How to Choose the Best Health Insurance Plan

How to Choose the Best Health Insurance Plan

By Reginald Delaney

Introduction

Choosing the health insurance plan that is best for you and your family can be a daunting task, if you are unfamiliar with health insurance and how it works to protect you in the unfortunate event that you have a significant medical incident occur. In this article, we will explore the key factors that must be considered when choosing a health insurance plan. These considerations will represent the factors that have the biggest impact on your health insurance costs. In general, you will find that your health insurance costs will decrease as your financial risk increases. In other words, the more financial liability you are willing to assume, the lower your monthly insurance costs will be.

Health Insurance Providers and Their Plans

There are many health insurance companies in the market today and each has a myriad of plans to offer potential customers. For instance, Texas has approximately 40 different insurance carriers that account for 83% of the policies in force in Texas. The top 4 companies account for more than 50% of the insurance policies administered. Each of these companies can have well over a hundred different plans that aim to meet the needs of the many different customers that need health insurance. Since there are so many plans available, it is important to know what your needs are so that you can determine the plan that is best suited to meet those needs. It does not benefit you to pay for services that are not important to you, nor do you want to be without coverage for the things that are important to you. For instance, if you or your wife is no longer capable of bearing children, you do not want to have a policy that includes maternity. Maternity coverage can add over $100/month to the cost of your insurance premium. However, if you do plan to have children you want to be sure that you get coverage in time to account for the 12 month waiting period that accompanies many insurance companies’ maternity coverage benefits. This means that you should have your policy in force more than 3 months before you get pregnant. If you are already pregnant, it is highly unlikely that you will be able to get maternity coverage from an individual health insurance carrier.

This short discussion on maternity coverage just goes to show why it is important to assess your needs in order to determine which health insurance plan is best for you. Since different individuals and families have different healthcare needs, the plan that is best for your friend or neighbor may not be best for you. This is why it is important to speak with someone that has a good understanding of how insurance works, and that has the ability to explain what you can expect your plan to cover and not cover.

Key Factors that Impact the Cost of Health Insurance

There are several key factors that will have a large impact on the premiums that you pay each month for your health insurance policy. The premium is the monthly payment that you must make to the insurance company to keep your policy active. Since the premium will vary based on the key factors that we are soon to discuss, it is important to understand what these key factors are. The key factors that have the largest impact on insurance premiums are the deductible, the coinsurance, and the out of pocket maximum. We will discuss each of these factors in more detail in the following paragraphs.

Health Insurance Deductible

The deductible is the amount that you will be required to pay before the insurance company begins to contribute to the cost of your medical expenses. In other words, this is the out of pocket amount that you will pay before the insurance company begins to contribute at the financial level dictated by the coinsurance guidelines. We will discuss the coinsurance in a subsequent paragraph. For now, let’s discuss the deductible further. Let’s use an example. Let’s say that you are injured in an accident and you have to go to the hospital. Also, let’s assume that you acquire $50,000 in medical expenses. If you have a deductible of $5,000, you will have to pay this amount before the insurance company begins to help you pay the bill. In other words, the insurance company will be assisting you with $45,000 worth of expenses.

Also, be sure to understand how your deductible works on family plans. For instance, the deductible for a given insurance plan may be $5,000 for an individual, but it may be $10,000 for a family. This means that more than one person will be involved in meeting the deductible requirement.  Usually, 50% of the deductible will be paid by one family member and 50% will be paid by one or more other family members. For the above scenario where one family member was injured, $5,000 (not 10,000) will be paid before the insurance company begins to share the costs. If a second family member gets injured and incurs medical expenses, another 5,000 will need to be met before the insurance company begins to share the costs for the second individual. Once the deductible is met for the family, the insurance company will pay the coinsurance at the prescribed rate until the out of pocket maximum is reached for the year. (Feel free to contact me if you have questions regarding any of the information provided in this article.)

How Does Coinsurance Work?

Once the insurance customer has satisfied the deductible as set forth by their plan, the insurance company and customer will share the medical expenses incurred until the insurance customer reaches the annual out of pocket maximum. Let’s consider the example above again. Let’s assume that the family has incurred $50,000 in expenses and the family deductible of $10,000 was met. If the family has a coinsurance plan that pays 80/20, this means that the insurance company will pay 80% of the remaining bill after the deductible has been met and the family will pay 20%. This means that the insurance company will pay 0.8 X $40,000 (or $32,000) and the family will pay 0.2 X $40,000 (or $8,000). This cost sharing will continue until the annual out of pocket maximum is met.

What is the Annual Out of Pocket Maximum?  

The annual out of pocket maximum represents the largest amount of money that the insurance customer will spend in a given year before the insurance company begins to pick up the tab 100%. In the example above, we showed where the family would pay up to $18,000 for a medical bill of $50,000. We did not take into account the annual out of pocket maximum when we spoke of the figures above. Now, let’s assume that the annual out of pocket maximum for the example above is $15,000 (…this amount encompasses the deductible and the coinsurance total.) So for our example above, the family’s contribution to medical expenses would stop at $15,000 for the year and the remaining $3000 + $40,000 would be paid by the insurance company. At the beginning of the next annual period, the deductible, the coinsurance, and the out of pocket maximum will need to be met again.

Other Points to Consider

There are other items that will impact the cost of your health insurance as well. These items include prescription drug coverage, laboratory work expenses, physical examination costs, doctor’s visits costs, preventative care costs, etc. You should consider your own personal needs when determining whether or not these are items for which you are willing to spend additional money each month. If you seldom use prescription drugs, it may not be worth an additional $15/month to have a discount prescription drug plan. This is why it is important to understand your needs. By understanding your needs, you will be able to determine the health insurance plan that is best for you.

Conclusion

There is no doubt that health insurance is too important to be without. However, with the countless options of plans available, it is important to find the plan that best suits your needs. If you choose the best plan for you and your family, you will have the coverage you need at the best price. If you are having trouble choosing a plan, it is important to talk with a licensed professional that can help you to understand the different types of plans available, as well as the different types of coverage available.