Selecting a health insurance plan can be a stressful experience. Health insurance plans and billing practices can be complicated, and selecting the right plan can significantly affect the physical, mental and financial health of you and your family. Buying too much insurance can be very costly over the long term if you buy a more expensive plan than you need.
How to Save Money on Health Insurance
Likewise, under-insuring, especially by the young and healthy that feel like they don’t need insurance, can be even more costly if an accident occurs or bad diagnosis given. Having a basic understanding of the available options will help ensure that you pick a plan that is right for you and your family.
Keep in mind that much of what is on this page are general guidelines. Individual plans vary and you should carefully read all information about the plans that are available to you.
Six Tips for Saving Money on Healthcare
- Pick the right insurance policy
- Shop around for medication
- Know what your health insurance policy covers
- Ask whether tests, prescriptions or procedures are really necessary
- Ask for prices upfront, and ask about discounts for cash payments
- Pick the right facility
Different Types of Health Insurance
- HMO(Health Maintenance Organization): HMO insurance plans generally have cheaper premiums than the other types of plans. The drawback is that they are also usually the most restrictive when it comes to selecting health care providers.
- EPO(Exclusive Provider Organization): EPO insurance plans, like HMO, usually will only cover non-emergency medical costs from providers that are in-network. Referrals are not usually required in order to see specialists.
- POS(Point of Service): POS insurance plans will usually cover medical costs both in- and out-of-network, though you will typically pay less at in-network providers. Referrals from a primary care provider may be required to see specialists.
- PPO(Preferred Provider Organization): PPO insurance plans, like POS, cover medical costs both in- and out-of-network, with cheaper costs when staying in-network. A referral is usually not required to see specialists.
High Deductible (with HSA) vs Low Deductible Plans
As suggested by their name, High Deductible Health Plans generally will have higher deductibles and out-of-pocket maximums than Low Deductible Plans. Lower premium costs often make high deductible plans a preferred option for people who do not expect to have many medical expenses. With the addition of HSA contributions, high deductible health plans can be right for anyone.
Low Deductible Health Plans have higher premium costs. In return you will usually get a lower deductible and out-of-pocket maximum. The higher up-front costs may be worth it for people who expect higher medical costs or who don’t expect to have enough savings to pay for a higher deductible.
How to Compare Health Insurance Plans
When comparing plans, the following factors should be considered:
- Calculate the total amount you’ll pay in premiums throughout the year for both plans. Keep that difference in mind while looking at the other factors.
- Compare deductibles. If possible, ensure you’ll have enough savings to pay at least your deductible for whichever plan you choose.
- Compare out-of-pocket maximums. Not as important as the deductible for most people, but it’s good to know the absolute maximum you’ll have to pay.
- Compare networks. Ensure that your preferred providers are covered by the plan that you choose.
- Compare co-insurance for each plan.
- Compare which services are covered by co-pays and/or not subject to the deductible.
- Potential tax benefits or employer contributions related to an FSA or HSA.
- Estimate the amount and type of medical expenses you will have throughout the year, keeping in mind that even healthy people can easily end up in the emergency room.
Making the Most Out of Your HSA
If you qualify for an HSA, you can take advantage of one of the best savings vehicles available. The following tax advantages apply to any contributions made to your Health Savings Account:
- Tax free contributions. This even includes FICA taxes for pre-tax contributions made through your employer. Most states also offer a state tax deduction.
- Tax free earnings.
- Tax free distributions if used for qualified medical expenses.
Using HSA Funds and Tax Consequences
It’s also very important to note that once you turn 65, any funds in your HSA are no longer subject to the 20% penalty when used for non-health related costs. This means that you can treat your HSA very similar to a Traditional IRA. With that in mind, it may be advantageous to max out your HSA contributions before contributing to an IRA or 401(k) beyond employer match.
Common Health Insurance Terms
- Premium: The cost of insurance coverage, usually billed per pay period.
- Deductible: The amount that you pay out-of-pocket for medical services each year before insurance starts paying.
- Co-insurance: The percentage of medical costs that you must pay once the deductible has been met.
- Co-pay: A fixed amount that you pay, generally for services which are not subject to the deductible.
- Out-of-pocket maximum: The maximum that you will pay out-of-pocket in any given year. Once this has been met, the insurance company will pay 100% of medical costs for the remainder of the year.
- FSA(Flexible Spending Account): A tax free savings account that may be used to pay for qualified medical expenses. Any funds that are not used by the end of the year are forfeited.
- HSA(Health Savings Account): Similar to an FSA, contributions are tax free and may be used to pay for qualified medical expenses. Unlike an FSA, unused contributions remain yours forever. Contributions may only be made if you are covered by a qualifying high deductible health insurance plan.
- Pre-authorization: Certain tests or services must receive prior authorization from your insurance company.
- Referral: Some plans require referrals from a primary care provider in order to see a specialist.