So you know where to get insurance from, whether it’s your employer, the ACA (Affordable Care Act) Marketplace, or elsewhere. But now you may have options. And every single one has totally different numbers! Premiums, deductibles, copays, and more! How can one possibly compare all the different plans available? What if you pick the wrong one and end up wasting thousands of dollars?
I can tell you right now that it’s probably not going to be easy. But with a little help, and a little patience, it is possible to make an educated decision that balances cost against getting the coverage you need. In this article, we’ll guide you through several steps that will allow you to narrow down the options until you find something that’s right for you!
If you haven’t already, I recommend at least skimming through our earlier article on healthcare terms, because we will be using them a lot in this post.
Also note that I am making some assumptions here: I’m only focusing on US healthcare plans, and in particular, those available through the ACA marketplace or employers.
How can I tell if a healthcare plan is “good”?
Trick question! It’s usually difficult to say whether a particular plan is “good” in a general sense, only whether a plan is good for you. Sure, there are some rules of thumb—you want a low premium, a low deductible, a low out-of-pocket maximum, and a low copay/coinsurance. For example, this would be an example of a very good healthcare plan for almost everyone:
- Premium: $10 per month
- Deductible: $100
- Out-of-pocket maximum: $200
- Copay: $5
- All services covered, including mental health, cosmetic, etc.
- Network includes every single healthcare provider
But unfortunately, I don’t think such a plan exists! You generally have to make a tradeoff between how much you pay in premiums and how much you pay when you actually get care. So if you want low premiums, then all the other numbers will probably be higher… and vice versa.
So for example, here is an example of a Gold plan I found on the ACA marketplace (through Kaiser Permanente, for reference):
- Premium: $384 per month
- Deductible: $500
- Out-of-pocket maximum: $5250
- Copay (primary care visit): $15
- Copay (generic drugs): $10
Now here’s an example of a Bronze plan, also from Kaiser:
- Premium: $243 per month
- Deductible: $8700
- Out-of-pocket maximum: $8700
- Copay (primary care visit): $50
- Copay (generic drugs): $30
As you can see, the bronze plan is a lot cheaper if you don’t actually get any healthcare; the premiums are low, and you don’t care about a high deductible if you get no healthcare! But if you’re getting 3 medication refills each month, the gold plan would end up paying for itself—it’s worth the higher premiums if it makes your drugs cheaper. Therefore, the decision you make will largely be based on how much you’re planning on spending on healthcare. Which leads us to step 1!
Step 1: How much healthcare do you need?
This is probably the most important question. Try to figure out how much you spend on healthcare each year, at least roughly (not including premiums). If you never use any at all, this should be easy—your answer is $0 (or close to it), and so you’ll want a plan with cheap premiums. Likewise, if you use a lot of healthcare (e.g. you’re in the doctor’s office every month and you take lots of medications), you can probably just assume the number is really big, and so choose a plan that covers more (even if the premiums are expensive). In other words…
Rule of thumb
- If you are healthy, get a cheap plan with low premiums.
- If you need lots of healthcare, get an expensive plan with a low out-of-pocket maximum (even if it means higher premiums).
It’s when you’re in the middle where things get less obvious. If you’re not sure how much you’re going to spend on healthcare in the next year, try looking at what you spent in previous years, and extrapolate from that. Any time you receive care, your insurance company will generally send you (either by mail or online) an Explanation of Benefits (EOB) that describes how much the service cost, and how much of it (if any) was paid by your insurance provider. Tally up all the original costs (even if your old insurance paid for some or all of them), and that’s your estimate for how much you’ll spend on healthcare. If that estimate is less than $1000-2000, it’s probably a good idea to get a cheap plan (i.e. one with low premiums). If that estimate is more than $3000-$5000, you might want to choose a more expensive plan. If you’re in between, then you can probably just go with whatever plan you like and not be too bad off.
A note on risk
As I have mentioned in the past (TODO LINK), it’s generally a good idea to get as little insurance as you can manage. This is because the insurance companies have to make money, and so the more you pay them, the more profit you are giving them. If you can afford it, it’s usually better to just not buy insurance at all! For example, you wouldn’t buy insurance for a $10 t-shirt, right? Because if something happened to it, you could just buy another one for $10. That way, you don’t have to deal with insurance company paperwork, you don’t risk getting your claims denied, and you don’t waste money on monthly premiums.
But when it comes to healthcare, you could get into a car accident tomorrow and incur $100,000 of medical bills. Most people can’t afford to pay that themselves… so that’s what insurance is really for.
So if something catastrophic does happen, consider how much you would be able to pay for on your own. Your bill is likely going to be somewhere between your deductible and out-of-pocket maximum (or possibly higher if you get care that isn’t covered by your insurance provider). Can you afford such a sudden expense? If the answer is no, you might consider paying extra in premiums in order to get a lower deductible and lower out-of-pocket maximum (if you can afford it).
At least, that’s generally true for most insurance. When it comes to healthcare, there are actually ways to get your bills delayed, reduced, or even forgiven—all so that you don’t have to pay a giant lump sum in the event of an emergency. And in fact, these options are specifically aimed at those who can’t afford higher premiums. We’ll be going over situations like these in a later article (TODO LINK).
Step 2: Do you have any existing providers that you want to keep?
This one should be fairly self-explanatory; if your current doctor isn’t in-network for your new insurance, then you either have to pay tons of money to see them, or find a new doctor. And if you like your doctor, you obviously won’t want to switch!
Luckily, the ACA website allows you to search for doctors, hospitals, etc. and add them as filters to your plan search. This allows you to only browse plans that cover your existing healthcare providers! This isn’t foolproof though, because sometimes the tool isn’t up-to-date. So if you’re ever unsure, you can try talking with both the insurance company and the healthcare provider to see if they will play nice with each other. Sometimes they’ll even have a website that you can use to look it up!
If you don’t have any existing providers that you want to keep, but you have some providers you think you may need soon (e.g. if you know you’re going to have a baby and you know which hospital you want to go to), then take this into account as well! Make sure they’re in your network!
In-network vs out-of-network
Note that while some plans don’t cover out-of-network care, or make it significantly more expensive (e.g. with a high coinsurance rate), other plans may offer out-of-network care fairly cheaply compared to in-network care. Depending on your situation, it may actually make sense to get a plan that doesn’t have your preferred healthcare provider in their network!
Step 3: Can you save money with an HSA or FSA?
In the US, a Health Savings Account, or HSA, is a special bank account that you can open and contribute to if you have a type of health insurance called a High-Deductible Health Plan, or HDHP. Usually, HDHPs will have the word “HSA” in the plan name, making them easy to identify.
Utilizing an HSA can provide hundreds of dollars worth of tax benefits per year depending on your situation, so it’s worth considering getting an HDHP, even if the premiums are a little higher than the other options.
FSAs are similar accounts that can also provide some tax benefits, though usually less than an HSA.
There’s more details on HSAs and FSAs in our earlier article on healthcare terms, and we’ll go into even more details a future article. But for now, we’ll give some quick rules of thumb:
Rule of thumb for HSAs
- If you have low healthcare costs (e.g. < $500/year) and can save a few thousand dollars every year, you’ll likely want an HSA, especially if you make a decent amount of money (e.g. > $60,000/year)
Why? Because if you have low healthcare costs, you don’t care that the deductible is high on your HDHP. You can just sit back and receive your tax deductions (basically free money), which will probably more than compensate for any premium increase compared to non-HSA plans.
This gets even more true the more money you make; for example, if you make $60,000/year as a single adult in 2022, you’d likely be in the 22% tax bracket, which means that if you contribute the maximum of $3650/year to your HSA, you get at least $803 in income tax savings! So as long as the HSA plan isn’t more expensive than the others by more than $803/year, you’re making money—and that’s not even including other types of tax savings you get either, such as on FICA and capital gains (more on those in our future HSA article TODO).
Note that this is vast oversimplification, and there are many more types of situations where you might want an HSA. But unfortunately, there’s just too many considerations to fit in this section, so you’ll just have to wait for the full article on HSAs!
Rule of thumb for FSAs
- If an HSA isn’t a good option for you and you have predictable healthcare expenses, then you’ll likely want an FSA (if your employer offers it)
Why? Because HSAs are generally better than FSAs. With FSAs, you lose the money in the account at the end of each year, or if you lose your job. But with HSAs, you keep the money forever! But if an HSA isn’t a good option for you, an FSA can still be useful, because you can still get tax benefits for your contributions. You just want to make sure you actually use the money you contribute! For example, if you know you will spend $600 each year on prescription refills (e.g. a $50 monthly copay), then by all means, contribute $600 to your FSA each year!
Step 4: What are the details?
Ok, you’ve narrowed things down based on how much you plan to spend, and which medical providers you want. You might have just a handful of plans to choose from now; what you need next are some tiebreakers. Here are some other factors to consider.
Do they cover all the care you need?
Before you commit to a plan, read the plan documents! Yes, I know they’re long, but you should at least try to find a table that shows examples of various types of care (e.g. doctor visits, specialist visits, emergency room visits, mental health care, prescription fills, in-network care vs out-of-network care etc.) and whether they are covered by your plan.
Sometimes a service can be covered with caveats, e.g. it’s only covered if you can get a referral for it, or if you meet certain other requirements. For example, maybe you can’t get knee surgery until you’ve tried some medication or physical therapy first, even if you know you need the knee surgery based on conversations you had with a previous doctor in the past.
Prescription medications in particular can be confusing. Often, health plans will only cover generic/cheap ones reliably, while more expensive ones can be hit-or-miss. The ACA marketplace plan searcher that I mentioned earlier can also accept particular medications, so you can use that to help make sure your drugs are covered. For other plans, you may need to call or use their website to double check.
But note that just because something is covered, doesn’t mean it’s covered cheaply. I have seen healthcare providers break medications in “tiers”, where commonplace “tier 1” medications have a very low copay (e.g. $5), while very expensive/niche “tier 6” medications might have a 90% coinsurance. Which means that if your lifesaving medication costs $10,000, you have to pay $9,000 of it. Doesn’t seem like very good coverage, does it?
And it’s not just medications either: many services may also technically be covered, but your insurance pays for very little of it—if anything at all. Which leads us to our next point:
Are they optimized for the care you need?
As we mentioned above, just because a service is covered, doesn’t mean it’s covered cheaply. That same table you were just reading should also have information about the copay/coinsurance and deductibles for each type of service. You can use this information to make sure that the particular care you need will actually be covered reasonably well.
Some types of care might be covered entirely by your health insurance (common for preventative care). Some might have a fairly cheap copay or coinsurance. And some may have, say, a 90% coinsurance. which means that the insurance company barely helps you out at all (at least until you hit your out-of-pocket-maximum).
Another thing to watch out for is that different types of services might have different deductibles! So you might have a $0 deductible for medications (e.g. you just always pay a $5 copay until you hit your out-of-pocket-maximum), but a $5000 deductible for other care. If the care you need has a high deductible and/or high coinsurance rate, then it might as well not be covered at all!
Remember when we talked about adding up your healthcare costs in step 1? Well one thing that might help here is breaking down your estimated costs by service type.
For example, suppose you have high healthcare costs, where almost all of it comes from medications. Normally, you would want a expensive plan with a low deductible, so that insurance would pay for most of your care. But what if you can find a cheap plan that barely covers in-person care like doctor visits and surgeries, but offers a $5 drug copay and a $0 drug deductible? In this case, you don’t care if the cost of services is high, because you’re getting all of your medications for cheap. You might need to pay $200 for your yearly checkup, but it could be worth it if you’re saving thousands on drugs.
So depending on your situation and what’s available, you may be able to find some real hidden gems!
Do they have good reviews?
This includes both your insurance provider as well as whatever healthcare providers are in their network (in particular, the ones you plan on going to the most).
This one might be tricky to gauge, since this sort of information may not be readily available. If you’re comparing ACA plans, you could try relying on their star ratings system, but who knows how accurate that is? You could also try Googling them, along with some keywords like “[x] reviews” or “is [x] good?”. You might even try asking your friends and coworkers who they use, especially if you know someone who gets a lot of healthcare.
Note that hearing one or two horror stories shouldn’t dissuade you entirely—the whole industry is terrible, and things slip through the cracks everywhere. No plan or provider is going to be perfect. What you want to do is try to identify patterns and red flags, such as:
- Does the insurance provider seem to regularly deny claims that seem legit?
- Does the insurance provider have bad or nonexistent customer service? Or a terrible website and/or claims process?
- Does the healthcare provider charge way more than is fair?
- Does the healthcare provider make lots of mistakes when billing, e.g. putting extra or incorrect procedures on the bill? Are these issues difficult to rectify?
Conclusion
If all of the above seems overwhelming to you, remember that the steps are presented with the most important ones first (at least in my opinion). So if you don’t have the time or energy to evaluate everything, just start from the top and follow for as long as you can. Narrow things down by rejecting plans that don’t seem to work until you’re left with few enough options that you can make a final decision.
Ultimately, it’s about doing what’s best for you, so if your time is more valuable than your money, you are empowered to make that tradeoff and get whatever healthcare plan you want. Maybe if you’re young and healthy right now, you can just get the cheapest plan available and not worry about it for a while! Remember, if your situation ever changes, you can always just switch plans. And when you do, we’ll be here to help you evaluate them!
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