For all the good health insurance can do, it can be confusing to many people. If you’re shopping for it, you may be presented with a wide variety of options for health insurance companies, costs, and more. These options can vary depending on your age, family needs, and other factors. Health insurance terminology is often non-intuitive as well. That can add to the confusing feel of the shopping process.
The purpose of this article is to help clarify some of that confusion. We’ll take a look at what health insurance does; the types of health insurance, including HMOs and PPOs; and give you some guidance on what to look for when shopping for a policy.
What is health insurance?
Ok, let’s start with the basics. Health insurance is designed to make your medical care — which in the United States, can be very expensive — more affordable. According to the Kaiser Family Foundation (KFF), all except about 11 percent of the US population had some form of health insurance in 2020.
When you buy insurance, you pay a fee called a premium to purchase a policy from a provider (either a private health insurance company; or, with a public program such as Medicare, the government). That policy can help you pay for services such as emergency or urgent care if you get sick or injured, for the treatment of a chronic condition, for surgery, for procedures related to pregnancy and childbirth, and more.
Importantly, your policy can also help you pay for preventative care — those regular visits to the doctor for “check-ups” to evaluate your overall health, perform routine tests, and help identify any potential issues. Health insurance can also help you pay for expenses related to vision and dental care, as well as pharmaceuticals (such as medications) prescribed to you by a doctor.
Since the passage of the U.S. Affordable Care Act, in 2010, all health insurance policies have been required to help you pay for what’s known as the “10 essential benefits.” According to the ACA website, healthcare.gov, these include the following:
- Ambulatory patient services (outpatient care you get without being admitted to a hospital)
- Emergency services
- Hospitalization (such as surgery and overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance use disorder services, including behavioral health treatment (this includes counseling and psychotherapy)
- Prescription drugs
- Rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care (but adult dental and vision coverage aren’t essential health benefits)
Policies must also help you pay for birth control and breastfeeding (this includes support services and equipment for nursing mothers).
Copayments, coinsurance, and deductibles
Like some other forms of insurance, health insurance does not always pay for 100 percent of your costs. If you have car insurance, for instance, you may have to pay a deductible for a collision claim. It’s usually a small portion of the total repair bill. The same principle applies to health insurance. You may need to pay a share of the costs — what’s known as a copayment, coinsurance, or deductible — until your payments reach an annual limit set by the insurance company. After this limit, the insurance company will pay 100 percent of your costs.
When buying a policy from a private health insurance company, you’re typically able to choose the overall percentage of your copayments, coinsurance, and deductibles. Insurance companies use what’s known as “metal tiers” to categorize this.
- Bronze tier: You pay 40% for your services, the insurer pays 60%
- Silver tier: You pay 30% for services, the insurer pays 70%
- Gold tier: You pay 20% for services, the insurer pays 80%
- Platinum tier: You pay 10% for services, the insurer pays 90%
The bottom line is that the more your insurance company pays for your services, the higher your premium will be. We’ll look at this again, later.
Buying health insurance from a private company
You have multiple options for buying health insurance from a private company.
Employer-sponsored private insurance
According to a 2021 survey by the Kaiser Family Foundation, approximately 49 percent of Americans have employer-sponsored health insurance (also referred to as group health insurance). This is a major part of the healthcare landscape in the US, as large companies are required to provide employer-sponsored insurance to their employees. And while small companies (fewer than 50 employees) are not required to do so, many still do. This is typically viewed as a major benefit of employment, as the company will often pay some portion of each employee’s premium. To enroll for coverage, if available, you’ll need to contact your employer.
If you lose or leave a job with an employer that provides your health insurance, that employer may offer you something called COBRA (Consolidated Omnibus Budget Reconciliation Act … let’s just stick with the acronym). With COBRA, you’re able to maintain your insurance policy for a limited period of time, generally 18 to 36 months after your employment ends. COBRA is designed as a “bridge” to keep you and your family insured until you get a new policy, either from a new employer or through one of the methods described below. One important thing to note is that since the employer no longer pays for part of the premium, COBRA policies are expensive. Again, this is intended as a short-term solution.
Individual health insurance through a government-run exchange
If your employer does not offer group insurance, or perhaps if you’re self-employed, you can shop for a policy on a government-run online exchange. The US federal government’s exchange is at healthcare.gov. Another possible option is an exchange run by your state; as of 2021, 15 US states had one.
When you use an exchange, you’ll key in some information about yourself, then will be presented with options for policies through different health insurance companies. These policies all must provide the 10 essential benefits. Furthermore, health insurance companies on the exchange are required to offer policies at different premiums (as explained above, the cheaper a policy’s premium, the more you pay in the form of copayment, coinsurance, or deductible when you need to use medical services).
Another advantage of buying a policy through an exchange is the availability of tax credits and cost sharing reductions (government subsidies for qualifying applicants). These credits and subsidies can help bring down your total cost.
Individual health insurance not through a government exchange
Another option is to buy a policy from a health insurance company that does not participate in either the federal or a state-run exchange. In this case, you can buy directly from the company; through a health insurance agent or broker; or through an online, independent health insurance marketplace. As with policies purchased through a government exchange, these must provide the 10 essential benefits.
Companies selling policies this way are not required to provide multiple prices. While this means you have fewer options, it may also mean you can find a policy cheaper than any of the options on the government run exchange. Note, however, that you’ll be ineligible for any tax credits or subsidies.
Open enrollment — this is important!
Unlike many other forms of insurance, you have only a limited time period each year in which you can buy insurance from a private health insurance company. This is known as the annual open enrollment period. The policy you buy during that period will be effective for the following year.
For policies purchased through the federal government’s exchange, for instance, open enrollment usually lasts for six weeks in the autumn (November 1 through December 15). An employer providing health insurance as an employee benefit will have a similar period. You need to shop for and buy your policy during open enrollment, or you won’t be able to get insurance for a full year!
There are some exceptions to open enrollment, including life events that make you eligible for what’s known as special enrollment: losing a job, getting married, moving, having a baby or adopting a child. Additionally, if you start a job at a company that offers employer-provided insurance, you may be able to purchase coverage outside of the standard open enrollment period.
Types of private health insurance provider networks
All private health insurance companies partner with networks of health care providers. These provider networks allow the insurance company to select hospitals, physicians and other providers that meet certain criteria, helping ensure you have access to high quality care. Partnerships also allow the insurance companies to negotiate prices for services, which ultimately helps make health insurance more affordable.
There are four main types of provider networks. When you purchase a policy, you may be asked to choose from among two or more of these types. Each provides varying levels of cost and benefit, so it’s worthwhile understanding what they do.
Health Maintenance Organization (HMO)
An HMO is the most restrictive type of network, but it also tends to have the lowest premium. When you choose an HMO, you pick a primary care physician (PCP) who is in the insurance company’s network. The PCP coordinates all of your care, including referrals to specialists. Any care that’s provided by a physician outside of the network would not be paid for by the insurance company. The insurance company may also limit the number of doctor visits, tests, and procedures it will pay for in a year.
An HMO may be a good choice if you’re looking for the lowest premium, and you don’t mind a lack of flexibility when it comes to choosing your healthcare providers.
Preferred Provider Organization (PPO)
Choosing a PPO means having more flexibility, generally with higher premiums than an HMO. You’ll choose a PCP in the insurer’s network, but the insurer will also pay for services provided outside of the network as well (though you may be responsible for some of those costs).
A PPO is a good choice if you don’t mind paying a little more for greater flexibility in where you receive care. It’s also worth considering if you travel a lot (a network may not have providers in a city you’re visiting).
Exclusive Provider Organization (EPO)
With an EPO, the health insurer requires you to use providers within its network, much like with an HMO. However, you don’t need to rely on a PCP to get referrals to specialists in that network. So if you know what care you need, you can generally get it much faster.
EPOs are a hybrid of HMOs and PPOs. They’re more affordable than PPOs, but have some of the in-network restrictions of HMOs. If you’re looking for a mix of HMOs and PPOs, and value being able to make an appointment with a specialist without a referral, an EPO may be for you.
Point of Service (POS)
A POS is another hybrid of HMOs and PPOs. As with an HMO, you choose a PCP who coordinates your care and provides specialist referrals. However, you also have access to out-of-network options for medical care.
Again, it all comes down to balancing flexibility with cost. A POS more affordable than a PPO, with a little more flexibility than an HMO. If this balance is appealing, a POS may be for you.
Supplemental health insurance (also referred to as secondary health insurance) may pay for certain items not covered in your primary insurance policy. These include things such as lost wages, transportation, certain medications, or other expenses related to an illness. It can cover the cost of your deductible, copayment, or coinsurance as well. Supplemental coverage also includes things such as dental coverage and vision insurance.
As with any other type of health insurance, the more supplemental coverage you have, the higher premium you pay. Your health insurance company may provide multiple options for these coverages, so evaluate them carefully and choose only those that apply to your needs.
Public health insurance options
The US federal and state governments directly manage multiple health insurance programs for specific groups of eligible Americans.
Medicare is a health insurance program for Americans over the age of 65, regardless of income, medical history, or health status. The program provides coverage for more than 60 million senior citizens, paying for hospitalizations, physician visits, prescription drugs, preventive services, skilled nursing facilities, home health, and hospice care. Medicare is organized into four parts:
- Part A includes hospital stays, skilled nursing and home health care. These are subject to a deductible.
- Part B includes physician visits, outpatient services, preventive services, and some home health visits. Many Part B benefits are subject to a deductible and coinsurance.
- Part C, also referred to as Medicare Advantage, enables people to be enrolled in a private health insurance plan while continuing to receive Part A and B benefits.
- Part D pays for prescription drugs.
Medigap coverage is sold by private insurance companies as a supplement to Medicare (that’s why we’re looking at it in this section).Available to people who have Medicare Part A and B, Medigap covers things such as the cost of copayments and deductibles, and care if you travel outside the U.S.
Medicaid and the Children’s Health Insurance Program (CHIP)
Medicaid and CHIP are designed to provide health insurance to eligible low income adults, children, pregnant women, elderly adults and people with disabilities. The program currently covers more than 70 million Americans. It’s administered by the states, according to requirements set forth by the federal government.
Coverage for U.S. active duty military and veterans
Current members of the U.S. military receive health insurance through a government-sponsored program called Tricare, as one of the benefits of their service. Many military veterans qualify for health insurance benefits through the US Department of Veteran’s Affairs Veteran’s Administration.
Why does health insurance cost what it costs?
Since the passage of the Affordable Care Act in 2010, health insurance companies can use only five factors when calculating your premium. These include:
- Your age
- Where you live
- Whether or not you smoke/use tobacco
- Whether you’re buying a plan for yourself, or a family
- Your plan’s metal tier (Bronze, Silver, Gold, Platinum)
If you’re young, single and a nonsmoker, you can generally expect to pay less for health insurance than someone who’s older, uses tobacco, and has a family.
Costs will also vary between insurance companies. Companies have to charge enough in premium to balance out what they’re paying back out to healthcare providers. And as insurance is a very competitive business, market forces will help dictate what premiums an insurer will charge.
It’s thus important to compare companies, coverages, and costs, particularly if you’re buying insurance through an exchange. You may find you can save money by shopping around a bit.
Shopping for coverage: some tips
If you have coverage through your employer, or rely on one of the government health insurance options, then you may not have much need to shop around for coverage.
However, if you’re actively shopping for health insurance through an exchange, there are a few points to keep in mind:
- Don’t forget about the open enrollment period, and don’t let the deadline pass you by.
- Carefully review the plan options. Consider your lifestyle, your family’s needs, and whether an option such as an HMO, PPO, or other plan is right for you.
- Consider the total cost. Remember, the premium is only part of what you pay. You’ll also need to pay copayments, coinsurance, and/or deductibles when you use your insurance. Review these carefully, based on your likely needs, to have a complete picture of your costs.
- Consider the health insurance company itself. Your best bet is reputable companies —names you may know. Check out these reviews of some of the country’s largest health insurance companies.
- Look at all your options. A student? You should be able to stay on your parents’ policy until you’re 26. A military veteran? Check with the VA to see if you’re eligible for its coverage. Or you may qualify for one of the government’s other health insurance programs.
Finally, know that there’s help. A healthcare insurance agent or broker is trained and licensed by the state to provide personalized service and counsel — typically at no cost to you. If you’re using the federal government’s health insurance exchange, you can also talk to an “assister,” which is a certified insurance expert who can help you navigate your options. Find an agent, broker, or assister in your community.
A little knowledge can go a long way
Health insurance is important, and the stakes are high in terms of both your finances and your wellbeing. So it’s important to understand how it works, your options, and what resources you have to make an informed decision. A little knowledge can indeed go a long way toward ensuring you have the health insurance you really need.