How to Choose the Best Healthcare Plan in 5 Easy Steps
Understatement alert: The health insurance marketplace can be extremely confusing to navigate, and calling your dad around open enrollment time to help you narrow down your choices doesn’t always help. He can tell you what he thinks is best, but when it comes to insurance, the best plan is the one that meets your unique financial, lifestyle, health, and family needs.
Which means that in the end, only you can make this decision. Fortunately, the below simple, five-step guide can help you sort through the most confusing stuff.
1. Do your due diligence
Your work begins even before you start shopping for a plan. First, review last year’s spending to estimate this year’s healthcare needs. (For example, if you had a deductible last year, did you hit it?)
Then, note any medical expenses you expect to incur in the coming year (the birth of a child, for example) to weigh risks and rewards of different plans. Next, check that your go-to doctors take any new insurance you’re considering — either by calling their offices or using your potential provider’s “find a physician” tool.
2. Know your HMO from your PPO
It’s time to finally understand what these acronyms stand for. A Health Maintenance Organization (HMO) plan, in most cases, requires you to use in-network facilities and doctors (other than in emergency cases). With HMO plans, you also usually have a primary care physician (PCP) who might need to issue a referral for you to see a specialist like a dermatologist.
HMOs often come with lower premiums (the cost of the plan) and deductibles (the amount you must pay for healthcare services before the plan kicks in). These can be good for the guy who’s looking for something affordable and doesn’t mind sticking to a set supply of doctors.
On the other hand, “If you’re someone who wants an unfettered choice of providers and you don’t want to have to go through a gatekeeper or approval process to see a provider of choice, an HMO is likely not for you,” says Sabrina Corlette, J.D., a research professor at the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute.
In that case, Preferred Provider Organization (PPO) plans usually don’t require you to have a PCP or get a referral to see a specialist. You also have more out-of-network benefits, meaning the selection of doctors you can choose from for coverage is often greater.
Put succinctly, PPOs offer more choice for a higher cost, says Corlette. If you have the funds and are flexible in terms of which doctors you can see, a PPO could be a good option.
3. Consider the high-premium plan
A plan with a high monthly premium and a low deductible can be attractive because once you’ve hit your deductible, you’re covered. With higher premiums comes lower out-of-pocket risks, says Amanda Starc, Ph.D., a professor who studies health economics at Northwestern’s Kellogg School of Management.
If you need care somewhat often — say you have asthma and you regularly see doctors and pick up prescriptions for it — a low-deductible plan might be better for you. “Otherwise, Corlette says, high premiums aren’t really worth it if you won’t see the doctor often enough to meet your deductible.
4. Consider the high-deductible plan
However, there are some scenarios where a high deductible plan, which features low monthly premiums, might be worth it. “If you can absorb those shocks [of meeting a much higher deductible], these plans are often priced in a favorable way,” says Starc.
Choosing a health insurance plan, to some extent, comes down to your risk tolerance. Say you have a high-deductible plan and you’re otherwise healthy, but have an unexpected medical event: You’re at risk for paying out that deductible. If you can afford to cover your deductible up front or within 30 days of getting the bill for that unexpected event, and you know you probably won’t visit the doctor much otherwise, this kind of plan could be good for you. Ultimately, Corlette says, the decision is personal.
5. Look into a health savings account (HSA)
HSAs are bank accounts often available through high-deductible health insurance plans. (Most plans with a deductible of at least $1,350 for an individual or $2,700 for a family offer the option of an HSA.) You can also open one through some banks.
You can put money into an HSA and withdraw it tax-free for any qualifying healthcare service (think: deductible, copays, coinsurance, and prescriptions), and you can contribute $3,500 per person and $7,000 per family a year. Both you and your employer can contribute to an HSA.
The best part: You don’t have to count the money as income. The problem, says Corlette, is most people don’t have the disposable income to contribute to one. But if you do and you’re not liquidity constrained, it’s an option worth considering, as it’s tax-free money and can be seen as a tax shelter of sorts, she says.
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