How to choose a health insurance plan

It's that time of year again.  The weather starts to cool, leaves start to turn, and your mother-in-law starts calling and wondering when you're coming....It's open enrollment! Let's review how to choose a health insurance plan, the pitfalls to avoid, and the opportunities to save!

ALSO, you have to figure out what you're going to do about your health insurance for the next year.  Maybe you're choosing from a handful of plans your company offers.  Maybe you're starring at the exchange and trying to figure out how looking at 50+ options is going to really help you.

How to choose a health insurance plan

Maybe you don't care about dealing with the boring details of picking a plan, but here's a sobering stat...

88% of people choose the WRONG plan and waste over $533 a year*

Got your attention?  OK, let's make sure you're not wasting money on health insurance.  

Here's how.

1. Know your options

Choosing between 50+ plans on an exchange can be a blessing and a curse.  But it's good to know what your options are.  Maybe you're choosing between three plans your employer offers.  Maybe, you only get one plan offered to you and your decision is just "yes" or "no".  Most people don't know that they don't HAVE to take their employers plan if it's not considered a qualified plan under Obamacare.  Especially if your employer isn't helping you pay for premiums, you should look around.  Often, an employer will pay for employee coverage but not help out with other family members.  You can be on one plan and your family can be on another.

You should also be aware if you qualify for help paying for your health insurance through Premium Tax Credits or Cost Sharing Agreements.  Cost sharing means that the government will help you pay for your doctor visits, prescriptions, etc.  To qualify, you need to be making income near the poverty line.  Are you reading this on your Macbook Air laptop?  Then you most likely won't qualify.

Premium Tax Credits reduce the amount you have to pay for your insurance premiums.  You may be surprised how easy it is to qualify for these credits.  If you're single and make under $50k, you're close.  If you're a family and make under $100,000 a year as a household, you'll likely qualify for a credit.  Check out this nifty calculator to see if you qualify.  Oh, one catch...to receive the credit you HAVE to fill out an application on the Federal Exchange aka Healthcare.gov.  You don't have to BUY there, but you do have to qualify there.  Make sense?

2. Think about care you KNOW you're going to need

With health insurance, most people are worried about the "what if" and that makes sense.  What if you get in an accident?  What if you get cancer?  What if your mother-in-law wants you for BOTH Thanksgiving and Christmas?  You get it.  But the reality is most people's healthcare costs are driven by known health needs.  Do you regularly see a doctor or take medications for a chronic condition?  Are you recovering from an injury and see a physical therapist?

In fact, for most Americans in any given year, cost they could have predicted will account for 75% or more of their expenses.  Unfortunately, most people choose plans by looking at the premium and deductible and FAIL TO MAKE SURE WHAT THEY NEED IS COVERED.  Thankfully, Obamacare makes this a little easier.  Every plan in America (individual, group, exchange, private....seriously, every plan) is now required to offer a Summary of Benefits and Coverage (SOBC).  I think they added "coverage" even though it's a little redundant to avoid the acronym S-O-B.

Anyway the SOBC has a break-down of what each plan pays for over 20 categories of care.  Even though insurance companies are required to make them available, that doesn't mean they like them.  They would rather you just look at their pretty brochure with pictures of happy families and puppies, look at the great "$15 copay" they offer, and never realize that copay only applies to Left Toe Doctors and that when you go see your primary physician it's a $1,000,000 copay.  Seriously, skip the marketing material and go for the SOBC. 

Tip: Reading SOBC's can be tricky.  Although the layout is standardized, the language companies used is not.  "You pay 0% coinsurance" means you pay 100% until your deductible is met.  

3. Are your Doctors in Network?

Staying in-network is critical to avoid getting slammed with unexpected bills.  Many people have a favorite doctor, dentist, hospital, etc they know they will go see that year, but they totally forget to check if they're in network.  Once you narrow it down to a few plans, it's worth searching on the insurance websites.  Also, doctors change their agreements every year, so it's worth rechecking!

Don't have a favorite doctor?  Consider joining an HMO.  You lose a little bit of flexibility, but you'll save some serious dough.

4. Do you want to use a Health Savings Account (HSA)?

Most people don't know what I'm talking about or get confused with FSAs, HRAs, etc.  HSAs are basically a savings account that you own to pay for healthcare.  The cool thing?  Everything you pay for out of your HSA (as long as it's a qualified expense) is tax-deductible.  There are limits and restrictions, but these are the most under-utilized things in the world for people trying to save money on health insurance.  Especially if you are reading this on a Macbook Air and don't qualify for a Premium Tax Credit, your income tax rate might be pretty high.  Do you pay 35% income tax?  Then an HSA is like getting 35% off your health expenses.

We'll post more later about how to get the most out of these accounts.  For now though, they are important to know about when choosing a plan because only certain health plans are eligible to work with an HSA.  Plans must be "high deductible health plans" (HDHPs) to work with an HSA.  Most of the "bronze" and some "silver" plans will qualify.

Sources: Johnson EJ, Hassin R, Baker T, Bajger AT, Treuer G (2013) Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture. PLoS ONE 8(12): e81521. doi:10.1371/journal.pone.0081521

Abaluck J, Gruber J (2011) Heterogeneity in choice inconsistencies among the elderly: Evidence from prescription drug plan choice. The American Economic Review 101: 377–381. doi: 10.1257/aer.101.3.377