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Understanding Types of Health Insurance Coverage

January 23, 2019

When shopping for health insurance, it’s important to remember that different types of plans meet different needs. Plans types vary when it comes to cost, providers, and payment. You’ll want to understand each type, so you can find the plan that best fits you and your family’s budget and health requirements.

Let’s start with one of the most popular types of health plan, the Health Maintenance Organization, or HMO. HMOs may limit your coverage to providers inside their network. A network includes a list of doctors, hospitals and other health care providers who give care to members of a specific health plan. These “in-network” providers have agreed by contract to treat patients at a negotiated rate, in exchange for a steady stream of customers. HMOs usually won't cover out-of-network doctors, except in the case of an emergency. If you use a provider who isn’t in the network, you may have to pay the full cost. HMOs often require members to live or work within its service area to qualify.

An Exclusive Provider Organization is similar to an HMO, but HMO members generally have a primary care doctor, and must get referrals to see a specialist. This is usually not true for EPOs.

Another popular type of health plan is a Preferred Provider Organization, or PPO. PPOs give you a choice of getting care in or out of network. You can use out-of-network providers, but you’ll pay more than for in-network providers. You can also visit any doctor without a referral when using a PPO.

A Point-of-Service plan is similar to a PPO, except you can visit any provider in-network, but you need a referral to go to an out-of-network provider.

A Catastrophic Health Insurance Plan is similar to a HDHP in that it has a very high deductible. A catastrophic plan covers essential health benefits, so it providers a kind of safety net in case of an accident or serious illness. Premiums for catastrophic plans are usually lower than traditional health insurance plans, but deductibles are much higher. In the federal Marketplaces, catastrophic plans are available only to people under 30 years old and to some low-income people who are exempt from paying fees because other insurance is considered unaffordable for them. Marketplace catastrophic plans cover 3 annual doctor visits and preventive services at no cost. After the deductible is met, they cover the same set of essential health benefits as other Marketplace plans.

A High Deductible Health Plan (HDHP) usually features exactly what it says: high deductibles, but lower premiums than normal insurance plans. That means you pay less each month, but when you need health care, you face higher out-of-pocket costs. However, there is a cap to your out-of-pocket spending. Once you reach the cap, the HDHP pays 100% of your care, and the totals include your deductible.

HDHP sometimes have a Health Savings Account option. HSAs were created in 2003 so individuals enrolled in HDHPs could receive tax-preferred treatment of money saved for medical expenses. The funds contributed to the account aren’t subject to federal income tax at the time of deposit. HAS funds may be used to pay for qualified medical expenses at any time without federal tax liability or penalty. Withdrawals for non-medical expenses may incur penalties. Funds roll over year to year if they’re not used.

A Flexible Spending Account is somewhat similar to an HSA, except it’s only available with job-based health plans. A FSA is a special account you put money into, to pay for out-of-pocket health care costs. You don’t pay taxes on that money, so you’ll save an equal amount to the taxes you would have paid on the money you put aside. You can use an FSA to pay for copayments, deductibles, some prescriptions, and other health care costs, but you can’t use it to pay insurance premiums. Employers can make contributions to FSAs, and you generally must use the money you contribute to the account within the plan year. At the end of the year, you lose any money left in the account. FSAs are limited to $2500 per year.

Choosing a health care plan for you and your family can be a daunting task. But armed with an education on health insurance options, you can make smart choices that benefit your family’s health and budget. Remember to always read all the options associated with a health plan before you commit to it. If you’re uncertain about any of the benefits, be sure to ask your navigator, broker, agent, or the carrier directly, so all your questions are covered. Generally, once you commit to a plan, you’ll be unable to change that plan until the following Open Enrollment season.