Picking your health insurance every year can make you feel like you’re slogging through a sea of acronyms — and knowing the right kind to pick can be hard if you’re not even clear on what they all mean.
Confusing as it may be, it’s important to dig in and understand the details as though your life depended on it — because it just might. To help you with your decision, we broke down the pros and cons of the three most common types of health insurance plans you may be asked to choose from.
HEALTH MAINTENANCE ORGANIZATION (HMO)
In an HMO, you’ll be offered a list of doctors within a network to choose from; they either work directly for the HMO or contract with it. You will pick a primary care physician who will oversee all your care, including providing referrals to specialists as needed.
Pros: HMOs are often the most affordable choice; they typically have lower monthly premiums (the amount you pay each month to maintain your coverage). Also, an HMO often focuses on wellness and preventive care to help you maintain a healthier lifestyle.
Cons: Your choices are limited. The insurer typically won’t pay for a provider outside the network (or will make you pay a much higher proportion of the cost). Typically, you’ll need to get a referral from your primary care physician in order to see a specialist.
PREFERRED PROVIDER ORGANIZATION (PPO)
These plans will have a list of pre-approved providers they contract with, rather than providers who work directly for the plan. While reimbursement percentages vary for going out of network, a 60/40 split is common, where the insurer pays 60 percent and you cover the remaining 40.
Pros: You have a greater choice of doctors, and you don’t have to seek a referral to visit a specialist.
Cons: These plans will cost more than an HMO, usually with higher monthly premiums and copayments. And you often must pay a deductible (the amount you pay out of pocket before your insurance benefits kick in). So, if you have a $1,000 deductible, you will pay the entire $1,000 first on any medical services you receive before your insurance company starts paying.
It’s important to dig in and understand the details as though your life depended on it — because it just might.
HIGH-DEDUCTIBLE HEALTH PLAN (HDHP) WITH A HEALTH SAVINGS ACCOUNT (HSA)
As the name suggests, HDHPs have high deductibles (but typically lower monthly premiums). For 2018, the IRS defines an HDHP as one with a deductible of at least $1,350 for an individual or $2,700 for a family, but deductibles can run higher. Maximum annual out-of-pocket expenses (including deductibles and copayments, but not premiums) for HDHPs can run up to $6,650 for an individual or $13,300 for a family.
Usually insurance companies that offer HDHPs will allow you to set up an HSA as well. The money you put into an HSA is contributed pre-tax, and if you use it to pay for qualified medical expenses, there’s no tax on your withdrawals, either. (If you use that money for something other than medical costs, you’ll pay taxes plus a penalty.) For 2018, the IRS will allow you to set aside up to $3,450 annually for individuals and $6,900 for families in your HSA. Don’t worry if you don’t use up the entire sum in a year; funds roll over for future availability.
Pros: Paying lower monthly premiums and being able to set aside money in an HSA tax-free could save you bundles if you don’t use a lot of medical services. Many routine screenings, such as colonoscopies and mammograms, are also covered free of charge.
Cons: The out-of-pocket expenses can rise rapidly if you go to the doctor often. Remember, you could be paying up to $6,650 for an individual or $13,300 for your family each year — that’s a big expense that you’ll have to account for in your budget.