There is nothing more important than your Health. Most individuals would agree with this statement. But medical care can be extremely expensive without health insurance. This can cause you some serious financial headaches. Yet many do not consider health insurance a necessity. This is especially true with younger people.

When you are young and healthy, you can sometimes feel invincible. Nothing can happen to you! But unfortunately, injury as well as illnesses can come out of nowhere. Besides that, preventative treatments are also very important to maintaining your current good health. If you have a family, you will generally purchase coverage for them as well.

Fortunately, many of us have insurance through an employer. These types of “group” plans allow for lower premiums which are usually at least partly subsidized by the employer. Not to mention that your share comes out of your paycheck on a pretax basis. This means that you get a tax deduction for your portion of the insurance premiums as well. Otherwise, it can be tough to get a tax benefit for medical expenses given the 10% adjusted gross income threshold.

Be Informed So You Can Make The Right Decisions

But if you don’t have health insurance through an employer, you must purchase a policy on your own. It can get complicated with the different types of insurance, coverage, deductibles, etc. But even with workplace insurance you may have to make decisions as to what type of coverage you want. Your employer may offer an option between a high deductible or low deductible plan, for example.

Policies can vary as to what medical treatments are covered. Differences also exist as to how much of each type of treatment a plan may cover. Co-payments and deductibles can be found in just about any type of plan. But they can vary from one policy to the next. In order to get the best coverage for yourself and your family, you must know some of the basics.

Managed Care

With the aim of reducing healthcare costs, health insurance companies contract with physicians, hospitals, and other healthcare providers. The physicians agree to accept the insurance plan and to charge reduced rates in exchange for the potential for more customers by being part of the “network.” The most common types of managed care plans are the HMO and PPO.

Health Maintenance Organizations (HMOs)

These types of health plans are generally the least expensive. Any deductibles are relatively low. However, they also provide the least flexibility as to which health care providers you can use. HMOs are networks of health care providers established by insurers. You will be covered for care provided by “in-network” doctors or hospitals. If you see someone outside of the HMO network other than in an emergency, the insurer will generally not cover your bill. In addition to general coverage, these plans also stress prevention. As such, most routine and preventative treatments are fully covered.

The specific medical treatments covered by each plan may vary. There is also virtually no paperwork required on your part with HMOs. The healthcare providers file the claims with the insurance company. You will also need referrals from your primary care physician to see specialists within the network. If you can find health care providers that you are happy with and who are part of an HMO network, such a plan may be a good fit.

Preferred Provider Organizations (PPOs)

These types of plans also consist of an established network of healthcare providers. But they provide more flexibility than HMOs. You have a cost incentive to use the “in-network” providers. However, you may also choose an “out-of-network” provider as well. Services from doctors or hospitals outside of the network will generally not be fully covered. Another plus with a PPO is that you don’t need referrals to see a specialist. In exchange for this flexibility, the monthly premiums are also therefore higher, as are the deductibles and total out-of-pocket costs. If you require the flexibility and can afford this type of plan, a PPO may be for you. Coverage under a PPO through an employer may be even better.

Fee-For-Service (FFS)

FFS is not as popular anymore with the advent of managed care plans such HMOs and PPOs. You may not even find one available in your state to purchase individually. And most employers now offer managed care plans. However, this was the traditional type of health insurance coverage. It also provides the greatest flexibility in terms of choosing your own health care providers. You also choose which services you want to purchase.

The insurance company either pays all or a portion of your medical bill, depending on your coverage. They can either pay the health provider directly, or reimburse you. However, these types of plans are also the most expensive. There is no contract with the insurer to provide lower rates. They have the highest premiums and out-of-pocket expenses. FFS plans also may require you to fill out more paperwork for certain claims, and may not cover fully some routine or preventative medical treatments.

Deductibles

As with other types of insurance, deductibles serve to lower the cost of insurance by transfering part of the risk to the insured. A deductible represents the amount you must pay before the insurance company does. So lets say you have a deductible of $800 and your first medical bill of the year is $900. The insurer will only pay $100 after you pay your deductible.

Deductibles are generally annual and exist for each individual under the policy. Once each individual pays their deductible for the year, subsequent bills are fully covered. High deductible health insurance policies may allow you to contribute to a Health Savings Account (HSA). Your premiums will also be lower with a higher deductible.

The amount of the deductible you choose will depend on how much risk you are willing to take. If everyone covered under your plan is relatively healthy, you may choose a higher deductible. But don’t choose one so high that you won’t be able to afford it if the unexpected occurs. Alternatively, if someone under your policy has a condition which requires frequent medical treatment, a low deductible may be best.

Health Savings Account (HSA)

A high deductible health insurance plan may allow you to contribute to an HSA. An HSA is a tax advantaged plan which allows you to save for medical expenses on a tax advantaged basis.  Withdrawals are tax free as long as they are used to pay qualifying medical expenses. Any earnings within an HSA accumulate on a tax-free basis. An HSA can be created via your employer, with contributions coming out of your paycheck on a pretax basis. Alternatively, you can open an account yourself at most financial institutions. You can claim a tax deduction for contributions to an HSA. There are limits as to how much you can contribute. Click here for more information on HSAs.

Copayments and Coinsurance

Copayments also transfer some of the risk to the insured. They essentially represent a fixed amount of each healthcare service bill which you are required to pay. For example, you may have a copay of $20 for each doctor visit.

Coinsurance represents a percentage of each medical bill which you are required to pay after your deductible has been paid. For example, a 20% coinsurance means that your insurer will pay 80% of the bill, and you will pay the rest.

Copays and coinsurance are usually paid throughout the year until your “maximum out-of-pocket limit” is reached. After this point, the insurance company pays for everything until the “maximum benefit” amount, if any, is met.

Out-of-Pocket Maximum

The out-of-pocket maximum represents the limit that you would pay in an entire year for medical costs. This includes deductibles, copays, and coinsurance. The insurance company is responsible for 100% of your treatments for the rest of the year once the annual out-of-pocket maximum is met. Premiums and services not covered are not included in computing the out-of-pocket maximum.

Penalty for Not Having Health Insurance Coverage

Another incentive for carrying health insurance coverage is to avoid a penalty. The passage of the Affordable Care Act (ACA) instituted a penalty for those who do not have health insurance coverage. The penalty is computed on your annual income tax return. There are some exceptions which may allow you to avoid paying it. Click here for more information on the ACA penalty.

Pre-existing Conditions

As part of the ACA, a new law went into effect as of 2014 which helps those with pre-existing conditions. Insurance companies can no longer deny coverage or charge more due to a pre-existing medical condition.

Continuation of Coverage if You Leave Your Employer

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to continue their health coverage for a period of time after leaving their employer. The cost of extended coverage after termination will generally be higher since the employer will no longer subsidize any of the premium.

This law applies to all group health plans provided by private employers of 20 or more employees, and by state or local governments.  Some states have their own laws similar to COBRA which allow for continuation of coverage for plans under private employers with less than 20 employees.

You can qualify for coverage under COBRA if you are terminated from employment for a reason other than gross misconduct, or if you lose coverage due to a reduction in hour worked. In such cases, you will likely be eligible for coverage for another 18 months.

However, if you became eligible for Medicare less than 18 months before losing coverage, you can qualify for continued coverage for up to 36 months after the Medicare eligibility.

Your dependents and spouse can also become eligible for COBRA insurance if you become eligible for Medicare, due to a divorce, or death of the covered employee.

Keep in mind that coverage under COBRA may not be the best option. If you are married and your spouse works, it may be less expensive to obtain health insurance through your spouse’s employer.

Conclusion

With some of the basics under your belt, you should be more confident in analyzing different insurance options. A fully or partially subsidized group health policy via an employer or other organization is ideal. But sometimes you have to purchase an individual policy for yourself and your family. Either way, the proper coverage will allow you access to any needed medical treatment without breaking the bank.

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