How to Shop for Health Insurance

Healthcare is very expensive, so you need to have health insurance in case you get sick. Without health insurance, a simple broken bone or even a minor illness could put you thousands of dollars in debt -- or even lead to medical bankruptcy.

Unfortunately, figuring out how to buy health insurance is much more complicated than most purchases you make. There's a wealth of jargon to learn, it's hard to estimate which plan is the best deal for your situation, and the price of a policy can be painfully high.

There's good news, though: This guide will give you details about everything you need to know, so you can shop for health insurance and find a policy that works for you.

How to shop for health insurance

When you're shopping for health insurance, there are a few key steps to take, including:

• Learning the lingo
• Determining what kind of policy you want
• Deciding where to shop for a policy
• Shopping for coverage at the right time
• Comparing coverage and benefits
• Evaluating the network of providers

Learning the lingo

As you compare policies, you'll come across industry-specific language that may be unfamiliar. Some of the key terms to know include:

• Covered service: A covered service is a service included in your policy. For example, a doctor's visit to treat illness would usually be a covered service, but elective cosmetic surgery wouldn't be. Just because a service is covered doesn't mean your insurer pays for 100%. If you haven't met your deductible, you may have to pay out of pocket -- but the payments would count toward meeting your deductible. Services that aren't covered don't count toward your deductible.
• Copay: Copays are money you pay when you get a covered service. If you have a $10 copay for doctor visits and a $5 copay for prescriptions, you'll pay $10 each time you visit your doctor's office and $5 for each prescription you fill. Many policies have different copays for different services.
• Coinsurance: Coinsurance is the part of your medical bills you're obligated to pay. Your policy may pick up 80% of covered services, meaning you'd be responsible for the remaining 20%.
• Deductible: This is the amount you pay out of pocket each year before the insurer begins to pay for care. If you have a $2,000 deductible, you'd pay $2,000 for covered services before your insurer paid anything. However, many policies cover preventive care before you meet your deductible -- so you might be able to get a physical without paying, but you would need to pay for treatment the doctor recommended after the physical if you hadn't met your deductible.
• Preventive care: This is care you need to stay healthy, rather than treatment for disease. It includes cancer screenings, an annual physical, and vaccinations.
• Premiums: Premiums are the monthly fees you pay for an insurance policy. They can go up or down each year when you renew your policy, but they're the same each month from the time you sign up for coverage until the renewal period.
• Out-of-pocket limit: The out-of-pocket limit is the maximum you'll pay for covered healthcare services over the course of the year. If you have a $5,000 out-of-pocket limit, once you've paid $5,000 -- including your deductible and co-insurance costs, but not including insurance premiums -- you don't have to pay any more. Some policies have different out-of-pocket limits for in-network care versus out-of-network care.
• In-network care: In-network care is care provided by a medical service provider that participates with your insurer. When a caregiver is in-network, the caregiver agrees upon rates with your insurer. You can't be charged more than those agreed-upon rates. And if you pay for a covered service from an in-network provider, the entire amount you pay counts toward meeting your deductible.
• Out-of-network care: Out-of-network care is provided by a medical service provider that doesn't participate with your insurer. The provider doesn't have negotiated rates with your insurer and thus may charge more than your insurance company pays for a particular service. If the out-of-network provider charges more, you'll have to pay the rest of the cost -- and only a portion of what you pay might count toward meeting your deductible.

You'll need to know what these terms mean as you decide what kind of policy you want and comparison-shop among different plans.

Decide what kind of policy you want

Not all insurance policies are created equal. Some policies provide much more coverage, with lower deductibles, lower copays, lower out-of-pocket limits, and low or no coinsurance costs. Those policies usually have higher premiums. Other policies provide much less coverage but charge lower premiums.

Policies also differ regarding when you can receive services and what you must do to get those services covered. For example, with some insurance policies, you can only see a specialist if you've received a referral from another doctor.

The different types of policies that you can choose from include:

• High-deductible health plans (HDHPs): Also called catastrophic health plans, these policies have the lowest premiums, but their deductibles and out-of-pocket limits are extremely high. You'll be responsible for covering essentially all routine care if you opt for an HDHP. However, you may be able to pair these plans with a health savings account (HSA), healthcare reimbursement account (HRA) or flexible spending account (FSA) so care can be paid for with pre-tax funds. We'll talk more about HRAs, HSAs, and FSAs later.
• Health maintenance organizations (HMOs): HMOs typically cover only in-network care and require you to get referrals from a primary care doctor to see specialists. HMOs can be cheaper than other policies, but they limit where you can get care and require you to jump through hoops to get services. Typically, if you see in-network doctors, there's no deductible or a small deductible, and routine care is 100% covered after you pay a copay.
• Exclusive provider organizations (EPOs): These are essentially the same as HMOs, but you can get care from a national network of providers, instead of only caregivers in your geographic area.
• Point of service plans (POS): These are a form of HMO that allows some coverage for out-of-network doctors if your in-network primary care doctor provides a referral.
• Preferred provider organizations (PPOs): These plans give you the most flexibility, but they often come at a higher cost. You don't need referrals from a primary care doctor, and you can see any physician at any time. PPOs usually participate with a network or providers. If you see them, your coinsurance costs, deductible, and out-of-pocket limit are lower. However, you can opt to see out-of-network doctors and still get most costs covered.

Different plans work best for different people. If you have extensive healthcare needs, you may be better off buying the most comprehensive PPO plan you can find with the lowest deductible and out-of-pocket limit. You'll pay a lot more in premiums, but you would know your costs up front, because most services would be covered. But if you're healthy and would only get care in emergency situations, an HDHP may be your best option.

How to decide what type of policy is best

The best way to determine what policy make sense is to estimate your family's healthcare needs and determine what option provides the lowest overall cost, factoring in both premiums and the costs of services.

Some things to think about include:

• Will you require a significant amount of covered services? If you're planning to have a baby or managing a chronic disease such as diabetes, you can expect to have more ongoing health expenditures during the year. You may want a policy that costs more up front but provides coverage for care you'll need so you don't have to worry about big unpredictable expenses.
• Do you need to see out-of-network providers? If you see specialists that don't participate with most insurance networks, you may want a PPO that provides the most coverage for out-of-network care.
• Do you have money to cover care if you need it? If you have a high-deductible health plan, you may need to come up with several thousand dollars if you experience a health issue. For some people, the threat of a big expense suddenly cropping up is harder to budget for than paying higher premiums on a steady basis.

Remember, there's always a trade-off: The more covered services, the higher the premiums. If you want to protect yourself from unexpectedly high medical expenses, it's best to buy a more comprehensive policy, even if higher premiums mean more guaranteed costs.

Decide where to shop for a policy

You may be able to get insurance from a few different sources, depending upon your situation. These include:

• An employer: If you or a spouse has access to an employer plan at work, this is often the best choice. Children under 26 can also stay on their parents' workplace insurance plans. Employer plans often provide better coverage than you can purchase on your own, and your employer may pay part of the premiums for you.
• The Affordable Care Act (ACA) exchange: The Affordable Care Act (also known as Obamacare) aimed to streamline the process of buying health insurance by encouraging each state to create a marketplace. Washington, D.C. and 11 other states operate their own marketplaces: California, Colorado, Connecticut, District of Columbia, Idaho, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, and Washington. If you don't live in one of them, you'll shop at Healthcare.gov. If you purchase a policy on the ACA exchange, you may be eligible for subsidies (more on that below), but there might be a limited number of policies in your area.
• Buying off-exchange plans: It's also possible to buy insurance policies off the Obamacare exchanges by shopping directly with insurers, going to an insurance agent, or using websites such as ehealthinsurance. When you buy an off-exchange plan, policies that are Obamacare-compliant must meet certain requirements, including covering 10 essential services and no lifetime limits (caps on the total amount the policy can pay over your lifetime). You could also buy non-compliant plans such as short-term health insurance plans, which last only a limited time and don't comply with Obamacare mandates. While these plans are cheaper, their coverage is skimpier.

If you don't have access to an employer plan, getting insurance through the Obamacare exchange probably makes the most sense, because you can count on getting a certain minimum level of coverage and perhaps get help paying premiums.

ACA plans

The ACA fundamentally changed the process of shopping for insurance. First and foremost, it imposed a mandate that all Americans have qualifying health insurance or pay a penalty. This mandate remains in effect for 2019, but it has been zeroed out as of 2020. However, numerous states have passed their own insurance mandates, including Massachusetts and New Jersey, so even if the federal government no longer requires insurance, your state might.

The ACA also changed the process of shopping for insurance in another important way: You can't be denied a policy or be charged more if you have pre-existing conditions. Premiums for each plan are the same for every person in the same geographic area and age group, although tobacco users pay a surcharge. The ACA even capped how much more insurers can charge older people: three times what younger people in the same area pay. Insurers also cannot impose a lifetime limit on the total amount spent on your care.

The ACA also mandates that every policy cover 10 essential benefits, including outpatient care; prescription drugs; emergency room care; mental health services; hospitalization; rehabilitation; preventive care; lab work; vision and dental care for children; and maternity and newborn care.

This doesn't mean your insurance pays every dollar for essential care -- you're still responsible for your deductible and for copays and coinsurance costs until you hit your out-of-pocket limit. But spending on essential benefits counts toward your deductible, insurers must pay something toward them once your deductible is met, and insurers must cover essential care at 100% once you've reached your out-of-pocket maximum.

ACA subsidies

The ACA also provides subsidies for people who make below a certain income level. The subsidies work by capping the percentage of income you pay for a "benchmark" plan. The benchmark plan is a "silver plan." Obamacare plans are divided into four tiers: bronze, silver, gold, and platinum. Silver plans cover around 70% of healthcare costs, leaving you to pay the rest out of pocket.

The following table shows the maximum percentage of your income you'd pay to obtain a benchmark silver plan in 2019.

If your income were $1,000 monthly, you'd be below 133% of the federal poverty level. If the benchmark silver plan cost $450 monthly, the maximum you'd pay would be 2.08% of $1,000, or $20.80. Your subsidies would total $429.20 monthly. You don't have to buy the benchmark silver plan; you can buy any qualifying Obamacare plan. But if you want a more expensive plan, such as a gold or platinum plan, your subsidies cap out at the same percentage, and you pay the difference. If you buy a cheaper plan, the subsidies may cover the premiums entirely, so the plan would be free.

It's important to estimate your income correctly so that the right subsidy can be determined. Otherwise, you could end up having to pay back some of the money.

Shopping for coverage at the right time

Unlike most other products, you can't shop for health insurance whenever you want. You'll need to buy a policy during open enrollment. Open enrollment happens at a designated time, generally once per year.

If you're buying through an employer, your employer sets the open enrollment period. Usually, it runs for about two to four weeks, and coverage starts shortly after. For example, employers may run open enrollment in November, and the policy you select will take effect in January.

If you buy on an Obamacare exchange or buy an off-exchange policy, open enrollment also happens at a specific time designated by the government. Open enrollment for Obamacare for 2019 ran from Nov. 1, 2018 to Dec. 15, 2018 and is over for the year. Open enrollment for 2020 will begin in December 2019. Any plans sold during the 2019 open enrollment period became effective on Jan. 1, 2019.

Once open enrollment closes for the year -- either with your employer or through Obamacare -- you can't enroll in benefits unless you experience a qualifying life event such as:

• A job change
• Loss of insurance coverage (e.g., because you've turned 26 and aged out of your parent's plan)
• A marriage or divorce
• The birth of a baby
• A death in the family
• Moving out of your area
• Becoming a U.S. citizen
• Release from incarceration
• Starting or ending AmeriCorps service

If you don't have a qualifying life event and miss open enrollment, you won't be able to obtain coverage or change coverage until the next open enrollment period.

Comparing coverage and benefits

When you start shopping for insurance policies, you'll need to compare the different rates and terms they offer, as well as what services are covered.

Every policy should provide a detailed explanation of benefits (EOB) specifying covered and excluded services, explaining your coinsurance costs and copays, and detailing what your deductible is. If you want to make sure a specific type of care is covered, such as acupuncture or chiropractic or fertility treatments, the EOB is the place to look.

The EOB will also usually provide examples of how much specific care needs will cost, e.g., how much you would pay if you had a baby or broke your arm. Here's an example of how part of the explanation of benefits may look, showing how much you'd pay for primary care visits, specialist visits, or medical testing.

You can obtain EOBs from each insurer you're considering to see exactly how different policies compare. Remember, there are always trade-offs. If you want low copays, low coinsurance costs, and a low deductible, you'll pay higher premiums. If you want low premiums, you'll have higher copays and coinsurance costs, as well as a bigger deductible.

Evaluating the network of providers

When you compare insurance plans, there's another key criterion: whether the plan has a good network of providers or not. If an insurance company appears to offer many benefits but few doctors or hospitals actually accept the coverage, then it's not a very good plan.

Insurance companies allow you to search their network of providers online. You can search for a specific doctor or facility, such as your local cancer treatment center. You can also search by specialty or area of medicine. If you know you want a pediatrician or a gynecologist but don't know which one, search the network to see how many participating doctors in that field are near you.

Just be aware that online provider directories aren't always 100% up to date. If receiving treatment from a particular provider or treatment center is important, contact that provider before purchasing a plan and ask if they're still in-network.

Investing in accounts to pay healthcare care costs

In addition to buying health insurance, there are various ways you can get tax breaks to make paying for healthcare services more affordable. Some of your options include:

• Healthcare reimbursement accounts: Employers maintain HRAs and put money into them, which you can then use to cover eligible expenses. Employers decide whether to offer HRAs and how much money they'll provide. If your employer offers an HRA and puts $750 per year into it, you'll be reimbursed by your employer for up to $750 in covered healthcare spending. Depending on how your employer organized the plan, any unspent money may roll over from year to year. That means if you don't use your $750 in year one and your employer gives you another $750 in year two, you'll have $1,500. In 2019, employers can contribute a maximum of $5,150 in pre-tax funds to an HRA for an individual, or $10,450 for family coverage.
• Flexible spending accounts: FSAs allow employees to put money away pre-tax for qualifying health expenses. Only employers can set up an FSA, but unlike an HRA, employees are the ones that make contributions. Employees are limited to $2,700 in pre-tax contributions for 2019. If you don't use the money in an FSA during the year you put it into the account, you generally lose it; it doesn't roll over. However, FSAs that allow you to roll over at least some unused dollars are becoming more common.
• Health savings accounts: If you have a qualifying high-deductible health plan, you can open an HSA with any bank or brokerage firm. Some employers also offer HSAs. HSAs allow you to invest money with pre-tax funds and withdraw it without paying taxes to cover qualifying health expenses. You can invest up to $3,500 for individual plans and $7,000 for family coverage in an HSA in 2019. Any unused money remains in the account. Once you turn 65, you're also allowed to withdraw money from an HSA for any purpose without paying penalties -- although withdrawals are taxed as income if the funds aren't used for qualifying health expenses. You're eligible to put money into an HSA in 2019 if you have a health insurance plan with a minimum deductible of $1,350 for individuals and $2,700 for family plans. The plan must have maximum out-of-pocket expenses of $6,750 for singles and $13,500 for families.

Getting the right coverage is essential

This is a lot of information -- but now you have a complete and comprehensive guide to buying health insurance and can make sure you and your family are protected. You can't afford to compromise on your health, so take the time to find the best policy for your situation during your next open enrollment period. If health problems hit your home, you'll be very happy you're covered.

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