Health Insurance Checklist: 12 Coverage Terms Everyone Should Know
The tail end of the year marks the heart of open enrollment season—in other words, if you haven’t purchased health insurance yet, it’s time to figure out which type of coverage makes the most sense for you and your family in the coming year.
If you already have health insurance, it may be tempting to stick with your current plan. Who wants to fill out more paperwork or think about switching doctors?
But this could mean that you end up renewing inadequate coverage, especially if you’ve experienced changes in your health or your family situation over the past year.
Whether you’re getting insurance for the first time or you’ve had a health plan before, it might feel a bit like you’ve entered a maze of unfamiliar terms and concepts—all of which could have implications for both your physical and financial well-being.
But take heart.
We’ve created a handy checklist that highlights the key terms that should be on your radar during open enrollment season—hopefully helping to make the whole process of picking a policy a little less daunting.
When you’re determining who should be covered under your plan …
If you’re single and have no dependents—that is, a child or another individual whom you can claim as a deduction on your taxes—then you’re likely only seeking coverage for yourself.
But the decision gets a bit more complicated if you and your spouse or domestic partner both have access to health insurance through work. If your employer provides better coverage options or vice versa, then it might make sense for you, your partner and your kids (if you have them) to all go under the same plan.
“We see a lot of newly married spouses who both have benefits, but they never review [their plans] to see whether it might be cheaper to go on one spouse’s plan,” says Robert Walsh, a CFP® and founder of Lighthouse Financial Advisors in Red Bank, N.J. “Maybe one employer [provides a plan] that offers 80% coverage, whereas another might pick up only, say, 40% [of health care costs].”
So if you’re married or have a partner, weigh the pros, cons and costs of maintaining separate health insurance plans versus using one family plan as you walk through all of your coverage options.
When you’re trying to predict next year’s health care needs …
You don’t have a crystal ball, so you won’t know whether you’ll break a bone or get a bad case of the flu next year. You can, however, make some educated guesses about the type of coverage you think you’ll need, based in part on your past medical history and any changes you see coming on the horizon.
One thing to keep in mind is that, per the Affordable Care Act, everyone who buys health insurance gets a level of standardized preventive care. This refers to tests, checkups or other procedures that are done in an effort to stay healthy or catch a disease in its earliest stages, as opposed to treating an illness or condition you already have.
Annual physicals and mammograms are examples of preventive care. So, for example, if you’ll be undergoing your first mammogram this year, then you’ll likely want to choose a plan that offers strong coverage for women’s preventive health services. If you or your spouse is pregnant—or plan to become pregnant—then adequate coverage for prenatal care, some of which is also considered preventive, should factor into your decision too.
Another key consideration? Current and future medication needs. “Prescription drugs are a major cost for many,” says Lisa Zamosky, author of “Healthcare, Insurance, and You: The Savvy Consumer’s Guide.” “Understanding if and how your drugs are covered is a critical analysis to do [in order] to protect yourself financially.”
So consider making a list of your current prescriptions, so you can check them against a given plan’s drug list. “Make sure you know not only if a drug is covered, but also how much a generic versus a brand name will cost,” adds Walsh.
When you’re weighing how much flexibility you’ll need in choosing doctors and specialists …
There are many different types of health insurance plans, and choosing one will depend, in part, on whether you’re willing to stay in or out of the network of providers that the insurance plan offers. Below are three of the most common types of plans:
A health maintenance organization, also known as an HMO, tends to be among the more affordable choices because it usually has a low premium (the amount you pay an insurance company each month for coverage) and a low or no deductible, which is what you have to pay first before your plan starts to foot the bill. The catch is that you must stick to doctors within your network, and your primary care physician serves as a gatekeeper who needs to provide a referral before you can see a specialist.
A preferred provider organization, or PPO for short, allows you to see any doctor you’d like, but you may have to shell out extra if you elect to go outside of the insurance company’s network. For instance, if you see an out-of-network physician, the insurance provider may charge you coinsurance, which is a percentage of costs you’d have to pay before the insurance company would start covering any costs.
Consumer-directed health plans (CDHPs), also known as high-deductible health plans (HDHPs), tend to have lower premiums but higher deductibles than other types of plans. They are often paired with some type of tax-advantaged health account to which either you, your employer or both can make contributions. This money can be used to help pay out-of-pocket medical costs until your deductible is met, after which you’ll likely pay a coinsurance that’s based on whether you saw an in- or out-of-network doctor.
If you have doctors you like, check to see whether they accept the type of insurance you’re leaning toward before you make a decision. This can be a good idea whether or not you’re switching plans since practitioners may change which insurance companies they choose to work with.
You may also want to briefly ponder a worst-case scenario. “Ask yourself, ‘If I got a rare cancer and wanted to see an expert, what would happen?’ “ says Carolyn McClanahan, a doctor-turned-CFP® based in Jacksonville, Fla. “If a place like the Mayo Clinic is part of your HMO, you’ll probably be happy, but if you’d be limited to a local community clinic, you might regret it.”
When you’re reading a policy’s fine print …
Even if you intend to keep the same health insurance plan as last year, it’s still important to read the terms of your policy.
“Often people assume that all the elements of their plan—including their deductible, provider networks, etc.—will remain the same from one year to the next if they just stick with the same policy, but that’s not necessarily the case,” Zamosky says.
And if you are electing a new health insurance plan, one thing to watch for are exclusion periods for pre-existing conditions. If you were diagnosed or treated for an illness within a six-month period prior to enrollment, your provider may not cover treatment for that illness for a specified period of time.
Another piece of important fine print to note: prior authorization requirements, which are the approvals you may need to obtain before your insurance will cover a particular service or medication. For example, your provider may require prior authorization from your doctor for you to undergo special surgical procedures, or if you need to use a brand-name medication instead of a generic one.
When you’re crunching the numbers …
Zamosky says one of the biggest mistakes she sees people make when choosing a plan is basing the decision solely on the cost of the premium.
“It’s natural to focus on how much money you have to shell out each month to maintain a policy, but so many other details also impact your wallet,” she says. “What initially seemed like the cheapest plan can actually end up costing you more by the end of the year than a policy that would have required you to spend a little more each month.”
For example, CDHPs may offer the lowest premiums, but because of their high deductibles, they may not necessarily save you more in the long run.
“[CDHPs] place a higher level of decision-making and financial risk onto health care consumers,” Zamosky says. They may make sense if you typically don’t have a lot of health care costs, adds Walsh, but if you have a chronic illness or dependents, you may quickly run out of any money you’ve set aside in the health account you have with your plan.
Some other key factors to consider when calculating your potential total health insurance coverage costs:
Copayments, which are the flat fees you may have to pay each time you see a doctor or fill a prescription.
Out-of-pocket limit, or the most you’ll have to pay during the duration of your policy before your plan will cover 100% of the costs for essential services.
Lifetime maximum payout, also known as the lifetime limit, which is the total amount the insurance company will pay out for non-essential health services on your behalf over your entire lifetime, not just from year to year.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.