For most adults, selecting health insurance is a major personal finance decision. The monthly cost, even for those whose employers pay part of the premium, is usually high and the options are confusing, especially since medical insurance primarily comes under the jurisdiction of the individual state. In 2014, when the provisions of The Affordable Care Act, which is federal, become effective, paying for and understanding medical insurance may be less of a problem, but only time will tell. Meanwhile, you have to invest time researching your options. Here are some essential things everyone should know before selecting health insurance.
Even before the cost of medical insurance kept escalating, choosing a policy had been a difficult decision because, in essence, the status of your health is uncertain. Although insurance company underwriters create probability data about what conditions could occur for someone of your age, occupation and lifestyle, your particular situation might not follow that pattern. Therefore, you have to take into consideration worst-case scenarios. Today you might be fine and tomorrow you might require cancer surgery, chemotherapy and radiation. That cost could exceed your annual policy limit and for the treatment you might want certain providers.
Given those possibilities, you have to pay attention to five factors when shopping for health insurance.
Limits: Caps on the amount of reimbursement for certain diseases, as well as what they are on an annual or lifetime basis, are a major cause of medical debt. According to a 2009 study published in the “American Journal of Medicine,” 62 percent of bankruptcies are caused by medical bills. It is being financially self-protective to pay a higher premium for no caps or very high ones. Unless you have recently used medical care you are likely unaware of the price tags. Those expenses, as they say, are causing “sticker shock.”
Coverage: Policies differ widely, both from state to state and within states, so you must investigate what preventive healthcare, what diseases and conditions including pregnancy, and the kinds of treatment and medications will be reimbursed in full or at what percentage – and at what fee in terms of the monthly premium. Policies, sometimes known as “junk coverage,” which have too many exclusions may never be the way to go, even if you are young and seemingly healthy.
Choice: The lower the cost for comprehensive coverage usually means the less choice you have in terms of providers. For example, the heath maintenance organization (HMO), which has the lowest cost, frequently assigns a primary care physician who authorizes not only all treatment, but also referrals to specialists. Therefore those with special medical needs would likely not choose this but opt, at the very least, for a Preferred Provider Organization (PPO) where there aren’t so many restrictions. Neither of those choices would be appropriate if you are already locked in with specialists you need for particular medical conditions and therefore would have to select policies with no restrictions about providers.
(Also read: Which Should You Get? The Difference Between PPO & HMO.)
Deductibles: High deductibles, which have lower premiums, make financial sense for both those in good and bad health since the healthy will not use the coverage much and the sickly will quickly pay the deductible and move on cost efficiently for the rest of the year.
Many high deductible policies qualify for a Health Savings Account (HSA) which allows for non-reimbursed expenses to be paid for with pre-tax dollars, reducing your taxable gross. What is not used that year can be rolled over for next year and/or the extra funds can be invested with an IRA. HSAs are portable if you leave your job and are ideal for the self employed since it has this tax advantage.
Company credibility: Hunting for “bargains” makes you vulnerable to unethical and fraudulent providers. If the offers sound too good, they probably are. Check those with the National Association of Insurance Commissions or the state insurance department. In addition, you can key in the company’s name on the web and find out what has been written about it.
Unless an employer is paying for some or all of your medical insurance, you will be shopping for what is known as an individual policy, even if it covers your spouse and dependents. The two things you must pay attention to with individual policies are price and availability.
The New York Times, in January of 2013, published an article on how health insurers have been obtaining approval of their requests for double-digits increases in the premiums for individual policies. In Ohio and Florida those represented about a 20 percent increase.
However, even before these boosts, individual policies had been more expensive than group ones. Here are tactics to cope with that cost. One is, after losing a job, to continue the health insurance at group rates through COBRA, or if you have a spouse with coverage, find out if you can get on that policy. Also, you can join a trade association, such as the local chamber of commerce which provides insurance at group rates. Some states allow for the self employed to qualify as a “group of one,” and others allow group rates for organizations with at least two members. So to qualify entrepreneurs, put a relative or friend on the payroll. For those graduating from college, sometimes the institution will allow them to continue with the group policy or they can transfer to their parent’s policies until age 26.
Another challenge could be getting any policy if you have a pre-existing health condition. This doesn’t apply to those under age 19 because the provision of the Federal Patient Protection and Affordable Care Act banning that exclusion became effective in September 2010.
However, for most of the rest of you, that is a problem since, as the Commonwealth Fund documents, more than a third of those searching for policies either can’t get them or only at a higher rate because of health matters. In those situations, usually it’s necessary to work with a licensed insurance agent to find a policy rather than conducting the search on your own.
Also there are solutions available through state government, with the options varying from state to state. One kind of option could be through the high risk pool which can cost about 50 percent more than traditional rates. Another is for those without insurance for six months to look into their state’s Pre-Existing Condition Plan which could provide rates comparable to standard policies.
Choosing the right medical insurance for your situation means receiving proper care and not risk financial ruin. Given what is at stake, it is imperative to put in the time to shop around, read the fine print and be ready to make sound financial decisions about the tradeoffs.