Health insurance companies have done a good job of offering a wide range of options for consumers—perhaps too good of a job, because selecting the best individual health insurance plan is a bewildering task that leaves many people uncertain about the choices they have made. Here are some things to consider when choosing individual health insurance:
1. Budget. The purpose of health insurance is to prevent medical bills from sending you into debt. It does not make sense to take on health insurance premiums that—directly or indirectly—will do the same thing. Settle on a spending limit of what you can really afford before you begin shopping for features.
2. Consistency. It takes some time to develop rapport with a physician. If you have a good relationship with your doctor, you may make preserving it your priority. If so, your choice of health plans may narrow. If your doctor participates in an insurance network, such as an HMO, PPO, IPA, or POS, then you will want to select the corresponding plan. If your doctor is in more than one plan, you can decide between them based on competing features. If your doctor is not affiliated with any network, you will need a “fee-for-service” or indemnity plan. With fee-for-service coverage, the insurance company and you share medical costs on an 80-20 basis, with you being responsible for 20 percent of the fees. Most indemnity plans have a high annual deductible as well. They also set limits on what they will pay for specific treatments. These limits are known as “usual and customary” rates.
3. Medical conditions. If you are in good health—including normal weight—move on to the next section; you can join any plan. However, if you are overweight or if you have a chronic medical condition such as diabetes or asthma, you need to learn which plan—if any—will cover you. Insurance companies consider any condition that has been diagnosed or treated before applying for coverage to be “pre-existing.” Under the Health Insurance Portability and Accountability Act, a pre-existing condition must be covered without a waiting period when you join group plan, as long as you have been insured during the last twelve months. When buying individual health insurance, however, the insurance company can place a waiting period on coverage related to the condition, or it can decline to cover you outright, unless you live in one of the five states have adopted “guarantee issue” laws. New York, New Jersey, Vermont, Maine, and Massachusetts require insurance companies to provide health insurance to residents regardless of any medical issues they have. Other states offer insurance to high-risk applicants through “pools” subsidized by the state.
4. Prescription drugs. If you regularly take prescription drugs to control high blood pressure, diabetes, asthma, or another chronic condition, be sure to compare the medication benefits of competing plans. See if the annual deductible applies to medications, or if they are treated separately. Find out how much the co-payment is and if there is an annual limit to the drug benefit. Finally, see if you are required to use generic drugs instead of name brand drugs.
5. Tax liability. You have to pay taxes on the money you spend for health insurance premiums, but you might be able to avoid paying taxes on the deductible amounts. The federal government allows you to put a certain amount of your income—up to $2,850 for an individual and up to $5,650 for a family—per year into a Health Savings Account (HSA). This money is sheltered from federal and state taxes. The savings can be large, depending on where you live and how much you make. You could be paying as much as 44.95% of your income for state income tax (9.3%), federal income tax (28%), and Federal Insurance Contributions Act (FICA) tax (7.65%). By sheltering the maximum $5,650 in an HSA account, you save $2,539 in taxes. The funds in an HSA belong to you, rolling over at the end of each year. Contributions remain untaxed as long as you use them for medical purposes or withdraw them after age 65. The earnings on funds in an HSA are tax-deferred. To open an HSA, you must enroll in a “qualified” High Deductible Health Plan (HDHP). The minimum deductible in an HDHP is $1,100 per individual or $2,200 per family. With high deductibles, most HDHP plans have low monthly premiums. Since you pay the deductibles with tax-free dollars, the “real” cost of an HDHP plan can be less than a traditional plan.
By considering these five variables, you should be able to choose the health insurance plan that best meets your needs.
