Which conditions, procedures, and medical tests are covered? What are the financial details? What are the options regarding choice of doctors?
You aren’t alone. The details of health insurance plans may seem unnecessarily complicated, but it’s important to understand them, especially before you choose one. This way, in the event of a sudden illness or emergency, you won’t find yourself trying to translate the specifics of your coverage at a time that’s difficult enough already.
This article will help you understand what’s important when you’re choosing a health plan, and how you can cover all your bases to know that you’ve picked the plan that will best fit your needs for the coming year—keeping in mind that for most types of coverage this is an annual process, rather than something you do just once.
Sources of Health Insurance Information
According to the 2020 report by the United States Census Bureau, 92% of Americans had health insurance in 2019. More than half get their insurance from an employer. About a third of the U.S. population has coverage under Medicaid or Medicare.
About 6% have coverage purchased from a health insurance marketplace (exchange) or an off-exchange plan (major medical coverage purchased directly from an insurance company that’s compliant with the Affordable Care Act).
No matter how you obtain your coverage, there are resources to help you select the best plan for you and your family, complete the enrollment process, and use your health insurance when you need it.
If you have health insurance through work, reach out to the human resources department at your company. Don’t be shy about asking as many questions as necessary: It’s the job of this department to help you understand the health plan options that are part of your benefits.
If you work for a small company that doesn’t have a human resources team, you have several sources of information to turn to:
The health insurance carrier The broker who helped your employer choose the coverage (ask your manager to direct you) Your state’s small business health insurance exchange Your employer’s third-party payroll/benefits company, if there is one
If you’re shopping for insurance on your own (because you’re self-employed, for example), brokers are available to help you online, over the phone, or in-person at no charge. They can help you compare plans both on-exchange and off-exchange.
If you know you want to enroll in the health insurance exchange, there are navigators and certified counselors available to assist you.
For Medicaid or the Children’s Health Insurance Program (CHIP), your state agency can help you understand if you or your family is eligible for any benefits and what they are, and also help you sign up. In many cases, you also can enroll in Medicaid or CHIP through your state’s health insurance exchange. In most states, Medicaid coverage is administered by one or more private insurance companies, so you may have multiple insurers to choose from when you’re setting up your coverage.
If you’re eligible for Medicare, you can use your State Health Insurance Assistance Program as a resource. There are also brokers nationwide who help beneficiaries enroll in Medicare Advantage plans, Part D prescription plans, and supplemental Medigap coverage for Original Medicare.
Weighing Your Options
In some cases, insurance plan options are limited (if an employer offers only one option, for example). But most people have a few choices.
Your employer may offer a range of plans with varying coverage levels and monthly premiums. If you buy your own health insurance, you can select from any plan available in the individual market in your area, on or off-exchange. But it’s important to understand that premium subsidies are only available in the exchange (and premium subsidies are larger than they used to be, due to the American Rescue Plan and Inflation Reduction Act; this continues to be the case through 2025).
If you’re eligible to enroll in Medicare, you’ll have the option of picking a Medicare Advantage plan—or sticking with original Medicare and supplementing it with Medigap and Part D prescription coverage (there are some counties where Medicare Advantage plans are not available, although this is limited to only a very small percentage of rural counties).
For all coverage types other than Medicaid/CHIP, annual open enrollment periods apply. Special enrollment periods, however, are available if you experience certain qualifying life events, like involuntary loss of coverage or marriage.
There’s no one-size-fits-all when it comes to health insurance. The plan that will be best for you depends on a variety of factors:
Do You Have a Pre-Existing Condition?
Thanks to the Affordable Care Act, no insurance provider can turn someone away because they have a chronic disease or other medical problem when they apply for coverage (a practice called medical underwriting).
(Note that the ACA’s reforms do not apply to Medigap plans, which can still be medically underwritten under certain conditions. Nor do they apply to plans such as short-term health insurance and fixed indemnity policies, which also still use medical underwriting.)
However, if you have a pre-existing condition, you’ll want to consider what you need from your insurance in order to manage it, since benefits, out-of-pocket expenses, covered prescription medications, and provider networks vary considerably from one plan to another.
Do You Take Any Prescription Drugs?
Be sure to check the formularies (medication lists) of the health plans you’re considering. Health plans divide covered drugs into categories, generally labeled Tier 1, Tier 2, Tier 3, Tier 4, and Tier 5. You may find that one plan covers your drugs in a lower-cost tier than another—or that some plans don’t cover your medication at all.
Drugs in Tier 1 are the least expensive, while those in Tier 4 or 5 are mostly specialty drugs. Drugs in Tier 4 and 5 are generally covered with coinsurance (you pay a percentage of the cost) as opposed to a flat-rate copay.
Given the high sticker price on specialty drugs, some people end up meeting their plan’s out-of-pocket maximum very early in the year if they need expensive Tier 4 or 5 drugs. Some states, however, have implemented limits on patient costs for specialty drugs.
If you’re enrolling in or already covered by Medicare, you can use Medicare’s plan finder tool when you first enroll and each year during open enrollment. It will let you enter your prescriptions and help you determine which prescription plan will work best for you.
Do You Want Care From a Particular Provider?
Provider networks vary from one carrier to another, so compare the provider lists for the various plans you’re considering. If your provider isn’t in-network, you still may be able to use that provider but with a higher out-of-pocket cost, or you may not have any coverage outside the network.
The specifics vary from one plan to another in terms of whether they cover out-of-network care and if so, what the out-of-pocket costs are. It’s also important to understand that out-of-network medical providers can send you a balance bill; they do not have to write off any of the cost the way in-network providers do.
In some cases, you’ll need to decide whether keeping your current provider is worth paying higher health insurance premiums. If you don’t have a particularly well-established relationship with a specific healthcare provider, you may find that selecting a plan with a narrow network could result in lower premiums.
Do You Anticipate Expensive Medical Care Soon?
If you know you or a covered family member is going to have surgery, for example, or you’re planning to have a baby, it may make sense to pay higher premiums in trade for a plan with a lower out-of-pocket limit.
You may get a better value from a plan with a lower total out-of-pocket limit regardless of how much the plan requires you to pay for individual services prior to meeting that threshold.
For example, if you know you’re going to need a knee replacement, a plan with a total out-of-pocket limit of $3,000 might be a better value than a plan with a $5,000 out-of-pocket limit (depending on how the monthly premiums compare). Even if the latter plan offers copays for practitioner visits, the former plan counts your healthcare provider visits toward the deductible.
It would ultimately be a better deal to pay the full cost of your practitioner visits if you know that all of your healthcare spending on covered services will cease once you hit $3,000 for the year.
Do You Travel a Lot?
You may want to consider a preferred provider organization (PPO) with a broad network and solid out-of-network coverage. This will be more expensive than a narrow-network health maintenance organization (HMO), but the flexibility it offers in terms of allowing you to use providers in multiple areas might be worth it.
PPOs tend to be widely available for people who are getting their coverage from an employer, but they’re much less common in the individual/family market (where people buy their coverage if they don’t have access to an employer’s plan).
Many areas of the country have no PPO or POS plans available, meaning that enrollees will not have an option to select a plan with out-of-network coverage.
If you’re enrolling in Medicare and travel a lot, Original Medicare (plus supplemental coverage) is probably a better choice than Medicare Advantage, since the latter has limited provider networks that tend to be localized.
How Comfortable Are You With Risk?
Do you prefer to spend more on premiums every month in exchange for lower out-of-pocket expenses? Is having a copay at the healthcare provider’s office—as opposed to paying for all care until you meet your deductible—worth higher premiums? Do you have money in savings that could be used to pay for your healthcare costs if you opt for a plan with a higher deductible?
These are questions that don’t have a right or wrong answer, but understanding how you feel about them is a key part of picking the health plan that will provide you with the best value. The monthly premiums will have to be paid regardless of whether you use a million dollars’ worth of health care or none at all.
But beyond the premiums, the amount you’ll pay throughout the year depends on the type of coverage you have and how much medical care you need. All non-grandfathered plans cover some types of preventive care with no cost-sharing—meaning there’s no copay and you don’t have to pay your deductible for those services.
But beyond that, coverage for other types of care can vary substantially from one plan to another. If you select the plan with the lowest premiums, be aware that your costs are likely to be higher if and when you need medical care.
Do You Want a Health Savings Account (HSA)?
If so, you’ll need to make sure that you enroll in a High Deductible Health Plan (HDHP) that is HSA-qualified. HDHPs are regulated by the IRS, and it’s important to understand that the term does not just refer to any plan with a high deductible.
These plans cover preventive care before the deductible, but nothing else. HSA-qualified plans have minimum deductible requirements along with limits on maximum out-of-pocket costs.
You and/or your employer can fund your HSA and there’s no “use it or lose it” provision. You can use the money to pay for medical expenses with pre-tax dollars, but you can also leave the money in the HSA and let it grow.
It will roll over from one year to the next and can always be used—tax-free—to pay for qualified medical expenses, even if you no longer have an HSA-qualified health plan (you need to have current HDHP coverage in order to contribute to an HSA, but not to make withdrawals).
Summary
Choosing a health insurance plan can feel complicated, but you can narrow down the options by focusing on what’s most important for your needs. You’ll want to consider the monthly premium costs, the provider network, the covered drug list (formulary), and the out-of-pocket exposure—including the cap on out-of-pocket costs, as well as how this is structured throughout the year. And if you want to be able to contribute to an HSA, you’ll need to make sure that you enroll in an HSA-qualified high-deductible health plan (HDHP).
A Word From Verywell
Health insurance is essential, but it also can be frustrating and complicated. Regardless of whether you have a government-run plan, coverage offered by your employer, or a policy that you bought for yourself, a solid understanding of how health insurance works will serve you well.
The more you know, the easier it will be for you to compare plan options and know that you’re getting the best value from your health insurance coverage. And rest assured that help is always available if you have questions.
