Feeling overwhelmed by PPOs, HMOs, and HSAs? You’re not alone. Navigating health insurance in the U.S. can be complicated. For those who don’t qualify for employer-sponsored benefits, the Affordable Care Act (ACA) marketplace offers more affordable options. Since the U.S. primarily relies on an employer-based system, if you’re a 1099 worker, part-timer, or contractor, you’re essentially in charge of your own coverage.
But at the end of the day, it’s still health insurance. Here are 10 things to know about how health insurance works.
The three terms at the core of any health plan—ACA-compliant included—are the premium, the deductible, and the out-of-pocket costs.
Premium is what you pay each month to have a health plan. Most group plans split this cost with employees. As a non-benefit eligible worker, you bear the entirety. That’s what makes Marketplace health plans attractive: You may be able to split the cost of your plan with the government.
How do you lower your monthly premium costs? When you’re eligible, the ACA’s premium tax credit is one way. Another is to choose a High Deductible Health Plan (HDHP), which you can pair with a Health Savings Account (HSA) to pay eligible medical expenses. Plans that have higher out-of-pocket maximums or plans that don’t cover as high of a percentage of care costs (in the ACA’s metal tiers, Bronze covers least while Platinum the most) are other ways to cut premium costs. The trade-off is for a lower premium, you’ll pay more for your health care costs you use.
Your deductible and out-of-pockets are usage costs. The deductible is how much you pay before your insurance begins to pay. Say your deductible is $5,000. If you need care, the first $5000 is what you will owe.
Out-of-pocket costs are made of several parts: a copayment is your share of the cost for an item or service, like a doctor’s visit. Coinsurance is your share of the care costs once insurance begins to pay. Coinsurance is usually a percentage.
Your out-of-pocket maximum (or limit) is the most you’d have to pay in any given year. After you pay your deductible, copays, and coinsurance, your plan pays 100% of the costs of covered care. Three things to know about out-of-pocket maximums: First, it resets, every year. Second, it doesn’t include your monthly premiums, out-of-network care and services, excess charges (above an allowed amount approved by your plan for a service). And third, it doesn’t cover anything you spend for service that your plan doesn’t include.
Let’s illustrate how this all ties together.
Say you’ve a plan with a $5,000 deductible, a Gold tier plan (where the insurance company pays 80% coinsurance and you pay 20%) and an out-of-pocket max of $9,100. You get hurt in a car accident, need surgery and recovery services.
You pay the first $5,000, your plan pays 80% of the next $4,100 (out-of-pocket max of $9,100 - $5,000 deductible), and then at $9,100 everything is covered for the rest of the year (with the three out-of-pocket points noted above).
These are all ways to pay medical expenses, especially usage costs. Each offers tax advantages.
Flexible Spending Accounts (FSA) and Health Reimbursement Arrangements (HRA) are savings accounts set up by employers for W-2 workers. Self-employed workers are not eligible—although if you have a spouse eligible for one it can be useful to pay your family’s out-of-pocket costs. The downside is FSA money is use-it-or-lose-it each year, and HRAs are where you’d incur and expense and request reimbursement.
Health Savings Accounts (HSA) are very helpful to non-benefit eligible workers. It’s a savings account that lets you set aside pre-tax money (which lowers your taxable income) to pay for qualified medical expenses. It’s paired with a High Deductible Health Plan (HDHP). Withdrawn funds are not taxed and can be used to pay out-of-pocket costs like deductibles, copayments and coinsurance. Unused funds can roll to the next year, and it can be also used as an investment account. Look for “HSA-eligible” plans in the Marketplace.
TIP: HSAs have a unique triple tax benefit: 1) contributions lower your taxable income; 2) investment growth is tax-free; and 3) qualified withdrawals are tax-free.
Every health plan uses a network of providers. If the doctor or clinic you see is important to you, pay attention to a health plan’s network. The key difference is in how large the network is.
Point of Service (POS) plans use certain doctors and hospitals with your care coordinated by a primary care doctor. There are few plans in the Marketplace that are POS.
Preferred Provider Organizations (PPO) give you the flexibility to see providers both in and out of a network, but at varying costs. Care is not restricted to referrals by a primary care provider.
Health Maintenance Organizations (HMO) have stricter networks with less out-of-pocket costs. Typically in an HMO, health care outside of the network isn’t covered and your primary care physician coordinates your care.
In every health plan network, be aware not all providers are doctors.
Physician degrees are Medical Doctor (MD) and Doctor of Osteopathic Medicine (DO). Others who you may see and who can write prescriptions are Physician Assistants (PA) and Nurse Practitioners (NP/FNP/DNP).
Enrollment periods are when you can enroll in a health plan. Open Enrollment for ACA plans starts November 1 and ends in most states January 15. Anyone eligible for an ACA plan can shop for a new plan during this time. A Special Enrollment Period is when you’ve had a life event (had a baby, lost a job, etc.) that allows you to get or change health coverage outside of the Open Enrollment Period. Find out if you qualify for a SEP at healthcare.gov.
Thanks to advances made during the pandemic, the “tele” aspect of health care has soared. Telehealth is using technology to deliver better care (for example, patient monitoring). Telemedicine is used for clinical services, such as when you see a provider online instead of in person.
Online health portal are convenient to use and help manage recurring conditions like migraines, or get lab tests results, or urgent care like coughs and colds. It saves time, which typically saves money, too.
Your health plan stops at the border. Medical emergencies overseas can be very expensive. Most health insurance (even employer and private) offers limited or even NO coverage if you get sick or hurt in a foreign country, including Medicare. When you’re traveling, make sure you add Travel Medical Insurance (covers health needs) and not just Travel Insurance (which only cover trip costs).
A formulary is the list of prescription drugs your health plan will pay for. Usually, it’s a mix of generic and brand-name medication Non-formulary drugs are prescription drugs your plan won’t pay for, or that may come with higher out-of-pocket costs. Medication lists may also split into tiers, such as a Tier 1 where drugs are generic and have lowest costs. Your out-of-pocket costs may increase up the tier list.
Now that you know about health insurance, toss it out the window because vision and dental coverage works nothing like health. These plans pay a set amount each year, however most regular cleanings or checkups are usually covered at 100%. You can add stand-alone vision or dental insurance to any ACA-compliant plan, although some plans may already include this type of coverage.
Understanding how health insurance works might be complicated, but shopping for it doesn’t have to be. Mercer Indigo makes it easy.