What Type Of Health Insurance Plan Is Best For Me?
Health insurance plans are complex and can be difficult to decipher. Some of the languages is vague. But nearly everyone – 92% of Americans in 2022 – has health insurance. How do you pick a health insurance plan? What type of health insurance is best for me? When you look at health insurance, you see a variety of plan types. There are PPOs, EPOs, HMOs, and more. It is important to understand these plan types and the benefits and downsides of each. Some are more flexible than others, some are more expensive than others, some include your doctors and others do not. This FAQ reviews some of the most frequent questions about selecting the right insurance plan for you.
What Costs Should I Consider When Selecting A Health Insurance Plan?
There are many different costs associated with all types of health insurance plans. Some of the most common are premiums, deductibles, copays, coinsurance, and out-of-pocket maximums.
A premium is the amount of money that a policyholder must pay to the insurance company to be enrolled in the chosen plan. Premiums are usually billed monthly but may be billed at different intervals. Premiums must be paid to keep coverage active.
A deductible is an amount you must pay for covered health services before the insurance company begins to provide coverage. Once a policyholder has met their deductible, they are typically only responsible for copayment or coinsurance. Many health plans will cover certain services before the deductible is met, such as annual checkups and some types of preventative care. Some plans have separate in- and out-of-network deductibles. Find more information on this here.
Copayment is a fixed amount that you are required to pay for a covered health service. Typically, before the deductible is met, the policyholder must pay the full cost of the service. Once the deductible is met, the policyholder will only be responsible for the price of the copayment. Certain services, such as annual checkups and preventative care, are covered by the plan before the deductible is met and only require a copayment.
Some plans also include coinsurance. Coinsurance is a percentage of the cost of covered health services that you pay once you’ve hit your deductible. Like a copayment, once a policyholder has hit their yearly deductible, they are only responsible for an agreed-upon portion of the cost. Copayment is a fixed cost, such as $20 per appointment, while coinsurance is a percentage, such as 20% of the appointment cost.
An out-of-pocket maximum is an agreed-upon amount included in many health insurance plans. As we’ve seen, there are many different types of costs associated with health insurance plans. Deductibles, copays, and coinsurance are all costs a policyholder must pay out of pocket. Many insurance plans put a cap or a limit on the amount of money that a policyholder may be required to spend out of pocket per coverage year. For example, if your out-of-pocket maximum is $6,000, you’ve already met your $3,000 deductible, and you have now paid an additional $3,000 in copays and coinsurance, the insurance is required to cover all remaining costs for the coverage year, without copays or coinsurance from the policyholder. Policy premiums do not count toward the deductible or the out-of-pocket maximum. And note that you might pay more than your out-of-pocket maximum if you see out-of-network providers. Learn more here.
All policies use a combination of the above costs to cover your medical care. For example, a plan that has a high premium will most likely have a lower deductible and lower copays, while a plan that has a low premium will most likely have a higher deductible, and a higher out-of-pocket maximum as well. If the policyholder is a relatively healthy young person who rarely requires specialized medical services, a low premium plan might suffice. The out-of-pocket costs will be higher, but if this person doesn’t have many healthcare costs within the year, it would be the more cost-effective option. For someone who is in poor health, or has a chronic condition, it may be more beneficial to pay a higher premium so that there are fewer out-of-pocket expenses, especially for specialist care and higher-cost prescription drugs.
What Do “In-Network” And “Out-Of-Network” Mean?
Most health insurance companies have contracts with a “network” of doctors. The insurer provides patients, and in return, the healthcare providers offer discounted prices for services. In an area where most people are covered by one or two major insurers, healthcare providers often contract with these insurers so that they can treat the insurers’ local patient population.
Healthcare providers that do not have a contract with a specific insurer are considered “out-of-network” by that insurer. Because they do not have a contract with the insurance company, these providers typically do not offer discounted prices. Ultimately, visiting an out-of-network provider is almost always more expensive for the policyholder. And it is always more expensive for the insurance company – if they will cover it.
Learn more about in-network and out-of-network care and deductibles here.
Health Plan Categories – Bronze, Silver, Gold?
All plans provide coverage for quality medical care, but the health plan category determines how a policyholder and the insurance company split the cost of services. All Marketplace health plans have four categories – bronze, silver, gold, and platinum. The more the insurance pays, the higher the plan premium likely is.
Here is an estimate for how each tier splits the cost of health care services:
Other Considerations – Drug Formularies and Providers
All health care plans that include coverage of prescription drugs have a determined drug formulary. A drug formulary is a list of prescription drugs that a plan will cover. Most formularies use a tiered system to determine how much a policyholder must pay for any given prescription.
Most plans have anywhere from three to five drug tiers. Medicines in the first tier are typically the least expensive for the policyholder. The first tier includes the most generic drugs and has the lowest copay. The second tier often includes the most common brand name drugs, preferred brand name drugs, and some high-cost generic drugs. As these are typically more expensive for the insurance company, the copay on second-tier medications is somewhat higher. The third tier includes non-preferred brand name drugs for the highest copay. In some plans, there are fourth or fifth tiers. These are typically reserved for very high-cost or specialty drugs. Instead of a set copay, these drugs may require coinsurance, a set percentage of the drug cost, instead of a set dollar amount.
All health plans have their own drug formularies—even if the same drug is covered by two different plans, there may be two different prices. There are also many prescription drugs that are non-formulary, which means the insurance company will not cover them at all. (In some cases, you can ask for an exception to the formulary.) If you are switching health plans and require a specialized or high-cost prescription medication, make sure that it is included in the drug formulary of the health plan you choose.
Providers – What Kind Of Care Do You Need?
When choosing a health insurance plan, it’s important to consider what kind of care you might need, and what kinds of doctors you might need to see. With some plans, you can select your own primary care physician, select your own specialists without a referral, and even elect to see an out-of-network doctor. Other plans, however, restrict your ability to select your providers and require referrals from your primary care physician to see a specialist. Some plans do not allow you to see any doctors out-of-network, so if you require very specialized care, it may not be covered by your insurance.
What Types Of Health Insurance Plans Are There To Choose From?
Health Maintenance Organization (HMO)
HMOs have their own network of doctors, hospitals, and other health care providers that have agreed to provide services at a certain price. The two components of an HMO are cost and choice.
HMOs can offer a lower monthly premium because of the price agreement the insurance company has with in-network providers. HMOs may also have lower copays and coinsurance, so an HMO is typically a more affordable plan. However, HMOs do not cover any out-of-network care whatsoever, except in cases of a true emergency.
Because it is one of the lower-priced plans, HMO policyholders do not have as much power to choose their care providers. The policyholder will first choose a primary care physician (PCP) that is in-network. From there, if the policyholder needs to see any specialists or have any testing done, they will need the PCP to provide these referrals. All referrals to specialists will be given by the PCP to in-network providers. The policyholder does not get to choose their specialists.
An HMO is a great affordable insurance option for those who do not require frequent medical care or do not frequently see specialists.
Some things to consider when choosing an HMO plan – HMOs typically have a lower premium and lower out-of-pocket costs (such as deductibles and copays). However, you must go through your primary care physician for all referrals, so you don’t have as much freedom to determine your own providers. HMOs also only cover in-network care, so this may not be the ideal plan for someone who travels often.
Preferred Provider Organization (PPO)
Preferred Provider Organizations (PPO) also offer a network of providers that have agreed to offer services at a certain rate, but you are not required to see an in-network doctor. Under a PPO, the policyholder can choose their own providers. Policyholders can schedule appointments with specialists directly, and do not have to rely on their primary care physicians to provide referrals.
Because of this flexibility, PPO monthly premiums are higher, and copays will most likely be higher as well. There is also an annual deductible that must be met before the plan’s benefits take effect.
The plan will offer coverage for some out-of-network services, but as the cost is higher for the insurance company, the plan may cover a lower percentage of the cost than it would for in-network services. Ultimately, you can receive out-of-network services, but the out-of-pocket cost to the policyholder will be higher than for in-network services.
Things to consider – Policyholders may see any doctor without the need to coordinate medical care through a primary care physician. A policyholder may also receive out-of-network care, if necessary, even if it is a little pricier. A PPO is a good choice for those who want control over their healthcare and don’t mind paying for it.
Exclusive Provider Organization (EPO)
EPOs are somewhat of a middle ground between HMOs and PPOs. EPOs also offers a network of providers that have agreed to provide services for a certain rate. Like a PPO, EPO policyholders are not required to coordinate their care through a PCP and do not require referrals to see specialists. Like an HMO, however, EPOs only cover in-network services. Policyholders can pick their own providers, but only those in-network. Out-of-network care is not provided except in the case of a true emergency.
EPO plan price points are between HMO and PPO. The plan will cover all services to a specified percentage but will not cover any out-of-network expenses.
Things to consider – Policyholders have more control over their providers and care team but must select from within the network. Policyholders may not go out of network, so frequent travelers or those who require specialist care may not be best served by an EPO.
Point of Service (POS)
POS plans are somewhat of a combination between HMOs and PPOs. POS is a lower-cost plan, but it has fewer provider options. POS plans are like HMOs in that the policyholder must select a PCP and coordinate all care through their PCP. POS plans are like PPOs in that policyholders have the option of seeking in-network or out-of-network care. Out-of-network care is covered but most likely at a higher cost to the policyholder.
Things to consider – A POS plan is a more affordable option with wider access to all sorts of doctors in different places. While policyholders still need to coordinate their care through a primary care physician, they have the option to see any specialist they may need, wherever they may be at the time.
High Deductible Health Plan (HDHP)
High Deductible Health Plans have much lower monthly premiums but have much higher deductibles, which means the policyholder must pay more out-of-pocket before they start receiving policy benefits. An HDHP plan can be an HMO, PPO, EPO, or POS. In 2021, 55.7% of American private company employees were enrolled in HDHPs.
High Deductible plans come with the added benefit of a Health Savings Account (HSA). Because the deductible is so high, policyholders have the option of putting a portion of each paycheck into a separate Health Savings Account. Some employers will even contribute a certain amount to their employees’ HSAs every year. The money taken for the HSA is untaxed, which is a great benefit. HSAs can be used to pay for any out-of-pocket expenses, such as copays, prescription medications, and other medical expenses. HSAs are only offered for High Deductible plans.
Things to consider – An HDHP is a low premium option with the option to have a dedicated savings account just for medical expenses. An HDHP may be a good choice for a young, healthy person who does not expect to need much care over the year. It may also be a good option for someone who can afford high deductibles. But HDHPs may not be great selections for people with chronic diseases, for those who cannot afford a high deductible, or in plans where employers don’t contribute to the HSA.
What Type Of Health Insurance Is Best—Receiving Health Insurance Through My Employer Or Buying It Directly?
The way you receive your insurance determines what regulations apply to the plan. The most notable set of regulations that affect health insurance plans is the ERISA laws. The Employee Retirement Income Security Act (ERISA) applies to all health plans provided through private employers. ERISA was passed in 1974 as an effort to protect pension plans in the private sector. To do this, certain federal tax regulations were implemented to regulate employee benefit plans, including health insurance. ERISA is meant to protect retirement savings from being mismanaged or abused by employers. In turn, this limits the policyholder’s ability to take legal action when their employer-provided insurance company acts in bad faith.
ERISA limits the right to certain legal actions. A policyholder under an ERISA plan may not demand a jury trial or full trial, and is not able to sue for breach of contract, bad faith, or bad behavior. If an important health service has been denied, a policyholder may be able to sue for coverage of the service, but they may not recoup any damages outside of the cost of the service. For example, if the lack of care led to other health issues, a policyholder would not be able sue for damages.
Employer-provided insurance is typically sponsored to a certain extent by the employer, meaning that monthly premiums may be more affordable for a higher level of coverage. However, it is important to understand the limitations policyholders experience when their insurance companies act in bad faith. You can find more information about ERISA insurance plans here.
Non-ERISA policyholders generally belong to one of these four categories:
- Government employees – local, county, city, state, or federal
- Those who have individually purchased insurance policies
- Religious organization employees
- Business owners whose policies do not cover any employees other than the business owner
You can learn more about non-ERISA health insurance plans here.
Are There Employer Health Plans That Allow Employees to Purchase Affordable Care Act Plans Directly?
Some employers allow employees to purchase health insurance plans directly from their local marketplace (i.e., Covered California or healthcare.gov). Two types of health reimbursement arrangements (HRA) include an Individual Coverage Health Reimbursement Arrangement (ICHRA) and a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Both arrangements enable employers to provide a monthly dollar amount to reimburse eligible health services to their employees tax-free. There are over two hundred eligible services as defined in IRS Publication 502. (Employer contributions are both payroll tax-free and tax-deductible.)
QSEHRAs are for employers that don’t provide group health insurance but ICHRAs can be utilized by employers that also offer group health insurance. Although ICHRA plans are open to employers of any size and permit these employers to provide any dollar amount as well as different dollar amounts to different employees, QSEHRA plans are for companies with fifty or fewer employees and dictate that employers give the same dollar amount to every employee. The IRS caps QSEHRA allowances by establishing an annual maximum contribution limit. And some employees with ICHRA plans may also qualify for a premium tax credit (PTC).
What Is A “Self-Funded” Or “Self-Insured” Plan And How Does it Impact Me?
Typically, a policyholder pays monthly premiums to their insurance company. The insurance company uses the premiums it receives from all policyholders to pay for covered healthcare services. In some situations, a company or large entity may elect to pay for the healthcare services of its insured on its own. A self-funded plan is very typically seen in large companies or government entities. In 2023, 65% of employers had self-funded plans. In the same year, 83% of employees in large firms were covered by self-funded plans.
For example, all employees of the State of Nevada are insured through a self-funded plan. This means that the state uses its own money to pay for all medical services of its insured. A private insurance company may act as the Third-Party Administrator (TPA) for the plan, meaning that they are contracted to handle the claims, requests for coverage, authorizations, and so forth. The only difference is that the money used to pay for medical services of these policyholders comes from their employer, not the health insurance company. The insurance company is simply an administrator of the plan’s benefits.
Unlike insurance companies that are regulated by state laws, self-funded plans are regulated by federal laws. And sometimes, like for mental health and substance use disorders in the state of California, state laws are more stringent than federal laws.
With a self-funded plan, your company can get involved in determining your claim. For example, if the TPA denies your claim, you can approach your company health plan administrator for assistance. Your company administrator may uphold the TPA’s decision, or this individual(s) may override the TPA and approve your claim for care.
Self-funded plans have limitations in terms of legal action. You may be able to sue for the cost of the denied service, but you cannot sue a self-funded plan for insurance bad faith.
Does It Matter If A Health Insurance Plan Is Compliant With The Affordable Care Act?
The Affordable Care Act passed in 2010 established certain regulations on health insurance plans, with requirements for what care plans must cover, and prevent discrimination based on pre-existing conditions, age, income, or any other factor. All plans have guaranteed issues, meaning that if someone chooses to enroll in a plan, the insurance company must allow them to. Insurance coverage may not be revoked without reason, and insurance companies are required to spend 80-85% of premiums on medical coverage. All ACA-compliant policies must include coverage for the ten essential health benefits, with no coverage maximums.
The Ten Essential Health Benefits:
- Ambulatory Services (visits to doctors and outpatient hospital care)
- Emergency Services
- Maternity and Newborn Care
- Mental Health and Substance Abuse Treatment
- Prescription Drugs
- Lab Tests
- Preventive Services
- Pediatric Services (including dental and vision)
- Rehabilitative and Habilitative Services
The ACA was implemented to ensure the quality of care and coverage of essential services. There are some health plans that are not ACA-compliant, meaning they do not follow the regulations set by the ACA. Only plans that are considered “major medical insurance” are required to be ACA-compliant. Plans that are not compliant include plans like short-term medical insurance, fixed-dollar indemnity plans, dental, and vision plans.
One notable element of the Affordable Care Act is its goal for all Americans to be insured. To reach this goal, a federal penalty was applied to every uninsured person. To avoid this penalty, a person must be enrolled in a plan that is considered “minimum essential coverage.” The federal penalty no longer applies, but in Washington D.C., New Jersey, California, Massachusetts, and Rhode Island, a state penalty does exist. Plans that are not ACA-compliant are not considered minimum essential coverage.
Aside from a monetary penalty in the aforementioned states, plans that are not ACA-compliant may change the cost of premiums or the extent of coverage based on a specific policyholder’s medical history. These plans are also not required to cover all ten of the above-listed essential health benefits.
While non-ACA-compliant health plans are more affordable than compliant plans, the lack of regulation and guarantee of a certain level of care can be extremely detrimental to the policyholder. If an unexpected health emergency occurs, a policyholder may not receive the coverage that they need.
Why Should I Be Cautious If The Health Insurance Policy Is Very Inexpensive?
Very inexpensive insurance plans are typically not compliant with the Affordable Care Act. As mentioned above, certain plans do not meet ACA requirements of minimum essential coverage. Examples of these plans include Health Care Sharing Ministries, short-term health plans, and unlicensed health plans. While in a period of transition, it may be tempting to pick a much cheaper option. However, in the event of a health emergency or any type of lapse in coverage, medical bills can become unmanageable. It is always in your best interest to enroll in an ACA-compliant health plan, even if the premiums are more expensive. There are many resources available to help you find an ACA-compliant health plan that you can afford. You can find a list of resources in California here.
Where Can I Purchase Health Insurance?
There are a few ways health insurance can be purchased. Firstly, many employers offer full-time employees the opportunity to enroll in the employers’ chosen health insurance plan. Many employers pay a certain amount of the employee’s monthly premium, which makes it a more affordable option for several people.
If health insurance is not offered through an employer, there are a few options. Firstly, healthcare.gov is a federal government website that provides resources to those looking to enroll. The website will ask for your state of residence, age, as well as a few questions about income. If a person’s income is low enough, they may qualify for public health insurance such as Medicaid (Medi-Cal in California), and if they are above a certain age they may qualify for Medicare.
Certain states, such as California, offer their own government assistance programs to help low-income policyholders afford health insurance. Healthcare.gov will help you determine if your state has a separate government program. At Covered California, you can easily find a plan that works for your health needs and budget. Depending on your income, household size, and the age of people needing coverage, Covered California will show you the options that are available to you and their prices, as well as the amount that the state of California may be able to subsidize to ensure you receive the best and most affordable care.
You can also purchase health insurance directly through an insurance company. It is very simple to enroll in a health insurance plan on the insurer’s website. While not all insurers offer plans on the exchange, many do. If you purchase insurance directly from an insurance company, it is a good idea to check the policies and prices against what the same insurance company offers on healthcare.gov. You may find that the same exact coverage is more expensive when purchased directly from the insurance company.
Are There Subsidies for Affordable Care Act Health Insurance Plans?
There is financial assistance for people directly purchasing Affordable Care Act health insurance plans. The two main forms of financial aid include premium tax credits and cost sharing reductions. Premium tax credits reduce your monthly insurance payments. Cost sharing reductions reduce your deductibles and additional out-of-pocket costs when you see a physician or go to a hospital. You can learn about eligibility here.
As of September 2023, thanks in part to the American Rescue Plan Act (ARPA), four out of five people who enrolled in ACA individual market plans were subsidized. And ARPA subsidies continue through 2025. Always investigate ACA marketplace plans at healthcare.gov to learn about what you qualify for. In California, for example, from 2021 onward, there were plans for low income individuals with premiums as low as $0 or $10 per month.
What Type Of Health Insurance Is Best If I Don’t Have Money To Pay For Health Insurance?
One of the great accomplishments of the Affordable Care Act was making health insurance available to all people, regardless of their income. People 65 years or older, as well as certain younger people with disabilities, can enroll in Medicare, which is a health insurance program funded by the federal government. Medicare plans are often completely covered by the government, but certain plans with more extensive coverage may include low monthly premiums.
Medicaid is also a great option for people with low incomes at any age. Medicaid is a program that is funded by the federal government in conjunction with the specific state government. Because of this, each state has a different Medicaid program with different eligibility requirements. In California, the Medicaid program is called Medi-Cal. Medi-Cal offers no-cost to low-cost health insurance plans for those that qualify.
Certain states also offer insurance premium assistance programs. Covered California offers a certain amount of financial assistance for private insurance premiums, dependent on the policyholder’s income. Some people may have their premiums fully covered, while some might have to pay half of the monthly premium. If you go through Covered California to select your insurance plan, the website will use your income and household size to determine how much assistance the state of California can offer.
What Does Health Insurance Plan Summary of Benefits Tell Me?
The Affordable Care Act requires all health insurance companies to provide policyholders with a clear summary of benefits and coverage that lays out what benefits are available, how much the insurance will cover, and how much the policyholder will be personally responsible for.
The Summary of Benefits is a document that provides an overview of the costs, benefits, and covered services. It’s in the Summary of Benefits that a policyholder can see how much their yearly deductible is, or how much a copay for a specialist visit will cost. When deciding which plan to enroll in, one can review each plan’s summary of benefits to determine which plan might best suit their specific health needs.
Does It Matter If an Insurance Company Is For Profit Or Non-Profit?
The title “nonprofit” can be somewhat misleading. Those who work for nonprofit organizations still make a salary, and nonprofit organizations still turn a profit. However, nonprofit organizations are designated as such because the profit they do make is meant to be reinvested into a particular social cause based on shared values, rather than split up for the benefit of shareholders or owners of a company.
To operate, health insurance companies need to make a profit. The company must receive enough monthly premiums to afford coverage for all its policyholders, to pay employees’ salaries, and so on. The difference is what they do with the leftover profit once all necessary expenses have been paid for. A nonprofit insurance company, such as Kaiser Permanente, may reinvest its profit into new hospitals or clinical trial research to further medical technology. A for-profit insurance company, such as Cigna and Anthem, may just divide its profits amongst its shareholders, and not reinvest in a specific cause.
Nonprofit and for-profit simply determine what the company’s profits may be used for. There is debate about which formation is most beneficial for the economy, but the standard of care and the amount of coverage should not be impacted by a health insurance company’s status as a non- or for-profit.
What Is the Risk If I Don’t Have Health Insurance?
When the Affordable Care Act was first passed in 2010, a federal penalty was applied for every individual who was not enrolled in a health insurance policy. This was to achieve as high a rate of coverage as possible. The federal penalty has been lifted, but some states still enforce it. In California, there is a penalty of 2.5% of your annual income if you are not enrolled in a health insurance plan. If the amount you spend on monthly premiums is less than 2.5% of your annual income plus the amount that you would have to pay for medical care out-of-pocket, it is in your best financial interest to enroll in a health insurance plan.
Aside from the financial penalty, being uninsured puts your health at great risk. Minor injuries such as cuts and twisted ankles may not seem worth a doctor’s visit but can easily turn into something much worse. Many doctors’ offices will turn uninsured patients away because of the lack of guarantee that the bill will be paid. Being uninsured sometimes encourages a person to avoid seeing a doctor until their medical condition is catastrophic. In this case, hundreds of thousands of dollars of medical bills can pile up. If these bills go unpaid, they may be sent to collections agencies, which has a significant negative impact on your credit. With large sums of unpaid medical bills, many people are unable to receive further care, may be unable to secure a housing lease, and may be unable to take out loans to buy a car or a house.
With the resources and the funding available to you, there is no reason that you should not enroll in a health insurance plan. The Affordable Care Act has made it easier than ever to receive coverage for care that is vital for every person.
The Law Offices of Scott Glovsky
Los Angeles, Claremont, and Pasadena-based Law Offices of Scott Glovsky has been fighting for the rights of insurance policyholders for more than 20 years. Scott Glovsky is recognized as one of the most well-respected, experienced, and compassionate insurance attorneys in the country. We have helped many policyholders get the care they desperately need and are already paying for. Results of our cases have impacted millions of California insurance policyholders by forcing insurance companies to change their behavior – including their processes of reviewing requests for medically necessary treatments.