With open enrollment season coming just around the corner, we wanted to provide some insight on various benefits and insurance. Year after year, many employees scramble to make sense of the available options provided to them. If you feel overwhelmed during open enrollment, understand you are not alone. This is why we are going to provide some clarity on many of the common benefit options available, starting with health insurance.
Health insurance helps protect against the risk of high healthcare costs by paying a portion of certain medical expenses that are incurred by the insured person. While this sounds simple enough, the truth is health insurance can be extremely complex. There is no “standard” policy for health insurance, so how do you know which options to select in order to meet your specific needs?
To help determine this, let’s take a look at the basic aspects of health insurance policies so you can make a more informed decision.
Health Insurance Plan Types
There are three main types of health insurance plans:
- HMO (Health Maintenance Organization) – When you join an HMO, you choose a primary care physician who is your first contact for all medical needs. This physician must be consulted before you can see any specialists. If you seek treatment from a physician outside the HMO network, you will not receive reimbursement payment for the services received. Although this may seem strict, HMO’s can provide more predictable and reduced overall out-of-pocket cost due to their structure.
- PPO (Preferred Provider Organization) – A PPO plan gives you more flexibility than an HMO. With a PPO, you do not need a primary care physician. You can go to any healthcare professional, whether or not they are in your network. Even though you can select any healthcare professional, it is generally cheaper to see physicians that are in the specific PPO network (ex: you may receive 90% reimbursement for in-network care and only 60% reimbursement for out-of-network care).
- POS (Point of Service): POS plans combine the characteristics of HMO and PPO plans. With a POS plan you have more flexibility in choosing a primary physician than with an HMO, but you still must choose a primary physician. You can see out-of-network doctors, but will pay more than if you stay in-network.
Basic Coverages
Although there is no “standard policy” so to say, there are certain basic coverages found within most health insurance plans:
- Hospital Expense insurance helps you pay for hospital bills left uncovered by comprehensive medical plans. Some policies will pay a percent of actual hospital costs, but most policies pay a specified fixed amount for a specified maximum period of time.
- Surgical Expense insurance helps you pay expenses related to the surgeon, surgeon’s assistant, anesthesiologist, and other surgical fees. These benefits are generally paid from a set insurance schedule that lists the procedure and assumed costs.
- Physicians Expense insurance helps you pay expenses associated with doctor visits, but excludes surgery. The policy will generally pay a specified fixed amount per visit.
- Major Medical insurance protects against catastrophic illness or injury. The coverage is very broad and includes coverage for things such as nursing costs, outpatient care, ambulance expenses, radiology, prescriptions, etc.
Out-of-Pocket Costs
Health insurance may cover some of the expenses associated with your health care costs, but there are certain out-of-pocket costs that you should be aware of:
- Premiums refer to the monthly cost of your health insurance policy. This is what you pay the insurance company to keep the policy actively covering you. Costs typically go up as you get older due to a higher risk of health complications.
- Deductibles are the amount of costs you must pay before the insurance begins paying for any of your costs, and is generally reset annually. This is inverse with your premiums; the higher the deductible the lower the premiums will be, and vice versa.
- Co-payment is the amount you pay up front for certain health care (usually at a doctor’s office or pharmacy) when the service is received. The insurance pays the remaining costs.
- Coinsurance is the percent of medical costs you must pay after your deductible if met. For example, after you meet your deductible you may still have to pay 20% for costs while your insurance pays the other 80%. So if you have an expense of $1,000 you will pay $200 and insurance will cover the other $800.
Other Provisions
Other provisions also exist in some health insurance policies. The following is by no means comprehensive as there are too many to list here, but some of the most common provisions include:
- Exclusions place limitations on certain items. Usually things such as non-necessary cosmetic surgeries are excluded from your insurance.
- Maximum Out-of-Pocket is the maximum amount of money you will have to pay between deductibles and coinsurance. Once this dollar amount is reached, the insurance will pay 100% of expenses for the remainder of the period.
- Maximum Lifetime Payout is the maximum total amount the insurance will pay throughout your life.
- Riders/Endorsements refer to additional features you can add to your policy. An example of this could be a maternity rider to provide additional coverage specific to pregnancies.
Understanding the details of your health insurance policy options is crucial to making the best choice in coverage for your overall financial well-being. Making an uninformed decision can cost you a lot of money in the long run, so make sure to carefully analyze your health insurance choices in tandem with your health care needs.
Derek Prusa, CFA, CFP® and Ben Webster, CFP®
Co-Founders and Owners of Aspire Wealth
