typically require you to see doctors that work within a pre-specified network, and won’t cover out-of-network visits, unless it’s an emergency. You’ll also need to get a referral from your primary care physician before you can visit a specialist.

 
2) PPOs (Preferred Provider Organization) : PPO plans on the other hand tend to have higher out-of-pocket costs than HMOs but also offer more flexibility in return. You don’t need a referral to see specialists, and you don’t need to stay within your network to be covered by insurance, although in-network visits will usually be less expensive than out-of-network ones.

 
In addition to HMOs and PPOs there’s also EPO (Exclusive Provider Organization) plans and POS (Point of Service) plans, which combine features of HMOs and PPOs.
 
EPO plans are similar to HMOs in that they don’t cover out-of-network visits, however they don’t require referrals from a primary care physician to see a specialist (similar to a PPO). With POS plans, you can go out of network with a referral, but you do need to designate a primary care physician and get referrals for in-network visits.
 
You can read more about these at HealthCare.gov
 

Coverage networks

Before choosing a plan, you’ll want to review the coverage network. As we’ve mentioned, some plans, like HMOs and EPOs, won’t cover costs outside of your network unless it’s an emergency, and while PPOs will offer some coverage, it will typically be more expensive when you visit a doctor outside of your network.
 
So if there are certain doctors or hospitals you want to go to, make sure they’re part of the network you choose. You’ll also want to make sure the network offers enough coverage in your area. Some cover a wider range than others.
 

Out-of-pocket costs

Similar to other types of insurance, with health insurance, there’s usually a direct link between the cost of your premiums and what you’ll have to pay out-of-pocket for health care, particularly your deductible.
 

For the most part, lower premiums means you’ll have a higher deductible and other out-of-pocket costs. And the opposite is true too – plans with higher premiums tend to have lower deductibles and other out-of-pocket costs.

 
So you’ll want to think about your specific situation and whether or not saving money on premiums will be worth the higher deductible when the time comes.
 
If you’re relatively healthy and visit the doctor infrequently, it can actually make sense to choose a higher deductible plan. On the other hand, if you need regular care, take expensive medicines, are anticipating a surgery or are expecting to need more frequent care in the near future, a plan with higher premiums and lower out-of-pocket-costs might make more sense.
 
And remember, you’ll want to have enough money in your emergency fund to cover deductible payments and other out-of-pocket expenses.
 

How it works

Let’s see how health insurance works with an example. If you need a refresher on the terminology, take a look at Insurance Basics.
 
Okay, let’s suppose you do have health insurance, and then you face a medical emergency that ends up costing $50,000. Yes, it’s a lot of money, but it can happen.
 
Let’s say your deductible is $5,000, so this means you’re on the hook for the first $5,000 before your insurance kicks in. This should come out of your emergency fund.
 
So what happens to the other $45,000? This will depend on your coinsurance and out-of-pocket-maximum.
 
Suppose you have 20% coinsurance, meaning you’re responsible for covering 20% of the cost beyond your deductible and your insurance provider will cover the other 80%. So for every dollar beyond your $5,000 deductible, you’ll owe 20 cents and your insurance provider will owe 80 cents.
 
However, the total amount you’ll have to pay is limited by your annual out-of-pocket-maximum, after which point, your insurance provider will cover the rest. Let’s say your out-of-pocket maximum is $7,000.
 
So in the end, you’ll owe $5,000 for the deductible, plus 20% of the additional cost, up until you hit a total of $7,000. That’s the most you’ll have to pay for the year. With a $50,000 bill, you’ll end up paying $7,000 and your insurance provider will pay $43,000.
 
When you’re comparing plans, the various costs should be clearly explained in the summary of benefits.
 

Health Savings Accounts

If you have a High Deductible Health Plan (HDHP) (as defined by the government), you can qualify for something called a Health Savings Account, or HSA, to help cover your out-of-pocket costs. It allows you to contribute part of your pre-tax income, similar to how your would for a 401(k), and then use the money to pay for certain qualified medical expenses, like deductibles and coinsurance.
 
There’s a limit to how much money you can contribute annually to your HSA, but your balance will roll over from one year to the next, and you can even invest it in stocks, bonds, and funds.
 
Some health insurance providers offer HSAs, but you can also set one up with a financial institution. We can help if you want to learn more about setting up an HSA, or you can read more about them at HealthCare.gov.

 
So now that you are officially health insurance expert, we can talk about life insurance next.
 
 

Key Take-Aways

1) Without health insurance, medical costs can get out of control and lead to serious money financial problems.

2) Health insurance plans vary in cost and coverage, so you’ll want to choose one that’s right for your needs.

3) If you don’t have a health plan through work, you can compare competing plans and purchase insurance through a government exchange.

4) Your coverage will be impacted by your plan and your coverage network. PPOs tend to be more flexible with respect to doctor choice than HMOs, but also tend to cost more.

5) There’s typically a trade-off between premiums and deductibles. Plans with lower premiums tend to have higher deductibles and plans with higher premiums tend to have lower deductibles.

 

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