Choosing Health Insurance By Financial Expert Beth Kobliner

Cracking the Health Code

The jargon used in the health insurance industry is so confusing, it’s enough to make anyone feel sick. But you need to learn the essential terms, even if you have group coverage through your employer.

Many health insurance policies require you to pay an annual deductible (the average is around $650). Once your medical bills exceed that annual deductible, the insurer will start chipping in, usually paying 70% to 100% of the costs. You’re responsible for the rest. The percentage you pay is what’s often known as the coinsurance rate. (One warning: Annoyingly, some companies call the part the insurer pays “coinsurance,” so if you’re comparing your policy and your spouse’s, for example, make sure you’re comparing apples to apples.) Whichever way you see this term quoted, you want to make sure the insurer picks up most of the bill. After all, that’s what you’re paying for.

In most cases, instead of paying coinsurance you make a copayment, which is a fixed sum of money that’s usually less than $25. For example, you might have to pay $20 per doctor’s office visit or $15 for a prescription drug refill—always, even after you’ve already met the deductible. (Sometimes you’ll have to make a copayment and pay coinsurance, as well as meet a deductible!)

But many policies have a ceiling (usually $2,000 to $4,000) on the total amount you will have to shell out in any given year. This is called the out-of-pocket limit. If your medical bills get truly enormous, you have the comfort of knowing that the insurance company will pay for everything beyond the out-of-pocket limit. However, many insurers have another limit that protects them. It’s a maximum lifetime benefit, which is the total amount they’re obligated to pay over the life of your policy. This tends to be $1 million or higher, an amount that will likely be enough to take care of your needs even if you get seriously ill.

The Basic Types of Health Insurance

There are so many different health insurance plans out there, truly understanding your own plan will take some effort. The truth is, even if two medical plans have the same deductible, co-payment structure, coinsurance rate, and benefit limits, they may be different. Some exclude certain costs while accepting others, are stricter about allowing you to see a specialist, or simply have a different list of participating doctors. The details of your company’s health insurance options will probably vary somewhat from what I’m going to lay out here, but you can use these descriptions to decode anything in your own plan and make an informed choice if your company offers multiple options.

By far the most common health insurance offering these days is known as managed care, which gives you a list of doctors called a network. If you stick with doctors in your network, your costs will be much lower than if you use doctors outside the network. No matter what, know how the process works so you can get properly reimbursed for all out-of-pocket costs the insurance company should cover.

There are three main types of managed care programs. The most restrictive is the health maintenance organization (HMO). In an HMO you usually have to get permission from your primary doctor—your “gatekeeper”—if you want to see a specialist like a dermatologist or ophthalmologist. (Most HMOs, though, allow you to see in-network OB/GYNs without getting a referral.) Also, your choice of physicians is limited to your HMO’s network. If you prefer to see a specialist outside the network, you’ll usually have to foot the whole bill yourself, although most plans will let you apply for reimbursement afterward. The benefit of HMOs is their low cost: Most plans won’t make you pay any deductible, so your total cost per doctor’s visit is usually limited to your $15 or $20 co-payment.

With a newer, more common type of managed care plan, called a preferred provider organization (PPO), you don’t need permission from your primary doctor in order to see a specialist in your network. But this freedom will cost you. Most PPOs require you to pay an out-of-pocket deductible, typically $500 to $600, before your coverage kicks in. (Many PPOs, however, do cover certain basic medical needs—like a routine checkup, an office visit when you’re sick, or prescription drugs—without forcing you to pay your deductible first. You’ll probably have a co-payment of about $20 in this case.) PPOs also offer you the option of seeking treatment outside your network, but it will be more expensive than sticking to the list. Instead of the flat $20 you’d pay for a visit inside the network, you’ll have to pay 30% to 35% of the total cost of your treatment up to an established maximum (usually $2,000). But not all PPOs work this way. In fact, some require you to pick up 20% to 25% of the bill even for in-network doctors. So read carefully all the details your company gives you.

Another managed care plan, a point-of-service (POS) plan, is usually described as a hybrid between an HMO and a PPO. (I know. This is kind of absurd, but bear with me.) With point-of-service plans, you have plenty of options. You can save money by staying within your network and going through your primary care physician when you need special treatment; as with an HMO, you will pay a flat fee of $15 or $20. Or you can go outside the network and pay 30% or 35% coinsurance (up to a preset ceiling of about $2,000), as with a PPO. Either way, like PPO plans, about half of all POS plans require you to pay a deductible (usually $500 or $750), before they start to pay your medical costs.

While most companies have some sort of managed care plan, a few employers offer an old-fashioned type of insurance once known as an indemnity plan but now more frequently called a conventional plan. (Most of your parents or grandparents had this type of health coverage.) Under an indemnity plan, there’s no network and you’re free to go to any doctor or specialist you choose. That freedom may be welcome, but it’s also made these plans so expensive that over the past two decades they’ve become a rarity. Only about 10% of all companies now even offer this type of coverage.

If you’re in an indemnity plan, the rules are pretty simple. Once you meet the annual deductible, the insurer will pay 70% to 100% of your medical expenses. As with managed care plans, out-of-pocket limits put a ceiling on how much money you’ll have to pay for health care in any given year, and maximum lifetime benefits put a ceiling on how much money the insurer will pay over the life of your policy.

If Your Employer Offers Health Insurance

Whether your employer lets you choose your health plan or not,you’ll need to be smart about your coverage. Here are some suggestions:

• Evaluate your managed care options carefully. Some companies allow employees to choose between an HMO and a PPO or POS plan. (They might even offer an indemnity plan.) Though it might be tempting to go with the cheapest plan, there are some serious trade-offs to consider. Depending on which network you sign up for, you may have to wait several days, if not weeks, to see a specialist. You may find that your doctor is less apt to prescribe expensive lab tests than doctors you have visited in the past. As I mentioned earlier, you may have to get permission from your primary physician before you can see a specialist, such as an allergist or a cardiologist. In the case of HMOs, if you want to see an out-of-network physician, you will have to cover all or much of the cost yourself. And in the case of a high-deductible plan, you’ll have to pay at least $1,000 up front before the insurance kicks in at all. That gives you an incentive to avoid going to the doctor, which could cost you (and your health) more in the long run. (For more details on these plans, see the box on the following pages.) If your company offers different plans, speak to a few of your coworkers about their experiences before you make a decision. If you already have a regular doctor, find out if he or she belongs to any of the networks your company offers. If not, ask him or her to join. Finally, with premiums and expenses rising, don’t assume the plan you used last year is still the best choice. Reevaluate annually.
• Know what’s covered by your plan. Some cover everything from prescription drugs to physical therapy sessions to chiropractic adjustments, while others cover a limited range of services. All are required to treat physical and mental health care the same. If you want to know the details, check your insurance company’s website. For about six months on my first job, I didn’t know that all I had to do was show my company insurance card at the drugstore to get my prescription medication for just $5. Not too swift. You’ll also need to understand your plan’s reimbursement policies. Many plans cover 70% to 80% of what they consider “usual, customary, and reasonable” out-of-network charges. If your doctor charges $100 for a checkup but your plan specifies that $60 is the reasonable and customary charge for a doctor in your area, the plan will reimburse you for $48 (80% of $60), leaving you to pay the remaining $52 yourself. If you know this in advance, you can explain the situation to your doctor and ask for a discount. Some doctors are surprisingly flexible.

• See if you can get a higher deductible and pay a lower premium. Some companies have a fixed deductible for all employees. A few base your deductible on your income, while others let you pick from two or more options. No matter how your employer sets your deductible, you should find out if you can raise it to keep your premium costs down. Again, you need to make sure you have enough savings to cover that deductible.
• Ask about waiting periods or exclusions when you start a new job. If you have any chronic medical problems, known in the insurance world as preexisting conditions, find out if your company insurance plan will cover you for these ailments immediately. Some plans will have a delay of up to 12 months, but most HMOs don’t have any waiting period. And if you’re transferring directly from a job where you had health insurance (or coming directly off of your parents’ coverage), any waiting periods probably will not apply to you, thanks to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Department of Labor has created a good overview of how this works; take a look here.
• Find out the cost of covering pregnancy. If you’re considering having a baby within the next couple of years, find out about maternity benefits and pediatric care. Many managed care plans offer attractive deals. There is usually no deductible with an HMO as long as you stay in the network. Every doctor visit, the full cost of delivery, the hospital stay, and well-baby care are almost completely covered. (I know someone who paid just $5 for all her pregnancy care needs!) Because PPOs tend to have a deductible and will make you pay coinsurance on top of that, you’ll probably end up paying quite a bit more. On the flip side, if there are any complications that require specialists or a longer hospital stay, a PPO can get pricey, but you may be glad to have a broader range of specialists to choose from.

What to Look For in an Individual Health Policy

If you don’t have coverage through a group plan, you’ll have to buy insurance on your own. An individual policy is often expensive, but if you know what you’re looking for and you do some research, you can find a decent deal. Your goal is to find coverage that will help you pay for a major medical problem. Policies that cover anything more may be prohibitively expensive, depending on where you live. You may find it necessary to pay for routine medical services with your own money and to rely on your health insurance to protect you only in case of a medical catastrophe.

If you’ve developed an illness or condition that would otherwise make you uninsurable, you’re probably entitled to individual coverage if you had insurance at your last job within the last couple of months. That’s because your right to be insured is protected by HIPAA. The gist: Once you’ve exhausted your 18 months of COBRA coverage, you are entitled to guaranteed-issue individual coverage (GIIC). The premiums for GIIC can be very high, but some states will subsidize them, making them somewhat more affordable. Call or email your state insurance agency for more information.

For a good brochure that spells out your rights, get a copy of the Department of Labor’s publication Your Health Plan and HIPAA . . . Making the Law Work for You.

No matter where you get a policy, make sure it doesn’t offer such skimpy protection that it’s worthless. Try to find a policy that meets these conditions:

• It covers at least 80% of your hospital, surgery, and in-hospital doctor bills once you meet the deductible. Ideally, you’d be able to find a policy that covers 100%, but this type of coverage can be prohibitively expensive. With a policy that covers 80%, you’ll have to pay the remaining 20% out of your own pocket. To avoid getting hit with tremendous medical expenses, look for a policy that caps your annual out-of-pocket costs at around $3,000 (or whatever you can comfortably afford after paying the deductible).
• It has a maximum lifetime benefit of at least $1 million. A lifetime cap is the dollar limit the insurance company will pay over the course of the policy. While a given health condition might not cost that much to treat, remember that you’ll probably need medical treatment more than once during your lifetime. Anything substantially less than $1 million isn’t enough, and if you plan to keep the policy for a while (for example, if you’re more or less permanently self-employed), think hard before settling for less than $2 million.
• It doesn’t have unreasonable exclusions and limits. Some individual policies will not cover preexisting conditions like asthma or recurring knee problems. Others won’t cover these problems for the first year or so of the policy, or they will charge astronomically high premiums.
• It pays for any prescriptions you need. Medicine for a condition like high blood pressure, asthma, or diabetes can be expensive. Even if you’re currently healthy, think twice before signing up for any policy that looks cheap but won’t help you with your ongoing pharmacy bills if you do get sick.

Before You Buy an Individual Health Policy

Depending on your current situation, you may have some alternatives to buying an expensive individual policy. Here are a few to consider:

• A state-run option. A few states have created programs to provide low-cost health insurance to people who otherwise might not be able to afford it. To find out if your state offers such a program, call your state insurance department.
• Your parents’ plan. Several states allow children to be covered until age 26; New Jersey will give you until age 30 (click here for a list) Otherwise, if you’re not in school, chances are your coverage has already stopped. If it hasn’t, there’s a way to extend it. Under federal law, you can continue to receive your parents’ coverage for 18 months if your parents make the request within 60 days after they’re notified that your coverage is about to lapse. You will have to pay for this coverage, but the price will probably be less than the price of a similar policy you could get on your own.
• A group plan. Groups get better deals than individuals. See if there’s a professional association, religious organization, or any other group that will offer you coverage. The Freelancers Union offers group health insurance in New York State and individual plans in thirty other states. If you’re a lawyer, try your local bar association. If you’re a real estate or travel agent, call your local trade association. If you’re an artist, contact a community artists league. If you’re currently doing temp work, look for a temp agency that offers health benefits. (Some agencies offer employees the chance to buy group coverage.)
• Temporary coverage. If you’re out of work but seriously hunting for a job, look into a temporary insurance policy. This type of policy lasts up to a year and can be renewed once; the rules vary from state to state. After twelve months you will hopefully have found a job with health benefits. The advantage of these policies is that they’re cheap. The disadvantage is that you probably won’t be covered for any preexisting conditions. You should also consider a temporary policy if you start a new job and your employer requires you to be with the firm for several months before your health insurance kicks in.

Keep in mind that many insurers will take your medical condition into account when determining your premium, and they might even deny you coverage outright. (The only exceptions: New York, New Jersey, Massachusetts, Maine, and Vermont.) The healthier your lifestyle, the lower your insurance rates will be; for example, quitting smoking can cut your premiums by 10% to 15% a year. (Not to mention save your life.)

How to Find an Affordable Individual Health Policy

Unfortunately, locating a reasonably priced individual health insurance policy isn’t easy. Here are some tips that may help you in your search.

• Search online for quotes. Start shopping for online health insurance quotes at eHealthInsurance, which lets you compare policies from many insurance companies. If you find a policy that’s a good fit, you can then apply right on the site. But before you sign up, visit NetQuote, which can put you in touch with agents affiliated with some of the nation’s largest health insurers. Tell them about the best deal you found online and ask if they can beat it.
• Try Blue Cross and Blue Shield. They’re the largest managed care and indemnity providers in the United States but they don’t accept everyone who applies. You can contact your local Blue Cross and Blue Shield company or visit the website to find out about eligibility requirements and rates.
• Contact your state insurance department. If you have a preexisting condition that makes it difficult for you to get insurance, get in touch with your state insurance department and ask if it sponsors any “high-risk” insurance policies. Most do. If yours doesn’t, ask if it may be able to point you toward a private insurer that does. And even if you’re healthy, check the website of your state’s insurance department to see if you’re eligible for any special deals.
• Ask about special deals for people in good health. Some insurers and HMOs (as well as your state’s insurance department) offer discounts to people who can show they’re in great shape. If that sounds like you, ask the agent whether you can get one.
• As a last resort, consider catastrophic (also known as “high-deductible”) coverage. If you have very little money to spend on health insurance, look into catastrophic coverage. This kind of policy charges low monthly premiums in exchange for very high deductibles (often $2,000 or more) and fairly high out-of-pocket limits. While this kind of coverage won’t pay for routine checkups and sick visits, it will protect you from financial ruin if you develop a major illness or get into a serious accident. And that’s the main thing you need to insure yourself against anyway. If a high-deductible plan is your only option, be sure to open a Health Savings Account at your bank or credit union so you can save up for your medical bills in the most tax-advantaged way.

Before You Leave Your Job, Ask About Your Health Coverage

If you work for an employer with twenty or more employees, in most cases your company must offer you the option of continuing your health coverage for 18 months—whether you’re fired or you quit. (Actually, if you’re fired for doing something truly heinous, like embezzling company funds, you probably won’t be eligible.) Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), your employer must offer you the same health insurance you had as an employee, but you’ll have to pay for the coverage. The law says the employer can charge you 102% of the cost. (If your employer pays $350 a month to cover you, you’ll pay $357 a month, plus whatever share of the premium you were paying beforehand.) Still, this may be less expensive than the rate you would pay for a policy of your own with the same type of coverage. After you’ve signed up for COBRA, you may want to switch to a lower-cost offering from your old company. You can do this during its open enrollment season.

More important, it means there’s no lapse in your coverage. So even if you intend to shop around for a cheaper plan, taking advantage of COBRA for a month or two is a good idea while you make the transition. And even if you worked for a smaller company, you still might be eligible for continued coverage under state law. Check with your employee benefits office for details, or take a look at the Labor Department’s list of frequently asked COBRA questions.

The Health Care Option That’s Great for Your Boss (but Risky for You)

In order to cut costs, some employers have started offering what are called high-deductible health plans, which generally offer low premiums but require you to pay more than $2,000 a year on your own medical bills. At its core, this is just a version of old-fashioned “catastrophic” health insurance that gives you a way to pay the biggest medical bills, but leaves you on your own for everything else. The way it works: You’ll have to pay full price for all your basic health care—generally including visits to the doctor or prescription drugs—until you meet that high deductible. Insurance firms save a huge amount of money because they’re not picking up these frequent, everyday costs, and they pass on some of the savings to your company. That’s why high-deductible plans are enticing to employers.

Should you sign up? For most people, it’s difficult to come up with that $2,000 plus deductible. To help ease the burden if you do choose a high-deductible option, your employer may give you a chunk of money (from several hundred dollars to around $1,000) every year in an account called a Health Reimbursement Arrangement (HRA). You can draw on that money for a wide range of medical costs. Any funds you don’t use will stay there from year to year.

Some employers now offer another type of account, known as a Health Savings Account (HSA). Like an HRA, an HSA provides you with money you can draw on for medical expenses, but with a key difference: With an HSA, you can contribute your own money as well as whatever your employer provides. (As of 2009, the contribution limit was $3,000 for single people and $5,950 for families.)

Even if your employer doesn’t offer an HRA or an HSA, if you opt for one of the high-deductible health plans that meet the government’s requirements you can open an HSA yourself at any bank or credit union and contribute to it every year. HSAs have three tax benefits: Contributions you make are tax-deductible, withdrawals for qualified medical expenses are tax-free, and the interest on these accounts grows tax-free as long as you withdraw the money for a qualified medical expense. You can even tap these accounts for nonmedical purposes, but you’ll have to pay taxes and a 10% fee if you do.

Be sure to study all the plans your employer offers. If you unexpectedly get sick, this system may not be a good choice. But if it’s the only coverage you can afford (or the only one your job offers), take it."Get a Financial Life: Personal Finance In Your Twenties and Thirties," published by Simon & Schuster]