Shopping for a health plan is a lot like looking for a job.
You have to figure out what you want, research companies and what they’re offering, find out if you’re qualified to apply, and carefully evaluate your options before making a final choice.
If you’re in the market for a health plan — whether you’re self-employed or working for an employer that doesn’t provide health care benefits — use these six pointers to help guide you in your search.
- Learn about health plans.
- Determine your health plan needs.
- Look further than the premium.
- Beware of the underwriting effect.
- Get the full explanation of benefits.
- Use some assessment tools.
Learn about health plans
While it’s useful to have a general understanding of the main categories of health plans, the lines between them have become so blurred that you probably shouldn’t spend too much time parsing the definitions.
That said, there are three basic types of private, individual health care coverage: indemnity plans, managed care plans and consumer-directed plans.
Indemnity plans, also known as non-network-based plans, are what people in the industry often refer to as “traditional” health insurance. You choose any provider you want, pay the bill for each service you receive and send in a form to the insurance company for reimbursement. Consumers’ distaste for that last requirement is one reason pure indemnity plans are fading out of the market.
“I had one a few years ago, and even with the experience and expertise I had in the insurance business, it took me three hours a month to submit the paperwork. It was aggravating,” says Jack Hungelmann, an independent insurance agent and risk manager in Edina, Minn., and author of “Insurance for Dummies.”
Managed care plans are quite different, yet you may see them referred to as “indemnity-type” and “fee-for-service” plans. Ignore the labels and look at how they work.
Managed care plans are known by an alphabet soup of acronyms: health maintenance organizations, or HMOs; point-of-service plans, or POS; and preferred-provider organizations, or PPOs. They all contract with a network of doctors, hospitals and other providers and pay benefits according to whether you get your care within the network.
An HMO offers the least amount of flexibility in choosing providers. It generally won’t pay anything, except in emergencies, unless you get all your care from health providers in the network. A POS or PPO will cover you if you go outside the plan, but your co-payment — a flat fee you pay each time you receive a medical service — will be higher. Like HMOs, POS plans have primary care doctors who coordinate patient care and usually make referrals to specialists; PPOs generally let you go your own way.
Consumer-directed plans, also called high-deductible plans, enable you to save money in a tax-favorable health savings account similar to an IRA. The deductible is the annual amount you must pay out-of-pocket before your plan starts paying benefits. According to IRS rules, the minimum annual deductibles to qualify for an HSA in 2009 are $1,150 for individual coverage and $2,300 for family coverage. The maximum annual amount you can be charged for your deductible and other out-of-pocket expenses is $5,800 for individuals; $11,600 for families.
Maximum annual HSA contributions are currently set at $3,000 for individuals and $5,950 for families, but individuals ages 55 and older can contribute an additional $1,000. In 2010, the maximum contribution amounts will increase to $3,050 for individuals; $6,150 for families.
Determine your health plan needs
Before you can judge whether a particular health plan is right for you, determine what you want and need most. If affordability is a top priority, and you’re willing to forgo the freedom to choose all your own care providers rather than go without coverage, an HMO might be the answer. Availability of HMOs for individuals varies by state and carrier.
“HMOs provide more benefits for the dollar in some cases because they are managing their risk more,” says Michael Malasnik, author of “What You Need to Know About Health Insurance” and an independent insurance broker who owns Arizona Benefits Connection in Phoenix.
According to Hungelmann, you can get substantial savings in premium costs by choosing an HMO over other options. “But if you’d prefer to go to the Mayo Clinic, if necessary, without having to beg for a referral, then having more choices would be an important issue,” he says.
Your need for certain benefits may also dictate which plan you select. For instance, not all plans cover maternity, and those that do are considerably more expensive. If you’re not interested in maternity benefits, you can skip those products and save money on your premium.
Prescription drug coverage, especially with managed care plans, is another major consideration. Managed care plans usually include a formulary, or a list of the drugs they cover. Your co-pay at the pharmacy will depend on whether you get a generic drug, a brand name drug listed on the formulary or a brand name drug that’s not on the formulary. Check to ensure that any plan you are evaluating will cover all the prescriptions you and your family take.
Look beyond the premium
Don’t try to compare plans, or judge the cost of a health plan, by looking at the premium alone.
“In order to compare option A with option B, you need to look at three factors: what your contribution to the premium is, what your additional out-of-pocket costs are and what’s covered,” says Susan Pisano, vice president of communications for America’s Health Insurance Plans, an association of nearly 1,300 health insurance providers.
Those additional out-of-pocket expenses may include a deductible and a co-payment.
“What’s covered includes … what services are covered, which providers are covered and to what extent,” Pisano says.
The number you really need to get to is your maximum out-of-pocket expense, also known as the stop-loss — the amount you have to pay out before the plan begins providing 100 percent coverage.
“You might be looking at two policies that have a $1,000 deductible and an 80/20 co-insurance” — meaning the insurer pays 80 percent of medical fees and you pay 20 percent — “but one has a stop-loss of $2,000 and the other has a stop-loss of $5,000,” says Malasnik.
As for what determines the cost of the premium itself, the general rule is that the higher the deductible, the lower the premium. “That’s going to be the case whether you’re talking about a PPO, an HMO” or any other plan, Malasnik says.
Beware of the underwriting effect
Unless you live in one of the five states where individual underwriting is illegal (Maine, Massachusetts, New Jersey, New York and Vermont), an insurance company can refuse to cover certain medical conditions, make you pay extra for covering them or deny you any coverage at all because of them.
“We’ve even seen people turned down because they have acne,” says Eliza Navarro Bangit, senior research associate and an attorney with the Health Policy Institute at Georgetown University. “I think the explanation for that is there is the possibility they may use Accutane, which is a very expensive prescription drug.”
The five states that have outlawed individual medical underwriting instead require community rating, a system in which every consumer is eligible for coverage regardless of health condition, and everyone pays the same premium for the same policy.
Malasnik agrees that underwriting has a huge influence on the availability of health insurance. “When people are going online … to these automated Web sites where you put in information and you get a bunch of rates, somebody with high blood pressure and high cholesterol, for example, might think they are healthy,” he says. “But six out of 10 insurance companies are going to deny them once they see that combination. It’s very important that people understand what companies will accept which health conditions.”
A number of Web-based brokerages sell health insurance online, including InsureMe, a Bankrate company.
Get the full explanation of benefits
When you’ve narrowed your choice down to a few plans, get your hands on the official explanation of benefits, or EOB, for each of them. It may not be easy, since according to Bangit the general practice among insurance companies is to send this document only after the consumer has enrolled in a plan.
But don’t take no for an answer,” Bangit says. “Just insist that they provide it, and if they don’t, you move on.”
In Bangit’s view, simply reading the brochure or the executive summary is not sufficient. Only the EOB will spell out exactly which of your health care expenses count toward your deductible and maximum out-of-pocket liability.
“In most of the plans we looked at in California, for example, the prescription co-pays do not count toward the out-of-pocket maximum,” she says.
Other caveats: Look out for benefit limits, exclusions and coverage caps. And don’t assume a procedure is covered just because it’s not listed in the “excluded benefits” section of the plan.
Use some assessment tools
Finally, check out some additional helpful resources. To sort the wheat from the chaff among health plans, it’s a good idea to talk to several independent agents that specialize in health insurance. Some helpful information is available on the Web.
At the Health Policy Institute, you can access the “Consumer’s Guide for Getting and Keeping Health Insurance.” The HPI has produced a guide for each state and the District of Columbia.
Healthcarecoach.com, a project of the nonprofit National Health Law Program, educates consumers about their legal rights and provides a wealth of information about health plan options.
The Health Insurance Association of America also recommends checking the financial soundness of any insurer you are considering through a rating firm such as A.M. Best, Standard & Poor’s or Moody’s.