Guide to health insurance

By Roshan Pourghasemi

In this article we’ll cover:

  • Common healthcare terms

  • Health Maintenance Organizations (HMO) vs. Preferred Provider Organizations (PPO)

  • How to choose a deductible

  • Picking a health insurance plan

  • Anatomy of a Health Insurance

Due to ever increasing costs of medical expenses, getting health insurance for you and your family should be a top priority. Picking the wrong insurance, however, can become an extremely costly mistake in the long run. It is important to understand what plans are available to you and how each of them work, so you can pick the insurance that best fits your needs.

Common Terms

The following are some important terms when talking about health insurance. Some may be used during the rest of this article and understanding these terms will help you decide what coverage you need:

  • Allowed Amount - the highest amount the insurance will pay for a service.

  • Benefit Period - the period services are covered under your plan. It is often one calendar year.

  • Coinsurance - the amount you have to pay with a claim. Typically, there is a max coinsurance amount for a benefit period.

  • Deductible - the amount you pay for your services before your provider begins paying. For example, if you have an annual deductible of $2,000, your provider will only cover costs after you’ve paid $2,000 toward your health services.

  • Copay - the amount you pay a healthcare provider at the time you receive services. If you haven’t reached your deductible yet, your copay will be the entire allowed amount.

  • Premium - the amount you pay your provider to keep your coverage. Typically, payments are monthly.

For a more extensive glossary, please follow this link.

Health Maintenance Organizations (HMO) vs. Preferred Provider Organizations (PPO)

There are lots of decisions to make when deciding which healthcare plan is best for you, and one of the first is deciding what type of plan works best for you.

Health Maintenance Organizations (HMO) have a network of doctors, hospitals, and other healthcare providers who provide their service for a specific payment, which in turn makes HMOs into generally cheaper options. HMOs don’t cover operations with providers not in their network, however, making them much less flexible than their counterparts.

Preferred Provider Organizations (PPO) are similar to HMOs in that they provide a network of healthcare providers for you to use at a certain rate. Unlike HMOs, PPOs will still cover operations even if you seek something from outside their network (in-network will be cheaper, though), which makes them a more flexible plan. In order to allow for this flexibility, PPOs are generally a more expensive option.

EHMO and EPPO are the employer provided versions of the HMO and PPO plan, respectively.

The following is a table of some of the features of each plan:

How to Choose a Deductible

While copays and premiums are both important factors, they are fairly straightforward. Generally, if your copay is higher, then your premiums will be lower, and vice versa. If you anticipate getting healthcare services often, you should elect for a plan with a smaller copay, while, if you anticipate rarely getting health care services, you should elect for a plan with a smaller premium.

Deductibles, on the other hand, are more complicated. At first, it seems counterintuitive to choose a plan with a higher deductible, but, upon further inspection, a high-deductible health plan (HDHP) offers more manageable premiums and some further benefits.

An HDHP is any plan that has a deductible of $1,400 or more for an individual, or $2,700 or more for a family. They typically have higher out-of-pocket maximum limits (including copayments, premiums, coinsurance). As of 2021, the annual out-of-pocket payment can’t exceed $7,000 for individual plans and $14,000 for family plans, excluding out-of-network services. While you’ll have to pay more for your deductible for these plans, you’ll have lower premiums, which is great if you stay healthy and never need to meet your deductible.

The other main benefit of HDHPs are that qualified plans offer a Health Savings Account (HSA) to help manage healthcare costs. HSAs are tax-advantaged plans that you can use to save for medical expenses such as weight-loss programs, dental visits, eye exams, and much more. Contributions are tax deductible and withdrawals are also tax free when used on eligible medical expenses. At age 65, you can withdraw the money for any reason with no tax penalty. You will only have to pay income tax on the withdrawal.

Furthermore, if you are getting your insurance through your employer, HDHPs are cheaper, so they may even contribute to your HSA as part of your coverage. Not all HDHPs offer HSAs, so it is important to make sure when deciding on your choice of insurance.

For lower deductible plans, you will pay less upfront when you get sick, but they also have a larger copay. You also cannot have a HSA if you are on a lower deductible plan. Lower deductible plans make more sense for someone who anticipates needing healthcare services fairly often, as you will have to pay less to finish your deductible and let your insurance take over payments.

If you are young and/or healthy, a HDHP is probably a better choice for you since it allows access to a HSA and you will have a lower monthly premium. If you are at a higher risk for needing healthcare services, however, a plan with a lower deductible is probably the better choice for you. It is also important to factor in your savings and budget. Ask yourself how possible it is for you to meet a higher deductible on the off chance that something happens, or how possible it is for you to meet the higher monthly premium of the low deductible plan.

Picking a Health Insurance Plan

After you’ve decided on your desired copay, premium, and deductible, the next step is to actually find a plan.

When looking for a plan, you can either go directly to health insurance companies like Aetna, Humana, Anthem, etc., or you can go to government websites that may be able to match you with plans. Some other good places to look are with your employer, your spouse, or with your state. It is important to look into each of these avenues, as the more you research, the higher the odds you find a plan that fits your needs.

The Anatomy of a Health Insurance Card

After choosing your plan and enrolling, you will receive a health insurance card soon after. Insurance cards have quick facts about your plan. If you wish to know more extensive details, you should be able to find a longer document with specific information by looking up your plan name. Not all insurance cards will look exactly like this, but they all generally have the same info.

  1. Insurance Company Name - the insurance company name and plan type are in the top header.

  2. Member Name and Number - this will be the name of the person covered under this plan and the number associated with them, which allows insurance providers to quickly identify them.

  3. Group Number - this identifies what group you are part of in your insurance plan and helps identify your benefits.

  4. Effective Date - this is the date of when your coverage began.

  5. Insurance Contact Information - this is the contact information of your insurance company. Call your insurance company if you have any questions like finding in-network providers, finding answers to questions about your benefits, etc.

Key Takeaways

  • The first step in deciding what insurance you want is picking between Health Maintenance Organization (HMO) and Preferred Provider Organizations (PPO) plans.

    • HMO is generally cheaper, but does not offer the flexibility of PPO.

  • Your copay, premium, and deductible are other important factors in deciding which plan to choose. These factors, respectively are: the amount you pay whenever you receive a healthcare service (copay), your monthly payment (premium), and the amount you have to pay before your insurance company begins contributing to your payments (deductible).

  • A high-deductible health plan is what the name implies, but it offers a lower monthly premium and access to a Health Savings Account, a tax-advantaged account for medical services.

  • If you are healthy, a high-deductible health plan may be more beneficial due to the access to a health savings account and lower monthly premium, but, if you are not healthy, a lower deductible plan may be worth the sacrifice of the health savings account and a higher monthly premium.