For many employees, open enrollment for benefits selection occurs between October and November. Selecting from a long list of choices can be overwhelming to say the least. If you are switching health coverage, it’s important to understand your deductible, the maximum out of pocket, the implications of in-network and out-of-network care, and what it would cost you to maintain your existing healthcare routine. Two common categories of health coverage I see are Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO). Understanding the difference between these common plans can help you make an informed decision when choosing your coverage. Here are some financial considerations when deciding between HMO and PPO.
HMOs
HMOs tend to be the most inexpensive options available. Often, those with an HMO can have a great experience if they just go to a primary care doctor annually for a physical, have maybe a medication or two, and don’t experience health issues. If you require a specialist, you will need to be referred by your Primary Care Physician and usually, that specialist would be part of the same organization— this could limit your options. HMOs also usually do not cover out-of-network care at all except in the case of an emergency.
PPOs
PPOs are usually well suited to people who have a preferred doctor or want flexibility in choosing a location or specialist. You also usually do not require a referral to see a specialist, allowing you to pick the best one available. PPOs tend to have wider networks and may even have a high level of coverage if you choose to see a doctor out-of-network.
Copays
Copays are most often associated with HMOs, though they can be applicable to PPOs. Copayments are set dollar amounts that you pay for specific services, like doctor visits, medications, and other in-network covered services. They are negotiated by the provider and tend not to count toward your deductible, which will be discussed later. An example would be a $25 charge for getting lab work done.
Deductibles
The choice of a deductible can greatly impact your health insurance and care costs. These are broadly categorized into high-deductible and low-deductible plans. Your deductible amount is the amount that you must pay out of pocket before insurance starts covering services. Because of this, high-deductible plans are cheaper than low-deductible plans. With a high deductible plan, as an example, you may need to pay for your medical costs up to $2,000 before insurance starts paying.
Coinsurance
Coinsurance is basically a percentage cost share between you and your provider. A common coinsurance amount is 80% cost is absorbed by the insurer, and you pay 20% of the cost. Once you’ve hit your deductible in a plan, there may be an applicable coinsurance amount for every cost above the deductible up to a maximum. Let’s say you have a plan with a $1,000 deductible and you’ve incurred medical expenses of $2,000 (no other expenses this year). You would pay the first $1,000, then your coinsurance would kick in and your insurer may cover 80% or $800 of the remaining $1,000.
Maximum Out Of Pocket
The maximum that you could possibly pay for covered services is known as the Maximum Out of Pocket (MOOP). It puts an upper limit on the dollar amount you’re responsible for to avoid financial ruin in the case of a major medical issue. As you may guess, plans with a low MOOP will be more expensive than plans with a high MOOP because you would need to pay a smaller amount before your insurer begins paying 100% of costs.
Words of Caution
Once you have a health insurance policy, make sure you verify with your carrier what your costs would be prior to receiving the service. Some websites may indicate that a medical provider will take your insurance but that doesn’t necessarily mean the service is covered or in-network. Oftentimes, out-of-network services will count towards neither your deductible nor your MOOP, potentially causing your costs for the year to exceed the MOOP.
Which Plans Make Sense For Different Types of People
The plans that will cause you to pay the least out of pocket for services will be the most expensive so many people don’t end up with the very top of the line plans because of budgetary restrictions.
Often, I see younger individuals with a history of good health opting for a high-deductible PPO plan or HMO to reduce costs and supplementing that plan with a Health Savings Account to cover surprise expenses when they do need care.
On the other side, I often see families and individuals with an increased need for medical care or flexibility opting for a low-deductible PPO or HMO. Usually, these plans would also be accompanied by a low MOOP, protecting families and people with a high medical need from large medical costs.
Conclusion
There are many considerations for selecting the most appropriate health coverage for yourself. It’s important to weigh your personal needs against the amount of risk you’d like your insurer to assume. Communicating with the individual insurers, though time consuming, can provide some clarity and allow you to plan your expenses accordingly.
This informational and educational article does not offer or constitute, and should not be relied upon, as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #:0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-5856981.1(10/23)(exp.10/25)
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