The struggle is real when it comes to paying for health insurance—it can be expensive. For young people particularly, cost is a huge obstacle to getting coverage. A survey from Healthinsurance.org found that a health insurance premium over $200 is unaffordable for most young people under age 35. But cost isn’t the only hurdle—most don’t understand their health insurance options.1
“Choosing health insurance can be confusing. Choice is good, but with that comes the responsibility of choosing among all your options,” says Robert Kennedy, senior vice president of benefits consulting at Fidelity.
If you don’t have health insurance through your employer, here are the basics on shopping the health care marketplace—also known as the health care exchange—to find health insurance.
Alphabet soup: HMO, PPO, HDHP, EPO, and POS
The typical dilemma when choosing an insurance plan is deciding which type will be best and most cost-efficient for you: an HMO, a PPO, an HDHP, an EPO, or POS.
HMO stands for Health Maintenance Organization. Signing up for an HMO typically requires you to choose a primary care physician and get referrals to see specialists. For most HMOs, you must use service providers in the network in order to be covered—except in an emergency. The trade-off is typically a lower cost—premiums may be lower than they would be for other plans, and your co-pays and other costs may be lower as well.
PPO stands for Preferred Provider Organization. If you choose a PPO, you won’t need to choose a primary care physician or get referrals to see specialists. You’ll often pay less if you go to doctors that are within the network, but you can go to out-of-network doctors as well. In some cases you may need to pay out of pocket to see an out-of-network doctor, and then file a claim to get reimbursed by your insurance plan. Out-of-network doctors may be covered at a lower level than in-network doctors. Flexibility may come with a cost: The premium for PPOs may be a little higher than for HMOs.
HDHP stands for High-Deductible Health Plan. The premiums for these plans are lower than for traditional insurance plans like PPOs, but, as the name implies, they come with a high deductible. That means you’ll have to pay a lot of money out of pocket before your insurance kicks in to cover medical costs for the year. Being enrolled in an HDHP may make you eligible to contribute to a Health Savings Account (HSA).
If you’re eligible to contribute to an HSA, it can be worth your while. You can deduct the amount you contribute to the account on your taxes. If you take money out of the account to cover qualified medical expenses, you owe no tax on the withdrawal—it’s tax-free for federal purposes and possibly state and local as well.2 The maximum annual contribution limit for HSAs in 2016 is $3,350 if you have HDHP coverage for just yourself, or $6,750 for family HDHP coverage. In 2017, the HSA contribution limit for individuals with an HDHP increases to $3,400, though the contribution for a family is unchanged at $6,750.
There’s no “use it or lose it” clause with an HSA. If you don’t end up using the money in your HSA in a given year, it can grow in the account until you do need it.
Go to Fidelity.com and read Viewpoints: “Three healthy habits for health savings accounts.”
EPO stands for Exclusive Provider Organization. This type of plan covers you only if you use the doctors or hospitals in the network (other than for emergencies), but unlike an HMO, you won’t need a referral to see a specialist.
POS stands for Point of Service. If you choose this type of plan, you will pay less to use the doctors or hospitals in the network. You also may be required to have a primary care physician and get referrals before visiting a specialist.
Choosing your level of coverage
In the marketplace, you can choose from four basic options. The differences are the cost to you and the costs covered by insurance.
- Platinum plans cover, on average, the highest amount of eligible health care costs—about 90%. These plans come with the highest premiums.
- Gold plans cover, on average, 80% of eligible health care costs.
- Silver plans cover about 70% of eligible health care costs.
- Bronze plans cover about 60% of eligible health care costs. Premiums for these plans cost the least of the four metallic tiers.
People under age 30—or those with a hardship exemption—can choose a “catastrophic” policy. These plans have the lowest premiums but come with high deductibles—$6,850 in 2016. The dollar level of the deductible is subject to change each year. If you chose a catastrophic policy, you’ll be covered in an emergency, but would need to pay most routine medical expenses out of pocket. These plans don’t qualify for income-based subsidies.
Go to Fidelity.com and read Viewpoints: “Are public health exchanges for you?”
Picking the right plan for you
There are several considerations when it comes to picking health insurance that will work for your situation:
- How much health care have you used in the past, and how much do you expect to use in the future?
- Is keeping your current doctor a priority?
- Would you rather pay a higher premium or put money into an HSA and pay a higher deductible? Paying a higher premium typically lowers the deductible and other out-of-pocket costs.
- Tip: If you don’t anticipate using a lot of health care services, the money you would spend on premiums could be put into an HSA to cover the deductible and other qualified medical expenses, when you do need more health care.
- How would you pay for a medical need that wasn’t covered by health insurance?
- Coinsurance and copays are another cost of health insurance to consider when shopping for a plan. You’ll have to pay them even after you’ve reached the deductible.
It’s difficult to know how your health care needs may change in the future, but analyzing your current and past health care use can give you a clue about how things might continue. Take into account all of your health care providers and evaluate the networks and the number of local doctors, and find out how any prescription medications you’re using would be covered.
People who expect a lot of doctor visits or who have regular prescriptions may want a Gold- or Platinum-level plan, according to Healthcare.gov.
How do subsidies work?
There are some tax breaks available to help make health care insurance more affordable—if you qualify based on your household income. You may qualify for a premium tax credit if your income falls between 100% and 400% of the federal poverty line, which is $11,880 for individuals in 2016.4
If you qualify for the tax credit, you can use some or all of it to reduce the cost of your premium at the time of payment. Any part of the tax credit not used to reduce your insurance premiums can be taken as a tax deduction.
Your health is important
There are many good reasons to get health insurance. In particular, staying physically healthy can keep your finances healthy by helping avoid big medical bills. Of course, accidents and illnesses can happen to anyone—even people who eat all of their vegetables and are diligent about annual checkups. That’s when having health insurance can really be a benefit.