Understanding Health Insurance

from the AOM Blog:

Heading Out on Your Own: A Young Man’s Guide to Health Insurance

I can distinctly remember the day I had to sign up for my own health insurance plan. Kate and I were getting married which meant I would be kicked off my parents’ plan. I sat down at my bachelor’s thrift store kitchen table and looked through the paperwork. I felt like a grown man. I was cutting the strings from my parents and becoming self-reliant.

But I also remember feeling super confused by the crazy terms and acronyms before me. Which plan was right for me? How much was this going to cost? Why don’t they teach this crap in school? It took me a couple of weeks, but I was finally able to adequately wrap my 22 year old head around the health insurance labyrinth and pick a plan that was right for us.

This will only hurt for a second.

Sure, health insurance isn’t a very sexy topic, but learning those life skills basics is part of growing up, and if you’re like me, no one ever sat you down and explained how this stuff works. So to help those young men out there who are about to enter into the grown-up world of health insurance, I offer this primer in hopes of them avoiding my state of utter confusion. Of course, this post is aimed at American men; other countries have their own systems (although this post is not the place to debate them!).

Why It’s Important to Have Health Insurance

According to the Independent Insurance Agents and Brokers of America, young people ages 18-24 are less likely to be insured than any other demographic. In fact, only 1 in 3 young people ages 18-24 are insured.

Many young men forego insurance because they feel like it’s an expense they simply don’t need. Men in these demographics are typically healthy and probably haven’t visited a doctor in a few years. They think they’re invincible and that nothing bad will ever happen to them.

While I understand the cocksure attitude, it’s always better to be safe than sorry. If you’re one of those young guns who doesn’t think he needs insurance, here are a few reasons you might reconsider:

Unpaid medical bills lead to debt and bankruptcy. I worked at the U.S. Trustees office a few years ago. They’re the agency that manages bankruptcy cases in the U.S. Most of the people who filed for bankruptcy did so because they couldn’t afford to pay their medical bills.

Health insurance can’t always save you from astronomical debt if something catastrophic happens to you, but it can sometimes keep you from falling into that hole or at least mitigate the debt. Health insurance plus a fully funded emergency fund can go a long way to keeping you out of financial disasters. Remember, an ounce of prevention is worth a pound of cure.

Healthcare is cheaper with health insurance. Health insurance companies negotiate with healthcare providers to lower the costs of healthcare. So for example, a doctor might charge $250 to cast an arm. The health insurance company will look at that price and tell the doctor, “Make that $100 and you got yourself a deal.” The health insurance company will then pay its portion of the $100, and the doctor will bill you for the rest.

If you didn’t have health insurance, you’d have to pay the entire $250 or negotiate for a lower price on your own. Because health insurance companies are so big, they have a lot of leverage in haggling, which often means you can get a better deal.

You miss out on preventative care and screenings. It’s much cheaper to prevent medical conditions than it is to cure them. Yearly physicals can catch health issues before they become full blown problems. Many health insurance plans offer these screenings for free.

Health Insurance Lingo You Need to Know

To navigate health insurance, you need to know the lingo. Here are three key terms you’ll see thrown around as you try to pick your insurance plan.

Premium: a fixed monthly rate you pay to have insurance. How much you pay for your premium each month depends on your health insurance plan.

Deductible. Your deductible is the pre-determined amount YOU have to pay out-of-pocket on health services before the insurance company starts to pony up. So for example, let’s say you have a plan with a $1,000 deductible. That means you’ll need to pay $1,000 with your own money in a given year before your insurance will start picking up the bill.

Plans with high deductibles will have lower premiums, i.e., the more you pay out-of-pocket, the less you have to pay on a monthly basis to be covered.

One caveat with deductibles: Many health plans allow you to use services like a trip to the emergency room or a routine doctor’s visit without meeting the deductible first. Your insurance will cover part of the cost upfront for those sorts of things before you’ve paid your deductible. You’ll get a bill from the doctor a few weeks later for the costs that weren’t covered.

Co-Payment. Many plans require you to pay a co-payment for doctor’s visits or for medications. A co-payment is a fixed payment required by an insurer as a cost sharing arrangement. For instance, you can pay $20 for an office visit and $10 for a prescription. After that initial co-payment from you, your health plan covers the rest.

Now you might be asking yourself, do your co-payments count towards your deductible? Depends on the plan, but for most plans, co-pays don’t count. Drat!

Different Kinds of Plans

Health Maintenance Organization (HMO). Under an HMO, your insurer gives you a list of primary care physicians (PCP) you can choose from. You can only choose from that list. If the doctor you’ve been visiting since you were a wee lad isn’t on the list, you can’t see him. Sorry. After you choose your PCP, you must visit him/her for any medical issues. The PCP then decides whether your ailment is bad enough to warrant a visit to a specialist. But again, your HMO dictates what specialists you can see.

In short, HMOs put restrictions on services a patient can receive and make going to see a specialist rather inconvenient. However, the lack of choices keeps premiums low, thus making HMOs an affordable option.

Preferred Provider Organization (PPO). PPOs give patients a bit more choice in their healthcare than HMOs. You can go to any doctor you want, but visits are more affordable if you stay within the network of physicians that work with the PPO healthcare plan. PPOs will cover visits to out-of-network doctors and hospitals, but not as much as if you had used a pre-approved doctor. Another benefit is you don’t have to get a referral from a primary care physician before seeing a specialist. However, if you visit a specialist outside your network of physicians, expect to pay more. The increased flexibility often results in higher premiums and co-pays.

Point of Service (POS). POS plans are a hybrid of HMOs and PPOs. Like an HMO, patients are required to get referrals from a primary care physician before seeing a specialist. Like a PPO, patients have more flexibility on who they pick as their PCP.

Exclusive Provider Organization (EPO). EPOs are similar to PPOs in that patients don’t need to visit a primary care physician before visiting a specialist. As long as a doctor is in your plan’s network, an EPO will cover the service. Unlike PPOs, EPOs do not cover visits to out-of-network doctors at all. You can visit an out-of-network doctor if you want, but you’ll be stuck covering all of the doctor’s bill.

High Deductible Plan+Health Savings Account. An affordable healthcare option for healthy individuals is a high deductible health plan along with a health savings account (HSA). In exchange for having a higher deductible, you pay a lower monthly premium. Most PPOs and EPOs provide high deductible options. After you sign-up with a high deductible plan, you’re eligible to open an HSA.

HSAs have some pretty awesome tax advantages. If you have a family, you can deposit up to $5,950 a year tax free ($3,000 if you’re single). You’ll get a debit card with your HSA. Anytime you need to pay for qualified medical expenses (co-pays, drugs, bandages), you use your debit card. Basically, when you put money into an HSA, you don’t have to pay income tax on it. You can write off contributions at tax time.

A nice feature with HSAs is that any money left over in your account at the end of the year rolls over to the following year. It’s not like Flex Savings Accounts (see below) where you have to spend your contributions by the end of the year or you lose it.

High Deductible Plan+Flex Savings Account. Works pretty much the same way as an HSA. Employees can contribute a part of their paycheck to an FSA that can be used for qualified medical expenses. The big difference between FSAs and HSAs is that with FSAs, if you don’t spend your contributions by the end of the year, you forfeit the money to your employer. It’s called the “use it or lose it” rule. Personally, I think HSAs are much better than FSAs.

Which Plan Is Right for You?

Deciding which plan is right for you can be a daunting task. With so many choices, it’s easy to become overwhelmed. Be sure to read all the materials on different plans and work through the different worksheets that many health insurance companies provide to help you determine which plan is right for you.

As you browse through the different plans, here’s a short list of questions you might consider to help you narrow in on a plan that fits your needs:

• Did I get sick a lot last year? Do I have any conditions that require me to visit a doctor more than a few times during the year? If so, you might consider a higher premium plan so you can visit the doctor more often without having to pay a lot out-of-pocket for your deductible. If you’re healthy and don’t visit the doctor all that often, a higher deductible plan with lower monthly premiums might be a better option.
• Do I want to be able to go directly to a specialist without seeing a PCP? If so, avoid HMOs and POSs and opt for a PPO or EPO.
• Is my current doctor in my plan’s network? If he’s not, you won’t be able to use him if you have an HMO. Even if you go with a PPO, you’ll have to pay extra to visit your out-of-network doc. You’ll have to decide if the extra cost is worth it and if you’re willing to switch doctors.
• Am I getting married soon? How easy is it to add a spouse to my plan?
• Am I planning on becoming a dad soon? Many plans require that you pay for maternity coverage for an entire year before your wife gets pregnant. If you don’t, they might not cover the costs of maternity check-ups or even delivery. Check with your insurance company before you and the Mrs. decide to start making babies.

Getting Health Insurance Through Work

Congratulations! You landed your first adult job with a salary and health benefits. *Firm handshake, slap on the back*

Now for your first assignment: picking your health insurance coverage. Some companies only give their employees one crappy option while others provide a Chili’s-length menu of different plans. It can be pretty intimidating to pick which plan is right for you, so don’t be afraid to ask your co-workers or an HR person for some advice.

Just because you have a job, health insurance isn’t free. Big companies can buy insurance for less than individuals because their size gives them greater bargaining power and discounts. But a big misconception that many young employees have about health insurance from work is that it’s entirely free. Unless you’re working for some super generous company that covers all your healthcare costs without docking your pay, you’re still going to have to pay a monthly premium. While not free, many companies do pay part of your health insurance plan, and the part that you pay is deducted from your paychecks.

What coverage you go with will affect how large of a premium you pay, and consequently, how much your paycheck will be. If you pick the plan with all the bells and whistles, expect a smaller paycheck than you would get if you had picked a more bare bones plan.

Once you pick a plan, you’re usually stuck for a year. When choosing your plan, choose wisely because you’re going to be stuck with it for awhile. Most companies only allow employees to make changes to their health benefits one time a year during a period called open-enrollment. There are a few exceptions to this rule for things like getting married or having a kid.

What to Do If You’re Unemployed or Self-Employed

If you’ve recently graduated from college and still haven’t landed a job or if you’ve decided to be your own boss, it might seem like getting affordable health insurance is out of your reach. Never fear. You do have some options.

Buy individual coverage. Believe it or not, most health insurance companies offer pretty affordable individual and family coverage. When Kate and I were first married and in school, we bought a plan directly from Blue Cross Blue Shield of Oklahoma. Today, now that we’re self-employed we’re buying our healthcare coverage directly from BCBS again.

Because Kate, Gus, and I are healthy and don’t have any major problems, we have a high deductible plan with a health savings account. Despite being a high deductible plan, I haven’t had to pay much out-of-pocket for routine visits or medication. Our plan actually covers a great deal of those costs up front without me having to pay a deductible first. For coverage for all us, including dental and maternity coverage (in case Kate gets pregnant again) we’re paying $426 a month. And I make sure to set aside as much money as I can each month in our tax free health savings account. The plan comes with free yearly physicals and free immunizations.

To find a plan right for you, check out ehealthinsurance.com. You just enter your zip code and you’ll get quotes from insurance companies in your area.

Stay on your parents’ plan. It used to be as soon as you turned 19, stopped going to school full-time, or got hitched, you got kicked off your parents’ health insurance (that’s what happened to me when I got married). Under the new healthcare legislation, adult children can stay enrolled on their parents health insurance plan until age 26. If buying your own health insurance isn’t an option, ask your parents if you can stay on their plan. Offer to contribute some money every month to help offset the cost of covering you. There are some caveats with this law. For example, while you can remain on your parents’ plan even if you’re married, your spouse and kids won’t be covered. For more details on staying on your parents’ plan, check out healthcare.gov.

Get a job flipping burgers. Or making coffee. Or folding clothes. The job market is tough right now for recent college grads. While you’re waiting to get your first big 9 to 5 job, get a stopgap job in retail or food service. Many of those sorts of jobs offer group health insurance plans you can take advantage of.

Short-term health insurance. Short-term plans are a low cost way to get coverage while you’re in-between jobs. Short-term health insurance plans have low monthly premiums, but a very high deductible, and they only cover you for a limited amount of time–usually 30 to 120 days. These are great plans for healthy people who want to avoid the crippling debt that can come with a major medical emergency. For more info about short-term health plans, check out gradguard.com and ehealthinsurance.com.

I hope this short little primer on health insurance was useful for you gents new to the game.