Buying health insurance – everything you need to know

A health insurance policy represents an agreement between an individual (the policy owner) and an insurance company. In this agreement, the company commits to be responsible for certain covered expenses related to the medical care of the individual insured and or his family. The policy owner, for his part, commits to pay the insurance premiums during the duration of the policy's term.

How a health insurance policy works

A typical policy would list down the conditions where the insurer would make a payout to cover the costs involved in relation to the medical care received by the insured and or his family.

When you go visit a doctor or a hospital when you get hurt or sick, you accumulate medical bills. With health insurance, the insurer will take off some of the burden of paying these bills by paying a portion of the amount. How much that portion is and under what conditions will the insurer agree to make payments will be spelled out in the policy.

Difference between health insurance vs. life insurance

Health insurance provides you protection against medical costs, which you do not expect, and also allows you to get immediate access to medical care. This means you do not have to produce money right away to go visit a doctor or a hospital because you got sick or you got hurt.

Life insurance, on the other hand, will give your named beneficiaries a pay-out in the event you die. It some types of life insurance, you can also get a source of a little source of income to go along the death benefit.

What health insurance covers

Generally, it covers: medicines, surgeries, psychological care, visits to doctors or emergency rooms, routine tests and vaccinations, etc.

In some cases, you may be required to shoulder a portion of the costs on top of the premium payments you make.  There are also policies that have greater coverage including vision and dental care.

What health insurance does not cover

What it is not covered in a health insurance policy are termed as "exclusions" and this could include the following: suicide or any self inflicted injury, cosmetic surgery, sexually-transmitted diseases, experimental treatments, pre existing medical conditions, and vision correction. Exclusions may vary from policy to policy.

Categories of health insurance policies

There are three general categories for health insurance policies:

  • Reimbursement or indemnity - these plans allow the consumer to select their own doctors. Coverage may be total or a portion of the expenses, or it may be a limited amount daily for a specific number of days.

  • Managed care plans such as point of service, preferred provider organizations and health maintenance organizations plans - these policies usually offer wider coverage. Generally, under these plans the insurance company has a tie in with selected health-care or medical providers such as hospitals and doctors. The insured individual may seek services outside of the select network of medical providers, however, coverage will be usually lesser than when those provided in-network.

  • Government-sponsored plans - these are programs implemented by the government, which provides health insurance to certain sectors of society.

Types of reimbursement or indemnity plans

  • Flexible spending or cafeteria plan - this type of plan is established by the employer. It reimburses expenses incurred by the employee that are related to his medical care. The employee makes contributions to his account via salary deduction. There is no limit on the contributions that can be made toward this account. However, there are companies who set a maximum of up to $3,000 on these accounts. The employee cannot increase or decrease the amount he can contribute within a year. He can do so if there is a change in his family status. Under the law, any unspent amount that remains in the account by year end is forfeited.

  • Indemnity health plan - provides the consumer the chance to select his own set of medical care providers. He can seek the services of any hospital, doctor or similar providers. The plan provides reimbursement of expenses based on the services provided. In some cases, a deductible may be required. For many insurance companies, there is limit on the out-of-pocket expense amount. Once this limit is reached, the company takes care of the remaining expenses in their entirety as long as these are deemed eligible.

  • "Essential" or "basic" plan - this offers limited coverage and as such come with lower cost to the consumer. Because of the limited coverage, the consumer has to read the terms of the policy carefully because some important medical care may not be included and thus be disadvantageous. While cheaper, the premium amounts can still vary as rate are determined on the basis of gender, age, occupation, health status or location.

  • Health savings account - this plan provides the consumer an alternative to paying for medical care. Instead of making premium payments, the consumer puts up a saving account that can be used to pay for medical expenses. The consumer decides on how the money is spent and how to make it grow. This account also provides tax benefits. An important requirement for this type of plan is having to also purchase a High Deductible Health Plan.

  • High-Deductible health plan - is a cheap health insurance policy. The reason for its low premium payments is the high deductible attached to it. The benefits provided by this plan only kick in once the individual pays the deductible. As of 2011, the minimum deductible for self is $1,200, for family it is $2,400.

Types of managed care plans

  • Health Maintenance Organizations - involves a wide network of health and medical care providers (doctors, hospitals, etc.) With this plan, the consumer selects a primary care doctor based on a list provided by the HMO. The doctor does the coordination required for the individual's medical care needs. Referrals to specialists are done by the primary care physician. In most cases, out of pocket expenses on the part of the individual are lesser. However, there are fees that need to be shouldered as the individual's share of the payment for services received.

  • Point-of-Service - in this type, a list of primary care physicians are also utilized. The primary care doctor coordinates referrals to other medical providers that are within the plan. In cases where the doctor refers out of the POS plan, the insurance company takes care of most or all of the expenses. In cases where the individual seeks the services of a provider that is not included in the plan, the type of service sought has to be covered under the plan and that the individual will have to pay for co-insurance.

  • Preferred Provider Organization - also involves a list of participating medical providers whose services to the individual is paid by the insurance company based on a discounted and negotiated payment schedule. This type of plan usually comes cheaper when services that are included in the network are availed of. The consumer may go out of the network provided they shoulder the amount representing the difference between what is charged by a provider and what the plan allows.

Types of government-sponsored plans

  • Medicaid - provides health insurance to low income individuals and families. It is funded both by the federal government and the state. Management of this program is handled by the different state governments in their areas of responsibility. Those who benefit from Medicaid include American citizens, permanent residents who are legally staying in the country, adults with low income and resources and their children, and, individuals with disabilities.

  • Medicare - provides health insurance to individuals sixty five years old and older. It also serves younger individuals who are burdened with certain disabilities. Medicare pays a portion of the expenses encountered by a covered individual for doctor's fees, surgery, hospitalization, nursing care and home health care.

  • Children's Health Insurance Program - a state managed program which affords health insurance to children of low income families where the parents are not qualified under Medicaid. The program may be called different names in different states.

  • Health insurance programs for the military - these are plans available to members of the uniformed service and also to veterans.

  • State sponsored health insurance plans - these are programs managed and implemented at the state level by the state government and are usually targeted towards persons of low income.

  • Indian Health Service - a program that provides health care insurance to qualified American Indians. Services are provided in facilities administered by the IHS. Payment of services sought in non-IHS facilities are also covered by the program.

Factors to consider when choosing type of health insurance

  • Annual salary - which dictates that amount of premium that one can afford.
  • Budget per month - this determines the percentage deductible or co-payments that one can afford
  • Any pre-existing medical conditions - the type of condition an individual has can have an impact on the policies available to him.
  • State of health and age - healthy, young individuals are generally afforded with plans that carry lower premiums along with higher deductibles.
  • Dependency on medication - individuals in this situation would be better off getting a policy that allows for low payments on prescription medicine.
  • Family planning - those who plan to build a family are better off with a plan that offers coverage for baby medical care and immunizations with low co-payment requirements.
  • Preference for natural remedies - if you are inclined to natural medications, get a plan that offers this coverage. A number of insurers now provide this type of coverage.
  • Coverage for children or older dependents - if you have children or older parents as dependents, consider them when selecting a policy.

Choosing between employer provided plan vs. individual policies

Health insurance provided by an employer would be best for an individual who has health issues or a pre-existing medical condition, which deems him ineligible for coverage under an individual policy.

Individuals who are in good health and are married, are likely to pay more for an employer provided plan than with a similar individually purchased policy.

Individuals who have excellent health, do not smoke, and are married or have partners are likely to pay less for individual policies. Also, individual policies generally allow for greater customization compared to group policies.

How to save money when purchasing health insurance

  • When you are an employee and your company offers group health coverage, there is what is termed as open enrollment. Here, you have the option of going with group coverage or you can opt out of it. When you do not make a decision, you could lose out on the discounts and benefits offered by group coverage. So, decide before the enrollment period ends.

  • It is always wise to shop around and when it comes to health insurance, the key points to compare are: the cost of a basic policy (the premium), your deductibles per year, and the cost of co-insurance which is the dollar amount you pay for each prescription or doctor's visit.

  • Compare this year's coverage vs. last year's coverage. There could be changes in the policy or you may have new needs in place.

  • If you are planning to have a baby, make sure you have maternity coverage. Many businesses nowadays reduce costs by making this coverage optional.

  • Check the costs of prescription drugs under each plan, the differences could mean you pay more out of your own pocket.

  • Check your spouse's or partner's policy. Your wife's share of her premium could be greater or less than yours. In addition, check and compare what the cost of providing coverage for your family is under each of your plans.

Choosing a health insurance company

Make sure that the medical service providers and facilities that are covered by the company's plan are found in the community or area where you reside.

Look at your needs. Each company offers plans that are tailored to meet the needs of most individuals or families. However, each person's situations are different. When reviewing a number of companies, look at their plans and the additional coverages available. Look at which plan will meet your needs best.

Look at your long-term needs. Many companies will require some evidence on the insurability of their current customers in the future. When choosing a company, look for one that does not require reevaluating your insurability in the years ahead. You will never know if you will still be fit when a reevaluation is done.

Check the company's reputation. See if there are complaints, reviews or general comments about the company. You can check this information from Medicare, the insurance department or agency in your state and also with the National Committee for Quality Assurance.

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