By Eric Rosenberg, WCI Contributor

It doesn’t matter if you’re working for a large hospital, your own private practice, or anywhere in between, choosing the right health insurance plan is an essential step in keeping yourself and your family healthy without spending an arm and a leg on medical bills yourself.

Even if you’ve mastered the medical provider side of health insurance, it’s essential to sit down and spend the time to understand your health plan options, the costs involved, and which health insurance option makes the most sense for you. Here’s a guide to the key details of picking a health insurance plan from your employer.

 

Types of Health Insurance Plans

Before picking specific insurance plans, you’ll have to pick the category of plan you want. The type of insurance plan has a significant impact on your choice of doctors and other healthcare providers, as well as how you’re charged for medical services provided to members of your household.

 

Health Maintenance Organization (HMO)

An HMO health insurance plan is where your doctors work for the insurance company or where the insurer has very specific contracts with a somewhat limited list of providers. An HMO may come with lower costs, but you’ll also have fewer choices when picking care providers.

 

Preferred Provider Options (PPO)

With a PPO, your insurer contracts with a list of hospitals and doctors where you can go for discounted care, or you can go to any out-of-network provider for a higher fee. With a PPO, you pay a bit more for the freedom to choose from a larger pool of doctors.

 

Exclusive Provider Organization (EPO)

EPO health plans are similar to PPOs, but you only get coverage when working with in-network providers. The features of an EPO insurance policy are like a hybrid of an HMO and PPO plan.

 

Point of Service Plan (POS)

Despite a similarity with another crass acronym shortened to POS, this health plan works more like a PPO but with certain restrictions. Members of a POS plan pay less when going to in-network doctors. Visiting a specialist requires a referral from your primary care doctor.

 

The ‘Metal' Categories: Bronze, Silver, Gold, & Platinum

The Affordable Care Act introduced health plan tiers known as “metal” categories. Bronze, silver, gold, and platinum tier health plans correlate to paying gradually higher monthly premium costs for higher levels of coverage.

insurance metal categories

 

Which Insurance Level Is Right for You?

Personal finance is personal, so your family’s insurance needs may differ from friends, relatives, and colleagues. Consider your health and financial situation when choosing health insurance coverage.

Bronze plans are generally best for healthy people who are financially secure and only need coverage for catastrophic injury or illness and an occasional trip to the doctor. Platinum plans are often best for those with high recurring annual medical costs, which can overcome the cost of the higher premiums. If you hit your out-of-pocket maximum each year, it makes sense to ensure that maximum is as low as possible.

Look at your plan options to weigh out the best balance of cost, coverage, choice, and convenience so you can make an informed choice on the best insurance for your needs.

 

High Deductible Health Plan (HDHP)

A high deductible health plan is a plan with a higher deductible than more traditional policies. This leads to a lower monthly premium but higher costs when you need care.

 

What Is a High Deductible Health Plan and How Does It Work?

If your employer offers HDHP coverage, it may be worth considering. You may find your monthly out-of-pocket costs to be low enough that it makes up for higher prices when you visit the doctor or get tests. There are some unique tax benefits to an HDHP as well (more on that below).

To qualify as an HDHP, plans must meet the following criteria, which change annually with inflation.

hdhp requirements

 

High Deductible Health Plan Pros and Cons

Pros

  • Lower Monthly Costs: The biggest draw to an HDHP is lower monthly premiums, which are the only guaranteed expense for health insurance.
  • Health Savings Account Eligibility: If you have an HDHP, you’re eligible for a health savings account (HSA), a unique account with exceptional tax benefits.

Cons

  • High Deductible: As the name implies, these accounts come with a high deductible. This means you’ll pay quite a bit before insurance benefits begin.
  • High Out-of-Pocket Costs: You could end up paying many thousands of dollars per year, depending on your healthcare needs, even after meeting your high deductible.

Note that occasionally a HDHP actually costs MORE than a non-HDHP from the same employer! Lower premiums for better coverage is a no-brainer, even if you lose access to a Health Savings Account (HSA). First choose the plan that is right for you and your family, and then if that plan is an HDHP, be sure you use the associated HSA.

 

Who Should Consider a High Deductible Health Care Plan?

HDHP plans are suitable for people who are reasonably healthy and who can save for long-term healthcare costs. The HSA benefit can’t be overstated, as it gives you the option to contribute to the account and withdraw tax-free.

 

Out-of-Pocket Costs: Copays vs. Deductible

Aside from the recurring monthly premium, you should plan on deductibles and copays when you actually need care. These are significant numbers to know, as they dictate what you’ll pay when visiting a healthcare provider. This is particularly important when budgeting for an early retirement—you should make sure you have enough retirement income to pay the premiums and the maximum out-of-pocket amount every year between your retirement date and age 65 when you become eligible for Medicare.

 

What Is a Health Insurance Deductible?

A deductible is how much you have to pay for covered healthcare services before your insurance policy starts contributing to costs. For example, if you have a $1,000 deductible, you would pay $1,000 toward doctor, hospital, and other medical care before getting benefits from your insurance plan. Once you reach your deductible, the insurance company generally pays a percentage of costs.

 

What Are Copays and Coinsurance?

Copays and coinsurance are fees and costs related to receiving care with an insurance policy. A copay is a fixed amount you pay for specific types of care. For example, you could have a $40 copayment for visiting your primary care doctor and an $80 copay for seeing a specialist.

Coinsurance is a percentage you pay for covered medical care after meeting your deductible. Let’s say you’re already past your deductible and have 20% coinsurance. If you need a $100 procedure, you would pay $20 and your insurer would cover the remaining $80.

health insurance plan

 

Out-of-Pocket Maximums

The out-of-pocket maximum is the limit you would pay for healthcare, in addition to premiums, over an insurance calendar year. Your insurance company will bear all remaining costs once you pay this amount to covered medical care providers.

Note that out-of-network providers and specific medical care may not be covered by your plan or insurer.

 

How to Estimate Your Yearly Total Costs

One of the best ways to estimate your yearly healthcare costs, which can guide your choice in a health insurance plan, is to look at what you spent on care last year, plus or minus any planned procedures. The most conservative way, of course, is to add the cost of premiums to the maximum out-of-pocket amount.

Your total cost at the end of the year includes premiums, deductibles, out-of-pocket costs, and copays or coinsurance. If you use a budgeting app, you may be able to find and tally these numbers quickly.

 

Flexible Spending Account (FSA)

A Flexible Spending Account (FSA) is a type of account that allows you to save for eligible healthcare costs with pre-tax dollars.

 

What Is a Flexible Spending Account and How Does It Work?

One of the best aspects of an FSA is that you don’t pay any taxes on contributions to the account, which are often deducted directly from your paycheck. That means you can pay for some medical expenses before you have to pay taxes on your earned money. The biggest downside to an FSA is that if you don’t use your balance, you may lose all or a portion of it at the end of the year.

 

Benefits of Flexible Spending Account

  • Pre-Tax Contributions: You don’t have to pay income taxes on qualified contributions, which can lead to significant savings depending on your income and contribution selections.
  • Pay for Large Expenses over a Year: If you’re planning on a considerable cost—for example, laser eye surgery—you can save throughout the year, even if the payment is made on a specific date.
  • Includes Over-the-Counter Needs: FSA funds can be used for doctors, hospitals, testing, prescription medication, medical equipment, and over-the-counter medications, among other covered uses.

 

Should I Enroll in an FSA?

If you have an FSA available and you can’t enroll in an HSA (more on those below), an FSA may be a good decision. Just be aware of account limits and the potential to lose unused funds. If you participate in an HSA account, you can’t use an FSA, with very limited exceptions.

 

Health Savings Account (HSA) 

An HSA is arguably the best type of investment account in existence. These accounts give you tax-free contributions and withdrawals, something you can’t find from retirement accounts or other tax-advantaged investment and savings accounts. There is a catch, though. You have to be enrolled in a high deductible health insurance plan to be eligible for an HSA.

 

What Is a Health Savings Plan?

A health savings plan is a savings and investment account where you can save for future medical costs without paying taxes. Funds can be kept in an eligible savings or investment account and it can grow without paying any capital gains taxes, as long as you withdraw funds for covered purposes.

Part of the trick of an HSA is delaying reimbursing yourself for medical expenses. There’s no rule saying you have to pay for the $1,000 medical bill from your HSA this year. You can wait a year, or decades, before taking that money out (as long as you effectively keep records of your medical expenses from years past). This gives your funds plenty of time to simmer and grow in the markets before you withdraw in retirement or any other future date you choose.

 

HSA Account Benefits

  • Tax-Free Contributions and Withdrawals: As long as you follow HSA rules, you can contribute and withdraw without paying any taxes.
  • Can Grow with Savings and Investments: You can put your balance in a savings or investment account to earn interest and other gains.
  • Deferred Reimbursements: There’s no expiration date on HSA funds, and you can reimburse yourself at any future date after incurring a medical expense. Even if you no longer have an HDHP plan and no longer contribute to an HSA, the funds that remain in the account still can be used for medical expenses.

 

Should I Sign Up for an HSA Account?

If you have access to an HSA account, it’s probably a good idea to sign up and participate. As with other financial decisions, it’s ultimately up to you to weigh your financial situation, ability to save, and projected costs when picking an account and deciding if and how much to invest. But remember that you have to have a high deductible savings account to be eligible for an HSA account.

 

Flexible Spending Account vs. HSA

Because you usually can’t use both in the same year, you may have to choose between an FSA and HSA. Due to the tax advantages and long-term potential of an HSA, health savings accounts are usually more favorable than flexible spending accounts. However, there are always exceptions, so look at your finances and healthcare needs when deciding how to save for future medical expenses. If a high deductible health insurance plan doesn't work for you, an FSA might be the right answer.

Note that there is an exception for some FSAs. You can use both an HSA and an FSA in the same year so long as the FSA is a “limited purpose” FSA, i.e. one that just pays for dental and/or vision benefits but not medical or prescriptions. You can also have both accounts if you have two separate employers each offering one of the accounts. Dependent care FSAs are also an exception. These can pay for summer camp, daycare (even for adults), preschool, or before and after school programs.

 

Dental Insurance

Most health plans don’t include your teeth. Dental insurance must be picked and paid for separately. Dental insurance is most often provided by an employer as an employee benefit, but it can be purchased on the open market, just like medical insurance.

 

How Does Dental Insurance Work?

Dental insurance works much like regular health insurance but with a specific focus on dental health. Policies may include or offer discounts for annual exams, teeth cleanings, and any dental procedures you require.

Like other insurance, premiums, deductibles, copays, and coinsurance may apply depending on the policy, your dental provider, and your care needs.

Dental insurance also frequently has a cap on benefits, sometimes as low as just $1,000-$2,000 per year. With these sorts of plans, dental insurance is less like insurance and more like a way to budget for dental care and possibly pay for it with pre-tax dollars.

 

Benefits of Dental Insurance

  • Coverage for Regular Care: Your premium may cover the entire cost of two recommended visits per year, X-rays, cleanings, and other routine dental care.
  • Discounts for Dental Needs: If you have cavities, root canals, and other more extensive conditions, your insurance likely provides a discount.

 

What Are Dental Discount Plans?

Dental discount plans are not insurance. They’re a membership plan where you can save money on dental care in exchange for paying a regular membership fee. While the fee looks a lot like a premium, the dental plan won’t make any payments to help cover your dental costs. You just get access to lower-cost care, which may be sufficient for a typical white coat investor with good teeth and significant savings.

 

Should I Use Employer Dental Insurance or a Dental Discount Plan?

This might sound like a broken record, but again, it depends on your personal needs and finances. Some families decide to self-insure, a term for foregoing dental insurance and paying for all costs out-of-pocket. If you have extensive needs, you are likely better off with traditional dental insurance. If you only need cleanings twice a year, a discount plan or self-insurance could be prudent.

 

Vision Insurance

Just like your teeth, eyes are not included in health coverage, despite being a part of your body’s health. Like dental coverage, vision insurance is often relatively low cost but may not be necessary for some households. While generally provided by employers, it can also be purchased on the open market.

WCICON24 EarlyBird

 

How Does Vision Insurance Work?

Vision coverage typically requires a monthly fee in exchange for coverage that pays for or discounts eye exams, contact lenses, and prescription eyeglasses. If you have perfect vision and no history of eye trouble, you may want to skip vision coverage to save money.

 

Benefits of Vision Insurance

  • Covered Eye Exams: Eye exams may be completely covered or discounted when you go to an in-network provider.
  • Discounted Vision Correction: Contacts, glasses, and even prescription sunglasses may be discounted.

 

How to Choose Your Health Insurance Plan

Now that you know the intricacies of what goes into each kind of health insurance, you’re in the best position to find the right insurance plan for your needs. Even doctors need to go to the doctor from time to time, so it’s important to make a good decision around health insurance.

When you weigh out your plan options, income, savings, and medical needs, you’re ready to pick the right insurance plan for your unique needs.

What do you think? What kind of health insurance plan are you currently using? Have you utilized an FSA before? Are dental and vision insurance worth it? Comment below!