How to Choose Your Health Insurance Plan

Definitions, tips, and guidelines for evaluating health insurance plans, from HMOs to PPOs, and everything in between

It's that time of year again when many of us renew our employer-sponsored insurance plans.  Some of us spend a lot of time evaluating them each year, reminding ourselves, "now why should we go with that HSA thing?" and many of us just "go default"... what we call SALY (same as last year) without any idea why. Here's a quick reminder on what to evaluate.

Quick refresher on healthcare definitions

Premium

What you pay each month. Usually deducted from your paycheck. Regardless of whether you hit your deductible or when co-insurance kicks in, you will keep paying the premium each month. When you sign up for insurance, you're committing to making these monthly premium payments (or paycheck deductions).

Deductible

(Family / Individual) What you have to pay out of pocket before your co-insurance kicks in. Once you hit that deductible, coinsurance kicks in, and you only pay a percentage (usually a small percentage) of the medical bill. An individual deductible applies when it's just you, and a family deductible applies when you have a family; keep in mind that there are also individual deductibles outside a family deductible.

Co-Insurance

What the insurance company pays is stated as a percentage. If the co-insurance is 80 percent, then your insurance company pays for 80 percent, and you pay the remaining 20 percent of all medical costs AFTER you pay your deductible.  

Co-Pay

What you pay out of pocket for doctor visits. This is usually for office/ER/urgent care visits. The co-pays you pay count toward your deductible (hooray!)

Out of Pocket Max

The most you will pay, excluding monthly premiums, in one year before insurance covers 100 percent of medical costs.

HSA

Health Savings Accounts: Typically, the overall cost is substantially lower than that of PPOs and other plans. The downside is that you have to pay upfront at the start of the year, and cash can be tied up in a health savings account, where you can only access these funds for medical costs. If you are relatively healthy and can afford to tie up some cash for the year, really consider the HSA route. The annual savings can be in the thousands, especially with a family.

Insurance Plans

PPO

Preferred Provider Organization 

HMO

Health Maintenance Organization

EPO

Exclusive Provider Organization

POS

Point of Service Plan

So what's the best plan? Like most things in finance, it depends on your unique situation. Here's how to figure out which plan is right for you.

Your Healthcare Plan Evaluation

Employer-Sponsored Plans

This means insurance that is provided to you and subsidized by your employer. If you don't have employer-sponsored health insurance, you're buying on the open market. 

Know which benefits are generally different in HMOs, PPOs, EPOs, and POSs.

Source: NerdWallet

High Premiums, Low Premiums? 

Some plans have lower premiums but higher out-of-pocket costs, while others have higher premiums but lower ongoing costs. 

High premiums, low out-of-pocket costs

A plan that has higher premiums with lower ongoing costs may make sense if you have consistent medical expenses. These expenses include regular doctor visits, frequent emergency care, expensive or brand-name prescriptions, or if you have/expect to have kids.

Low premiums, higher ongoing costs

A plan that has lower premiums with higher ongoing costs may make sense if you need lower monthly premiums, you are in good health, and rarely see a doctor.​

Coverage

Double-check specific coverage for your needs: Make sure any medication you regularly take and your specific, typical medical needs are covered.

Cost

So which plan "costs the least"? Well, it depends. There are various options for co-pay, co-insurance, and even a "high deductible HSA." To determine the cost of a plan, you'll need to choose the one that provides the coverage you need and is the least expensive in the end.