Ultimate Guide to Health Insurance

Health Insurance is confusing! Let’s breakdown everything you need to know before buying a plan!

Monthly Premiums

Your monthly premium is the amount you pay monthly to keep your health insurance active. If you don’t pay your monthly premium, you won’t have insurance.

You cannot judge a plan based on premiums alone! A low monthly premium doesn’t necessarily mean a bad plan, just like a higher monthly premiums doesn’t necessarily mean a good plan. 

Compare your monthly premium with your deductible, copays and coinsurance and out of pocket max. More on all of these costs in just a moment.

Also, look at the benefits offered and the networks. Paying less for a plan when none of your doctors are in network, will not serve you. On the flip side, paying more for a plan that offers many fringe benefits that you don’t necessarily need is a waste of money.

Premium Tax Credit

If you are buying a health insurance plan on the marketplace, you need to understand how premium tax credits work.

A premium tax credit is just a tax credit paid upfront and it is reflected in a discounted monthly premium. You may be eligible for a premium tax credit based on your income and household size. You will find out if you are eligible for a premium tax credit by answering a few simple questions on healthcare.gov

Premium tax credits can save you quite literally thousands of dollars per year. Make sure to estimate your income as accurately as possible.

Deductible

The next financial term to understand is your deductible. This is the amount that you must meet out of pocket (or at full cost) before your health insurance begins to contribute to the cost share.

For example, if your deductible is 2K and you have to be hospitalized, you would first be responsible for the 2K. Additionally, you would be responsible for whatever copay or coinsurance is outlined in your plan. 

Let’s say your coinsurance is 25% and your total hospital bill without insurance is 10K.

10K-2K (your deductible) is 8K. You are now responsible for 25% of that, an additional 2K, making your total bill 4K instead of 10K. Unless of course, your out of pocket maximum is less than 4K- more on that in just a bit.

You should know that very often plans with higher deductibles have lower premiums and vice versa. There is usually an inverse relationship.

If you are someone with more extensive medical needs, you may benefit from a plan with a higher monthly premium, but lower deductible. For those with more basic medical needs, lower premiums, with a higher deductible may be the way to go. 

And remember many services such as preventative care and wellness visits are covered even prior to meeting your deductible. These are part of the 10 essential benefits.

Copays/Coinsurance

Copays and coinusance are your cost sharing bills you will be responsible for once you have met your deductible.

A copay is a fixed amount. For example, you might have a copay of $25 to see your doctor, $50 for the urgent care and $250 for the ER.

Coinsurance is a variable amount. It is a percentage of the cost. So, using our example above, you might have a 25% coinsurance for inpatient care. So, your bill is determined by the cost of the service.

If you’ve seen the metal tiers on the marketplace, these metal tiers really indicate the cost sharing or coinsurance structure. 

Metal Tiers

Metal tiers are not indicative of the plan’s quality, benefits or network. They simply are an indicator of the cost sharing structure.

There are four metal tiers:

Usually platinum plans will have more expensive premiums than bronze plans because that amount is made up when you actually use your health insurance. 

So, if you are someone who doesn’t use their insurance as frequently, maybe a bronze or a silver plan would be best. If you are someone with more extensive medical needs, maybe a gold or platinum.

Also, if you are eligible for a premium tax credit, there are extra savings available with silver plans. 

Out of Pocket Maximum

Another term and number to be familiar with is the Out of Pocket Maximum. This is the maximum that you can be billed in a plan’s year. 

So, let’s go back to our earlier example.

Your deductible is 2K and coinsurance is 25%. The cost of services was 10K.

So far we we are 2K plus 25% of the remaining 8K of the total 10K- another 2K, bring you to a total of 4K.

Unless, your out of pocket maximum was less than 4K.

Let’s say your OOP MAX was 3K, then your actual total bill would be 3K. And let’s say this happened in January at the very beginning of your plan’s calendar year, even if you had to be hospitalized again that year, you actually wouldn’t have any more medical bills because you had already hit your OOP Max for the year. 

So, if you have to have a planned medical procedure, you might want to aim for earlier in your plan’s calendar year to save on medical expenses unless you’ve already met your OOP MAX. Then you want to try to plan it before your plan’s calendar year resets. 

HMO, PPO, EPO

Now one of the most basic decisions that you need to make is between an HMO, PPO or EPO. If you pick a marketplace health insurance plan, usually there will just be HMOs and EPOs.

HMOs will offer lower monthly premiums but less flexibility. You will need a PCP and referrals for specialist visits. You can only go in network except in the case of a true medical emergency.

EPOs will offer midrange monthly premiums with slightly more flexibility. You will not need a PCP or referrals for specialist but can still only go in network except in the case of a true medical emergency.

PPOs will have higher monthly premiums with the most flexibility. You do not need a PCP or referrals. You will have coverage in and out of network.

HDHP & HSA

Some more acronyms you may hear tossed around are HDHP and HSA.

HDHPs are high deductible health plans. So, as we discussed that means a higher out of pocket amount until your insurance begins to contribute to the cost share.

These may be popular for people with limited health needs looking to take advantage of a lower premium

They may also be popular for those wishing to invest in an HSA which is a health savings account. HSAs are only available as a potential benefit with HDHPs.

You can contribute a certain amount to your HSA and that amount is pretax therefore lowering your taxable income. The accounts are interest bearing and that interest is also not taxable. You can also invest a certain amount of your HSA and those earrings are tax free.

You can withdraw the funds for qualified medical expenses and if you do not use the funds they will roll over from year to year. If you hold onto your account until you are 65, you can use it as a basic retirement account. 

Catastrophic Coverage Plan

A final option available on the marketplace are catastrophic coverage plans. These are a type of barebones plan available to those under 30 or who qualify for a hardship exemption. You will be able to see your doctor three times a year prior to meeting your deductible and have other basic services covered. 

You will have a high deductible, high OOP Max and low monthly premiums. If you are eligible for a premium tax credit, it cannot be applied to these types of plans so you may still be better suited with a regular marketplace plan.