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Four Steps to Choosing a Health Insurance Plan

Do you know when the most wonderful time of the year is? No, it’s not the holidays. We’re talking about open enrollment season, baby! That’s right! It’s the magical time of year when you get to compare health insurance plans to see which one is right for you!

Okay, you got us. Probably nobody gets that excited about comparing health insurance plans. But when it’s time to choose, it’s important to know what each plan covers, how much it costs, and where you can use it.

This stuff can be complicated, but you’re in the right place. We put together some practical learning steps for you so you can feel confident about your options.  

  1. Compare Health Insurance Plan Networks
  2. Compare Health Insurance Plan Metal Categories
  3. Compare Health Insurance Plan Total Costs
  4. Learn How to Save Money on Health Insurance

1. Compare Health Insurance Plan Networks

We get it. Health insurance is full of weird jargon and acronyms. It’s like trying to solve the puzzle on the back of a cereal box without a decoder ring. Well, consider this your health insurance decoder ring, because we’re going to take you through the various types of plans and how they work.

Do you have the right health insurance coverage? Connect with a Trusted pro today.

First, if you have a job with an employer who provides health insurance, talk to your workplace health insurance administrator. They should be able to explain how to choose health insurance.

If your company doesn’t offer a health plan or if you’re self-employed, we’re here to explain how to compare health insurance plans. Let’s go over the main types of plan networks available:

Preferred Provider Organization (PPO)

Preferred provider organization health plans contract with hospitals and doctors to create a network of participating providers.1 These plans also have coverage for doctors outside of their networks, but you’ll pay more out of pocket—often a lot more—than if you see the plan’s preferred providers. (See what we did there?) Emergency care is often the exception to the rule. PPOs are the most popular plan for people who get their health insurance through work, with 47% of covered workers enrolled in a PPO.2

Pros: Most PPOs have a reasonable selection of providers to choose from in your area. Just be sure you verify which providers accept your plan prior to any treatment so there are no surprises.

Cons: Higher premiums make PPOs more expensive than other types of plans like HMOs.

Health Maintenance Organization (HMO)

A health maintenance organization is a type of health insurance plan that only covers care from doctors who work for (or contract with) that specific plan.3 That means that unless there’s an emergency, your plan will not pay for out-of-network care. HMOs are often restricted to a specific geographic area, so you’ll be required to live or work within that service area.

Pros: Lower out-of-pocket expenses make HMOs attractive.

Cons: There’s not much flexibility. When it comes to choosing providers, it’s like what your teacher told you in preschool: You get what you get, and you don’t get upset.

Exclusive Provider Organization (EPO)

An exclusive provider organization is a type of managed care plan (like an HMO) where services are only covered if you use doctors, specialists or hospitals in the plan’s network (except in emergencies).

Unlike HMOs however, EPOs do not require a primary care physician (PCP) referral to see a specialist. This might be the right network plan for you if you want the freedom to see specialists without a referral and if you do not mind being limited to health care providers in your network.

Pros: Premiums are usually lower. There’s no need for a PCP referral to see a specialist.

Cons: You’re limited by a smaller network of health care providers. Most services require pre-authorization from the insurance company.

Point of Service (POS)

A point-of-service plan combines the features of HMOs and PPOs by providing different benefits based on whether you use in-network or out-of-network providers. POSs do provide some coverage for seeing an out-of-network provider, and your PCP will coordinate the care.

Pros: You’ll find more provider options to choose from. Your PCP will coordinate your specialist care.

Cons: Referrals are required.

Cross-eyed yet? To clear things up, we summarized all the features we just discussed in the handy table below.

Network Plan Type

Do you have to stay in network to get coverage?

Do procedures and specialists require a referral?

Summary Snapshot

HMO: Health Maintenance Organization

Yes, except for emergencies

Yes, typically

Lower out-of-pocket costs and a primary doctor who coordinates your care for you, but less freedom to choose providers

PPO: Preferred Provider Organization

No, but in-network care is less expensive

No

More provider options and no required referrals, but higher out-of-pocket costs

EPO: Exclusive Provider Organization

Yes, except for emergencies

No

Lower premium and no required referrals, but less freedom to choose providers

POS: Point of Service

No, but in-network care is less expensive

Yes

More provider options and a primary doctor who coordinates your care for you, with referrals required

2. Compare Health Insurance Plan Metal Categories

When you’re shopping for a plan on HealthCare.gov or your state exchange, the plans are shown in four “metal” categories. No, not like Mötley Crüe. More like Michael Phelps. The plans are tiered according to how much they cost and what they cover: Bronze, Silver, Gold and Platinum. (Okay, yes, it’s true: The Crüe did have some platinum records and Michael Phelps never won a platinum medal at the Olympics.) Keep in mind that if you’re eligible for “cost-sharing reductions” under the Affordable Care Act, you must pick a Silver plan or better to get those reductions.4

It's good to know that plans in every category provide some types of free preventive care, and some offer free or discounted health care services before you meet your deductible. The way it basically works is that Bronze plans have the lowest monthly premiums but the highest out-of-pocket costs. As you work your way up through the Silver, Gold and Platinum categories, you pay more in premiums, but less in deductibles and coinsurance.

However, the extra costs in the Silver category can be minimized if you qualify for the cost-sharing reductions, so you’ll want to make sure you’re getting the maximum value of those reductions when you’re shopping for health plans. They can substantially lower your out-of-pocket health care costs, so get with one of our Endorsed Local Providers (ELPs) who can help you find out what you may be eligible for.

The table below shows the percentage that the insurance company pays and what you pay for covered expenses after you meet your deductible in each plan category.

Plan Category

How Much the Insurance Company Pays (After Deductible)

How Much You Pay

Bronze

60%

40%

Silver

70%

30%

Gold

80%

20%

Platinum

90%

10%

3. Compare Health Insurance Plan Total Costs

When you choose your health insurance plan, it’s super important to pay close attention to other costs besides your monthly premium.

Other costs, often called “out-of-pocket” costs, can add up quickly. Things like your deductible, your copay, your coinsurance amount and your out-of-pocket maximum can have a big impact on the total cost. Here are some expenses to keep close tabs on:

  • Deductible – the amount you pay before your insurance company pays anything (except for free preventative care)
  • Copay – a set amount you pay for things like doctor visits or other services
  • Coinsurance - the percentage of health care services you’re responsible for paying after you’ve hit your deductible for the year
  • Out-of-pocket maximum – the annual limit of what you’re responsible for paying on your own

4. Learn How to Save Money on Health Insurance

One of the best ways to save money on health insurance is to use a high-deductible health plan (HDHP), especially if you don’t expect to regularly use medical services. Just like the name says, these are health plans with high deductibles.5 These plans have lower monthly premiums, but you’ll pay a lot more out of pocket for health care costs before your plan kicks in.

You can apply this high deductible/low premium strategy to any of the health insurance network plans we discussed earlier (HMOs, PPOs, EPOs or POSs).

HDHPs can be combined with a Health Savings Account (HSA), which allows you to set aside money tax-free to pay for qualified medical expenses. You may be asking yourself, Wait a minute. Who determines just what they mean by “high” deductible?

That’s a great question. The IRS does. That’s who. And for 2021, the IRS defines a high-deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.6 An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments and coinsurance) can’t be more than $7,000 for an individual or $14,000 for a family.7 (This limit doesn't apply to out-of-network services.)

And the HSA is a great feature of HDHP plans because you can contribute up to $3,600 for an individual and $7,200 for a family tax-free for 2021.8 For 2022, you can contribute up to $3,650 for individual coverage and up to $7,300 for family coverage.9

Even better, this money rolls over if you don’t use it, and you can even invest the money in your HSA so that it grows tax-free. That’s awesome! Being able to open an HSA is great for your future.

Get Expert Help to Compare Health Insurance Plans

Choosing the right health insurance plan is an important part of your overall financial plan. You want enough coverage to cover a big chunk of your medical expenses without paying for more coverage than you need.

If you’re not getting health insurance advice from your employer, your best bet is to contact an independent insurance agent, like one of our Endorsed Local Providers (ELPs). If you’re trying the DIY route, and have any lingering questions about health insurance plans, the experts are the ones to ask. Not only are they the right ones to ask, but they’ll also find you the best price!

Find your insurance agent today!

 

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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