How to Understand Health Insurance
HSA, FSA, Co-pay, high deductible, Obamacare, lifetime limits, in-network, out-of-network, and so on. Its enough to drive one crazy trying to understand all the jargon. And then to be expected to make an “informed decision” on what is best for you and your family? Forget about it!
Maybe you just got a new job, lost your job, or are in “open enrollment”, or just want to know how to navigate the labyrinth known as health insurance. Let me break it down for you, in a way you can understand.
“The art of medicine consists of amusing the patient while nature cures the disease.”
I can’t cover everything here, but I will attempt to break down the most common terms, concepts, and offer my advice on selecting a plan.
I can remember starting a new job back in college, and being given the tri-fold pamphlet showing me the health insurance options. It was full of acronyms, 5-dollar words, and jargon that I didn’t understand. My new boss wasn’t much help; all he could tell me was, “I picked that one, ’cause its cheaper.”
As time has gone by, insurance has become more complex. I didn’t really understand it well until about 7 years ago, when I left the Navy and no longer had 100% coverage for anything & everything.
So, here is a list of the most common terms/concepts you will come across, an explanation in layman’s terms, and what I think about it as a choice (if it’s something you can choose):
- HSA – Health Savings Account; a benefit accompanying some High Deductible plans that allows you to save for specified medical expenses with pre-tax dollars. You can have part of your paycheck automatically deposited in this account where it will stay until you use it. It can act like a savings account for large medical expenses or used to get more bang-for-your-buck with routine expenses. If you have a High Deductible plan, I highly recommend this.
- FSA – Flexible Savings Account; similar to an HSA, but any money left in at the end of the year is lost. As in gone forever and not yours anymore. If this is offered, you need to plan out how much you think you will spend in a year and only put that amount in. Like the HSA, it is pre-tax, so you can save money by using it, but if you don’t spend it, you will loose it. I only recommend this if you can predict reasonably well your annual medical expenses.
- Deductible – the portion of the medical expense that you have to pay before the insurance company starts to pay. For a High Deductible plan, it could be several thousand dollars.
- High Deductible Plan – A health insurance plan that has a high initial deductible (compared with other plans), usually starting at $2,600 for families. After you meet the deductible, medical costs are split between the insured (20%) and the insurance company (80%), until a “max out of pocket” amount has been reached. At that point, the insurance company picks up all remaining expenses. Some plans have a lifetime maximum that is covered, so look at your plan and see if it has one. An HSA usually goes along with this type of plan, and it is usually much less expensive than a PPO or HMO plan. I highly recommend a High Deductible plan for two types of families: you are very healthy (i.e. you rarely visit the Dr. so don’t have to worry about paying for lots of office/hospital visits) or you are very sick (you will quickly reach the max out of pocket amount, which could be less than what you would pay with a PPO/HMO plan).
- HMO – Health Maintenance Organization: A type of insurance where the insurance company gets certain providers (Drs., pharmacies, specialists, etc) to accept a lower rate for service. This is the “network of providers” and you pay a co-pay with each visit and/or pre-arranged fees. To visit a provider who is “out of network” means paying a LOT more. Your favorite Dr. may not be part of the network. Premiums (what you pay each month) are higher than with a High Deductible plan, but your per-visit costs are lower. I recommend this for families that know they will make many visits to the Dr and/or hospital.
- PPO – Preferred Provider Organization : similar to an HMO with a couple differences: you don’t need to designate a primary care doctor, nor do you need a referral to see a specialist.
- Cost Sharing Network/Ministry – This is not insurance, actually, but a group of people who decide to share the medical costs of the group across the group’s members. Depending on the specific organization’s set up, members either send a monthly payment into a large pot from which expenses are paid from, or members write checks directly to other members. In a Cost Sharing Network/Ministry, money is paid directly to the members who then pay their bills themselves. While this is not insurance, it does meet the “insurance” mandate of Obamacare. In contrast to insurance, the organization is not legally liable to pay out for claims, but the good ones will uphold the stated policies. Most of these do not ‘cover’ routine medical expenses, such as physicals, but will cover for sickness, injury, and/or maternity costs. If you are self employed and/or not eligible for a group insurance plan, this type of ‘coverage’ could be the most cost effective. I currently use and strongly recommend Christian Healthcare Ministries.
- Co-Pay – Under a PPO or HMO plan, this is the portion of the cost that is your responsibility. For example, you might have to pay $20 each time you visit your doctor, or $500 for the emergency room.
- Network of Providers – Under a PPO or HMO plan, this is a group of service providers that have agreed to charge lower rates to members of a particular insurance plan. If you decide to use a provider outside of the ‘network’ you will pay much more in either co-pay or have a higher deductible.
There are many, many more words & terms that I could describe, but I think I covered the most important and common terms that you will run across. If there is one (or more) that I missed, please post it in the comments and I will address it.
Feel free to bookmark this post for future reference and share it with your friends and family! If you need help deciding on what what is best for your family, give me a call and I’ll help you navigate your specific situation!