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No one loves reading the fine print on health insurance policies, but it’s important to understand what you’ve got (or what you’re getting) before you sign on the dotted line. Contrary to what you might think, it’s not always the best move to jump into the plan with the lowest monthly premiums. Before you make a choice that will impact your healthcare costs and options for the next year, read this guide to the basics.
Perusing your health insurance options can seem like trying to read a bowl of alphabet soup. Here’s what it all means.
An HMO is a limited network of doctors and facilities that may be restricted by geographic area and generally offers no coverage for out-of-network providers. In many HMOs, you’re required to choose a primary care physician (or PCP), and to get a referral from your PCP any time you’d like to see a different kind of specialist. HMOs are usually less expensive because you have fewer options.
A PPO is a broader network of doctors and facilities, plus limited coverage for out-of-network providers. You usually don’t need a referral to see a specialist. This option is typically more expensive than an HMO.
An EPO is a more limited type of PPO in which there is no coverage for out-of-network providers unless you have an emergency.
This is an HMO/PPO mix—there’s typically a broad network of doctors and facilities but you may have to get a referral from your primary care physician before seeing any of them.
An HDHP is a plan in which you pay a higher deductible before the plan starts covering medical costs, although preventive care may be completely covered. These plans are cheaper, but if you see the doctor frequently, you may be responsible for more out-of-pocket costs. HDHPs often come paired with Health Savings Accounts, or HSAs, which allow you to save pre-tax money for medical expenses.
Unfortunately, there’s no easy answer to this question. The ideal plan will depend on your particular health & medical needs. "It really depends on what kind of services you have historically needed and which plan is going to provide you with access to the doctors and hospitals that you need at the lowest cost," says Andrew Miller, president of KBM Management, a consulting company that specializes in employee health plans.
To compare and choose the best play, start with the steps below.
To the best of your ability, track down your doctors’ visits and prescriptions from the past five years. If you don’t save medical bills, you may be able to piece your history together using bank and credit card statements and cancelled checks. You may also be able to get that information—basically, your claims history—from your current and former insurers.
Got a spouse? Kids? You’ll have to think about their last several years of medical history as well.
Got a favorite doctor? Specialist? Pediatrician? Check to see what insurance your doctor accepts and make sure the plans you’re considering allow you to see him or her. If not, you may be able to narrow the field by eliminating the plans that don’t.
Take your medical history (and your family’s, if applicable), and estimate how much it would cost you to join each plan. Include premium costs, co-pays, coinsurance, deductibles, and prescription costs. If you’re young, single, and rarely see the doctor, a high-deductible health plan may be the most cost-effective approach for you. If you see the doctor frequently, a plan with higher premiums but lower co-pays may be cheaper in the end.
The past five years should be a fairly good indication of your average health insurance needs, but if you’ve got a big expense coming up—the birth of a baby, braces for a child, planned corrective surgery—don’t forget to factor that into your calculations.
Many employers offer a Flexible Spending Account (FSA) in which you can save pretax money and use it to pay for medical expenses that aren’t covered by your insurer. The catch is that the money is considered use-it-or-lose-it, meaning that if you don’t use all of it within the calendar year (or, with many employers, before March 31st of the following year), you lose it. So if you incur predictable medical expenses each year (such as contact lenses and ongoing prescription medications), using an FSA to pay for them is a no-brainer. If your yearly health expenses are not as consistent and harder to predict, it’s a trickier choice.
Luckily, there are plenty of online calculators available to help you estimate next year’s expenses. "You’d be crazy not to take advantage of it if you can afford to put some money into it," says Larry Boress, president of Midwest Business Group on Health. "It’s all pretax dollars, which means it reduces your taxable income, and yet you can put it toward medical expenses. It’s a win-win." Typically, you can sign up for an FSA during your company’s open enrollment period.
That said, federal changes to FSAs have made the accounts less beneficial than they used to be. Employees used to be able to use FSA money to pay for a multitude of over-the-counter drugs and products, such as aspirin and allergy medication. But starting in 2011, you’ll need a doctor’s prescription to be reimbursed for most over-the-counter items. And starting in 2013, pretax contributions will be capped at $2,500, which is lower than the $5,000 limit that many employers impose now. "Their value has diminished dramatically for a number of people," Boress says.
Written by: Kate Ashford
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