How Insurance Works

Choosing a Health Insurance Plan

Choosing a health insurance plan – and figuring
out how much it will really cost you – can be a stressful process. It may seem like a strange analogy, but buying
health insurance really isn’t too different from buying a car. Sure, the sticker price matters, but for most
people, individual features and options—and overall value—are the deciding factors. It’s the same when you’re choosing the right
health plan. Knowing which features of a plan matter most
to you can make the difference between choosing a plan you love, and a plan you can barely
live with. So, before you start to evaluate your health
plan options this open enrollment season, make sure you fully understand different types
of health plans available. Let’s start by explaining how health insurance
works. You pay a monthly premium in exchange for
your coverage. Preventative care, such as checkups and other
well visits, are typically fully covered by your plan. Beyond that, you are responsible for paying
out of pocket for additional healthcare services (such as sick visits and prescriptions), up
to a certain dollar amount – called a deductible. Some plans charge a “copay”, or a fixed
dollar amount, for certain medical services – such as $20 for a doctor visit. And there may be different copays for different
types of visits (such as specialists, urgent care, ER, or prescriptions). Other plans may require you to pay co-insurance
– or a percent of certain covered costs, after you have met your deductible. Now let’s talk about the difference between
different types of plans. More traditional insurance plan designs – such
as PPOs – offer more modest deductibles, so out-of-pocket costs are limited. Think of traditional health plans as a “pay-up-front”
model—where you pay more up front, in the form of higher premiums, for richer coverage
to minimize the required out-of-pocket spending. But, you may be paying for coverage you don’t
really need. On the other hand, consumer directed health
plans or CDHPs typically offer reduced premiums so you’ll likely have lower monthly costs,
but a higher deductible. Which means higher out-of-pocket costs. You can think of CDHPs as more of a “pay-as-you-go”
model where you pay for only what you need—which translates into direct savings for you. CDHPs are often paired with tax-advantaged
savings accounts, like HSAs and HRAs, that enable you to save on out-of-pocket costs
by using pre-tax dollars. Your employer may even be partially funding
these accounts for you, to offset costs not covered by your plan. When you factor in the premium savings associated
with CDHPs, coupled with the tax-savings of using pre-tax dollars to pay for out of pocket
expenses, they are often more cost effective than traditional plan options, despite the
higher deductible. Here are some important questions to ask yourself
to determine whether a CDHP is right for you: [Narrate and display bolded text below on
screen.] How’s your health? When it comes to saving money on healthcare,
one of the best ways to spend less is to stay healthy. Healthier individuals consume less healthcare,
and have even greater potential for savings with a CDHP. Are you comfortable paying for healthcare
coverage you may not need? Traditional plans require higher up-front
premiums, meaning you may be paying for coverage you don’t need. With a CDHP, on the other hand, you are only
paying for what you use. Do you want more control over your healthcare
finances? Typically, CDHPs trade lower premiums for
higher deductibles—which means you pay for your medical expenses out of your own pocket
until you hit your deductible. However, greater control means greater opportunity
for savings. Are you a savvy shopper? Would you be willing to shop around for the
best price on routine orders like prescriptions or bloodwork? With a CDHP, savvier shopping translates into
more savings for you. Are you disciplined when it comes to your
personal finances? If you’re budgeting philosophy is “spend
first, ask questions later,” you may want to think twice about a CDHP. But, if you’re disciplined about your personal
finances, you’ll be in position to take greater control over your health care finances. Do you worry about rising healthcare costs? If cost concerns keep you up at night, a CDHP
might help you get some sleep. An HSA can help you build wealth for the future. And taking more control of what you spend—by
price shopping and actively managing your healthcare finances—can help you feel more
empowered and less anxious. Whichever plan you choose, do your homework
first so you can make an informed decision – and ensure you get the best fit and value
for you and your family. And no matter which health plan you choose,
realize that you will likely incur some out-of-pocket costs. Benefit accounts such as FSAs, HSAs, or HRAs
are a powerful tool to enable you to save an average of 30% on these costs if the programs
are available on a pre-tax basis.

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