A guide for consumers to choosing an individual health insurance plan.
When it comes to their health, each person and each family is unique, so it is not surprising that choosing an individual health insurance plan is a complex process. Cost, convenience, and your unique health issues all come into play. Somehow, out of the myriad of choices, you are supposed to find the right combination for you. Here is a roadmap to simplify the process:
1. Start at affordability. It is easy to think insurance should cover every need and contingency. Remember, it is there to keep you from going into debt, not to put you in debt. Set a budget that makes sense and do the best you can within that framework.
2. Proceed to your existing physician. If you have a good relationship with your current doctor and want to continue seeing him or her, your choices may be limited for individual health insurance. Find out if your doctor is affiliated with an HMO (Health Maintenance Organization), PPO (Preferred Provider Organization), POS (Point of Service), or IPA (Individual Practice Association). If your doctor is in one network, then your decision is simple. If he or she is in more than one, you can weight other plan features. If your doctor is not in any network, you will need a “fee-for-service” or indemnity plan. Under this plan, you go to any doctor or hospital you wish. An indemnity plan normally will cover only a percentage of the changes—usually 80 percent. You are responsible for the other 20 percent. The insurance company also sets its own “usual and customary” rates for services. If your doctor charges more than the usual and customary rate, you will have to make up the difference.
3. Signal your health issues. You will need to inform the insurer of any medical conditions for which you have been diagnosed or treated. The insurer will consider these “pre-existing” conditions. If you were joining a group policy, the insurance company would be required by law to cover the pre-existing condition without a waiting period, assuming you had insurance coverage in the previous twelve months. When you are buying individual health insurance coverage, however, the insurance company has the right to declare a waiting period for payments related to the pre-existing condition or to decline to cover you at all. Five states have made denial of coverage illegal. Maine, Massachusetts, New York, New Jersey and Vermont all have adopted “guarantee issue” laws that make insurance companies offer health insurance to everyone regardless of their medical conditions. Other states have created insurance “pools” that provide coverage to high-risk individuals.
4. Slow down for prescription drugs. If you have found two or more plans that are comparable, take a moment to review their prescription drug benefits. Some plans cover medications immediately, requiring nothing more than a co-payment. Other plans do not pay for prescription drugs until the annual deductible has been met. Be sure to compare the co-payment amounts to see what the difference would be, especially over time. Most insurance companies cover medications on a non-preferred for name brand drugs, but others cover only generic brands (when available). If name brands are important to you, make sure you choose the plan that offers them.
5. Watch for falling taxes. If someone wanted to hand you a check for $2,539, would you take it? That is what the Uncle Sam is doing with Health Savings Accounts. You can deposit up to $5,650 into a Health Savings Account (HSA), sheltering it from as much as 9.3% in state income tax, 28% in federal income tax, and 7.65% in Federal Insurance Contributions Act (FICA) tax. That is a total tax savings of 44.95%, or $2,539 out of a $5,650 contribution. The HSA contribution rolls over from year to year, and remains tax-free, provided you withdraw the funds after age 65 or use them for medical expenses. In addition, the earnings on HSA funds are tax-deferred. To open an HSA, you must enroll in a High Deductible Health Plan (HDHP), with minimum deductibles of $1,100 for an individual or $2,200 for a family. The deductibles are paid with untaxed dollars from the HSA account, increasing your buying power. Because of the high deductible amount, the monthly premium is low, making an HDHP plan an attractive option for many people.
By following this roadmap, you should arrive at a choice that is relatively simple to make.
A Consumer Roadmap to Individual Health Insurance
