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How To Choose A Health Insurance Policy

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When choosing a health insurance plan, it is helpful to first think about your needs and desires and how to balance them before looking at available policies.

If cost is a primary concern, in addition to the amount of the premiums, look at how much you will have to pay during the year even with the health insurance coverage. A low premium, but excessively high deductible or high co-pays when you already have a health history may not make financial sense.

If other people are covered on your health insurance plan, think about the economics for all the people covered -- not just for yourself.

Keep in mind that for a lower premium, you may have limited choice of doctors or hospitals. Look  to see  that providers in the plan have a lot of experience with your health condition -- and high quality doctors and hospitals. For example, with a PPO you may be able to see specialists without having to get prior approval as well as out-of-network doctors. However, if you go out of network for care, you will  have to pay a deductible and higher co-payments. This flexibility comes with higher premiums than an HMO.

Consider breaking the process down into the following steps: (if you are comparing Medicare Advantage plans, click here.)

Step 1. Learn the basic terms used in health insurance. The following are key:

  • Co-insurance:  Health insurance policies generally only pay a percentage such as 75 to 80% of the covered charges. This leaves you, the insured, to pay the rest. For examples, click here. 
  • Co-pay: A co-pay is the amount you, the patient, have to pay for each visit to a health care provider. Co-pays are usually low dollar amounts, such as $10 or $25. For a person with a life changing condition, co-pays can add up very quickly.
  • Deductible: A deductible is the amount that you pay each year for covered services before the insurance company pays anything.  For more information, including an example, click here
  • Formulary: A Formulary is a list of medications an insurer will pay for. In order to encourage insureds to purchase less expensive drugs, formularies are often divided into sections with differing tiers. Each tier has have a different co-pay you have to pay. For more information about formularies, click here.
  • Types of health insurance policies:
    • HMO: The insurer manages care, usually requiring permission before seeing a doctor, or taking at test or treatment.  Treatment may be limited to a plan’s doctors, hospitals and other facilities, or ones it contracts with (“in network”). Insurer may pay part of use of medical care outside its network.
    • Original Fee-for-Service (“Indemnity”): you have unrestricted choice of doctors, tests and treatments (always subject to the requirement of "medical necessity.")
    • POS (Point of Service): A POS plan can be thought of as an HMO which allows insureds to receive services outside of the network.
    • PPO (Preferred Provider Organization): You pay less to see doctors etc in an insurer’s network. No need for prior approval.

Step 2. Think about your needs and desires and how to balance them. For instance:

  • Is out-of-pocket cost a primary concern? If so:, does it matter when you make payments? For instance, if you pay a higher monthly premium you may have fewer extra payments to make during the year.
  • With respect to doctors:
    • Are you willing to change doctors if your current doctor doesn’t work with the new insurer?
    • Do you need unlimited choice of doctors or are you willing to be limited to the doctors a particular insurer works with?
  • With respect to hospitals or other health care facilities: are there particular facilities you want to be able to go for treatment? For instance, do the hospitals that accept the particular insurance company and/or plan provide top quality care for your condition(s)?
  • Are you okay with having to get prior approval to see a doctor or to get a test or treatment?
  • Do you need dependent coverage?
  • Are you willing to trade lower out-of-pocket costs for less choice about doctors, hospitals etc? 

Step 3. Compare coverages available in the different policies and how well they satisfy your priorities.  

  • An easy way to compare coverages is through the federal website, www.healthcare.gov offsite link. Also consider looking at a private website such as: www.healthsherpa.com offsite link
  • For a free ranking of top private plans in each state, including Medicare Advantage and Medicaid plans, created by Consumer Report in collaboration with the National Committee for Quality Assurance (NCQA), go to ConsumerReports.org/healthinsurance offsite link. For Medicare plans, you can also go to Medicare.gov offsite link
  • Since comparing policies can be complex, we provide a Health Plan Evaluator to help you make a choice. To learn more, see: Health Plan Evaluator.
  • Be sure that providers in the plan have a lot of experience with your health condition -- and high quality doctors and hospitals. For example, with a PPO you may be able to see specialists without having to get prior approval as well as out-of-network doctors. However, if you go out of network you'll have to pay a deductible and higher co-payments. This flexibility comes with higher premiums than an HMO. 
  • NOTE: Insurance sold to individuals and small businesses varies, but must now at least cover the following health benefits: emergency services, hospitalization, laboratory tests, maternity and newborn care, mental health and substance-abuse treatment, outpatient care (doctors and other services you receive outside of a hospital), pediatric services for young children including dental and vision care, prescription drugs, preventive services (such as immunizations and mammograms) and management of chronic diseases such as diabetes, rehabilitation services. The rules for insurance provided by large employers are a little different, but most of them will cover the same set of benefits.

Step 4. Compare out-of-pocket costs

in addition to the amount of the premiums, look at how much you will have to pay during the year even with the health insurance coverage. When you already have a health history, a low premium, but excessively high deductible or high co-pays may not make financial sense.

If other people are covered on your health insurance plan, think about the economics for all the people covered -- not just for yourself. 

When thinking about out-of pocket costs you are likely to pay during a year, try to include:

  • Premiums
  • Deductible
  • Co-pays for doctor visits you can anticipate either based on your history or what you can reasonably anticipate will be the case in the coming year
  • Co-insurance for treatments, tests and/or hospital stays that are likely to occur
  • Your share of drugs on the company's formulary, as well as the cost of drugs which are not on the formulay
  • Preventive tests
  • Costs for seeing out-of-network doctors
  • Nursing care
  • Long term care

Step 5. If a plan has a disease management program, consider checking it out. Call the insurer and ask:

  • How many people with my disease are in this particular type of insurance? How many are in the disease management program? (The more people, the more likely the company will understand your needs and cover them.)
  • What specific services does the program offer?
  • How do the outcomes for people in the program compare to your insureds with the same disease who are not in the program? Compared to people not in the company's plan?

Step 6. Check the insurer's reputation. The policy that looks the best on paper may not be worth a lot if the company doesn’t have the money to pay claims, has a reputation for stonewalling when it comes to claims, or isn't responsive to individual needs.

  • To learn about a particular insurer’s financial stability, check:  A.M. Best’s Financial Strength Ratings 
  • Look at the rankings published by National Committee for Quality Assurance (NCQA) available by state through Consumers Report. Click here. offsite link
  • Ask how a company treats people with your particular health history. Sources of information include a health insurance broker; people at work; your local disease specific nonprofit organization and people in your support group if you are a member of one. .

If you need help making the decision, in all states there are people trained and certified to help you understand and choose the best plan for you. These people have a variety of names such as navigator, application assister, certified application counselors or they are government agencies such as Medicaid. To find a local person who can help, visit LocalHelp.Healthcare.gov offsite link. You can search by city and state or zip code.

NOTE:  Keep in mind that because of the Affordable Care Act ("Obamacare"), if you are not happy with the insurance you choose, you can change next year during the open enrollment period (generally during the last quarter of the year) because insurers cannot consider pre-existing health conditions for individual policies.


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