There are so many things to consider when choosing a health insurance plan that it’s no wonder clients often feel overwhelmed. If you don’t speak insurance-ese, you may not know where to begin.
In reality, there are five key elements to any health insurance plan. Developing a basic understanding of each helps you determine which plan is the best one for you.
1. Provider Network
The provider network includes all of the healthcare facilities that a health plan contracts with to provide services for its customers. This includes doctors, hospitals, labs, and clinics.
You may hear these referred to as “managed care” plans, meaning that these contracts help the insurer manage both the cost and quality of member services. The three main types of managed care plans are HMOs (health maintenance organizations), PPOs (preferred provider organizations), and POS (point-of-service) plans. Each has key similarities and differences.
These healthcare provider contracts service a particular area and require members to receive all care from a provider under contract with the HMO. HMOs do not cover care from providers outside the network except in cases of emergency (such as while traveling), or with prior approval.
HMOs require members to choose a primary care physician, commonly referred to as a PCP. This provider works within the network and coordinates your care with other providers when needed, such as providing referrals for specialists. Visiting a specialist without a referral, even one within your network, usually results in your being held responsible for the cost.
This plan is a good choice for patients willing to accept limited provider choice for the benefit of lower out-of-pocket costs. Typically, HMOs have lower premiums, lower co-pays, and cover a wider range of services.
If you do not have a preexisting condition, such as a chronic illness, with a long history with a particular physician, the narrow list of approved providers presents little problem. However, if it is important to you to have the freedom to choose any doctor you want, whether that doctor is in your network or not, HMOs may not be your best bet.
A PPO also includes a network of preferred providers. The main difference is that beneficiaries may visit an out-of-network doctor or facility for a slightly higher out-of-pocket cost.
That is not the only difference between an HMO and a PPO, however. PPO members do not have to select a PCP, nor do they require a referral to visit a specialist. The price of higher freedom is higher out-of-pocket costs, including higher premiums, deductibles, and co-pays.
Patients with substantial history with a particular provider typically feel that the higher cost is worth the ability to choose any doctor or hospital to receive treatment.
A POS plan combines the best parts of the HMO and the PPO. For example, customers may select a PCP, but are not required to do so. They receive lower out-of-pocket costs when they remain in network, but visiting an out-of-network provider is covered by the plan, just at a steeper cost to the patient.
Typically, premiums, co-pays, and deductibles for a POS are higher than those of an HMO, but lower than a PPO. POS plans are popular choices for those looking for a bit more freedom than an HMO provides, but lower costs than with a PPO.
2. Drug Formulary
A drug formulary is simply the list of prescription drugs covered by your plan. Each is chosen for safety, effectiveness, and value. A committee of pharmacists, physicians, and nurse practitioners choose with drugs to include, and update the formulary as necessary.
Most drug formularies include tiers, each with a different co-pay. Tier 1 prescriptions usually include mostly generic versions and have the lowest co-pay amount. Formularies may have up to five tiers. Co-pays increase as you step your way up each tier of the drug formulary, as does the cost to the insurer.
Prescription drug plans may require plan beneficiaries to meet a yearly deductible before the plan begins covering any of the prescription costs. Other restrictions include prior authorization (permission from the insurer before prescribing a drug) and step therapy (requires you to first try lower-priced versions of the same medication).
The intention of all of these restrictions and tiers is managing costs for both the insurer and the plan beneficiary.
The premium is the amount you pay to the insurer, which may be due monthly, quarterly, bi-annually, or annually. This is the same as the premiums you pay on any other insurance policy, such as auto, homeowner, and renter’s insurance.
As long as you pay your premiums, you remain covered under your health insurance plan (unless your insurer accuses you of wrongdoing, such as fraud). The length of your policy period, usually 12 months, dictates the amounts of your premium and other out-of-pocket costs.
The cost of your premium usually plays a role in determining your other out-of-pocket costs, with a higher premium leading to lower co-pays and deductibles. Plans with higher premiums usually also offer better plan benefits.
Some plans (but not all) include yearly deductibles that plan beneficiaries must reach before their insurance begins covering medical costs. For example, if you have a yearly deductible of $2,000, you must pay that amount before insurance begins paying.
Most plans do not include preventive care as part of the deductible requirement, such as yearly wellness visits and immunizations. The idea behind deductibles is that they cut down on unnecessary doctor visits while encouraging preventive care that reduces long-term healthcare costs.
Please note that deductibles and co-pays are not the same thing. Co-pays are the flat fees you pay for such things as doctor’s visits and prescriptions. The co-pay is your “share” of the bill. So, if you have a $25 doctor co-pay, and the bill is for $100, the insurer pays the remaining $75.
Consider out-of-pocket costs when choosing your plan, not just the premium. High deductible plans work well for people who enjoy good health, as premiums are typically lower. Low deductible plans have higher premiums but may be the better choice for someone with a chronic condition.
5. Plan Benefits
According to the Affordable Care Act (also known as ACA or Obamacare), every healthcare plan must cover the following:
- Behavioral healthcare, including substance abuse, counseling, and psychotherapy
- Emergency services
- Laboratory services
- Outpatient care (doesn’t require hospital admittance)
- Pediatric services that include oral and vision care
- Prenatal and postnatal care (pregnancy, maternity, and newborn care)
- Prescription drugs
- Preventive services, such as wellness visits and chronic disease management
- Rehabilitative and habilitative services and devices that help patients recover physical and mental skills
Plans may include broader coverage, but ACA requires every plan to include these 10 items at a minimum. Dental and vision care for adults are optional.
Hopefully, this list helps you better understand your health insurance options. If you have questions or would like to receive a quote, please contact us today.