Congratulations! By clicking on this article, you’ve taken the first step toward decoding the enigma that is health insurance (we'll take it from here). While it may seem mind-numbingly boring, health insurance is a modern necessity. And having a solid understanding of your basic options can ultimately save you loads of time, money, and heartache (or any ache).
Essentially the purpose of health insurance is to help offset the potentially high cost of medical care. Many people get insurance through their employer, but it can also be purchased at HealthCare.gov. Before we dive into the major plan options, here are a few key terms you'll need to know:
- Premium: This is the amount you’ll pay for health insurance (typically every month), regardless of whether you see a doc. In 2015, the average monthly premium (sans employer contribution) was $256. Premiums can range from $0 to upwards of $500, depending on what you elect and what your employer contributes.
- Deductible: This is the amount you pay for services until your health insurance takes over. As of 2015, the government defined a high-deductible health plan (HDHP) as anything more than $1,300.
- In-network: This term refers to providers who have a contract with your insurance company.
- Out-of-network: Providers who do not have a contract with your insurance company (more on why this matters later).
Your employer will likely present you with a few plan options at varying price points, and you'll pick the one that best meets your needs. The four most common types are PPO, EPO, POS, and HMO. WTF do these acronyms actually mean? Let's break them down:
1. Preferred Provider Organization (PPO)
Some people like to have it both ways. So do PPOs. These plans allow you to go in- or out-of-network. While your savings will always be greatest in-network, you'll still receive some coverage (so you're not paying the full cost out of pocket) if you pick an out-of-network doctor. Go ahead, be a free spirit.
A few things you should know:
- PPOs are known for typically having higher monthly premiums and lower deductibles.
- You don't need a referral to see a specialist.
- If you're planning to start a family within the next year, or you like to live dangerously and may incur unforeseen medical expenses, PPOs will allow you to see your favorite doctor—regardless of network—and still receive some coverage.
2. Exclusive Provider Organization (EPO)
"Exclusive" is the keyword here. And no, we’re not talking velvet ropes and chauffeured cars. It means you receive benefits exclusively from in-network providers. Go out-of-network and pay 100 percent of the cost out-of-pocket. Other helpful details:
- EPOs are typically known for having higher deductibles and lower monthly premiums.
- You don't need a referral to see a specialist.
- Size matters—we're talking about network here! If you’ve got a long list of in-network docs, you may never need to go out-of-network. But if your network is on the smaller side (or you already have a doc you love), consider how often you may want to branch out.
3. Health Maintenance Organization (HMO)
With an HMO, you'll need to designate a primary care provider (PCP) and run everything through that person before you see a specialist. (Heads up, ladies: Your OBGYN can qualify as your PCP under most plans). Other things to consider:
- While HMOs tend to have lower premiums and deductibles, you're limited to your network of docs. Head out-of-network and get zero coverage.
- Whereas some other plans cover percentages, HMOs keep the math a little more straightforward. You pay a set price for just about every service.
- It's called "health maintenance," but you might want to think "low-maintenance." Since you have to run everything through your PCP and stay in-network, these might not be the best plans for someone who needs to see several different doctors. As one expert put it, you’re trading convenience and coverage for lower upfront cost.
4. Point-of-Service (POS)
Mix a little of this, a little of that, and what do you get? A POS plan! More specifically...
- You can go in- or out-of-network (like a PPO), but you need to designate a primary care provider (like an HMO). That primary care provider is considered your "point of service." In other words, you need to run everything through him/her before you see a specialist.
- If you head out-of-network, you’ll still likely pay most of the cost yourself (around 80 percent on some plans)—with one exception: if your PCP picked an out-of-network doc. Then your plan picks up the tab (score!).
I Never See Doctors. Why Do I Even Need Health Insurance?
Well, because it’s the law. But another thing: preventative care. If you’re a healthy 21-year-old, you might be utilizing services like annual screenings, vaccines, physicals, and wellness visits. And those are all covered 100 percent under any plan—even the ones with cheap premiums.
Just be mindful that most plans won’t cover vision, dental, orthopedics, some alternative medicines, infertility treatments, or anything cosmetic.
For cash-strapped millennials, a PPO often seems like the best option (gotta love those low deductibles). But one thing a healthy singleton shouldn’t rule out is a plan with a high deductible and low monthly premium. Despite the sticker shock of a $1,000+ deductible, if you only see a doc twice a year, that number won't really affect you. And you’ll save on that monthly premium, so you can put your money toward other expenses.
But What if I’m Not Employed Full-Time?
If you’re a freelancer or your employer does not provide health insurance, you’ll buy it for yourself at HealthCare.gov. There are four different tiers—Bronze, Silver, Gold, and Platinum—and as you probably guessed, they increase by level of coverage and monthly cost. The fifth tier, Catastrophic coverage, is only available to those under age 30 or who meet special hardship exemptions.
Premium, Deductible... Any Other Costs to Consider?
Everyone is responsible for copays, fixed amounts you'll pay for covered health care services (usually at the time of service). This includes things like doctor visits, prescription drugs, and X-rays.
If that seems like a lot of money, don't worry. You might be able to stop paying for certain services eventually.
Plans come with a maximum out-of-pocket cost—the highest amount you’ll be expected to pay during a policy period (usually one year). After you reach that maximum, through deductibles, copays, and coinsurance, your insurance company will pay for 100 percent of your medical care. For individuals shopping at HealthCare.gov in 2015, that maximum amount was $6,600.
One Last Thing...
You may have the option of opening a special health expense account. Not sure you want to bother keeping track of yet another account? Then don't! But consider that these bad boys are tax-exempt, and you can generally use them to cover some health-related expenses—from copays and contact lenses to your plan deductible and prescription drugs. Here are the three main types.
Health Savings Account (HSA)
- This type of account is only available to those with a high-deductible health plan (HDHP). Remember, for 2015, any health insurance plan with a deductible over $1,300 qualified as an HDHP.
- You or your employer can open one. The coolest part about this account is that the money is yours. You’ll pick an amount from each paycheck to contribute (pre-tax), and keep that money year after year.
- Another advantage: The account is yours even when you leave that job.
- Also good to know: You can’t contribute more than $3,350 each year.
Flexible Spending Account (FSA)
- This type of account is opened by your employer and only available through job-based plans.
- Use it or lose it. Each year you have to use up all the of the money in your account, or you lose it. Your employer may offer one of two exceptions: You may be able to rollover $500 from your account each year, or you may get a grace period of 2.5 months to spend whatever’s left in your account. Check with your company to see what’s available.
- You can’t take it with you. If you leave your company, you leave behind the account and whatever’s in it.
- Oh, and there’s a yearly contribution limit on this one too: $2,550.
Health Reimbursement Account (HRA)
- This account is entirely funded by your employer (at no cost to you!) and generally accompanies a high-deductible health plan.
- The keyword here is reimbursement. You spend the money first, and once the medical expense is approved, you're reimbursed by your employer via this account.
- Your money rolls over year-to-year and it’s yours—as long as you remain at the company. Once you leave, that money goes back to them.