Open enrollment season is here. Now is the time to decide if you (an individual, not as part of a couple or family) have the health care plan that best fits you.
It’s not just that easy, is it?
The amount of acronyms can give you a headache big enough to use your HDHP HMO with an HSA to visit your PCP.
If you have the luxury of participating in an employer-sponsored plan, you’re usually deciding between a PPO (Preferred Provider Network) and an HMO (Health Maintenance Organization). You could purchase your own insurance instead of your employer’s, but that’d be a mistake in most cases, according to Dr. Jared Heathman of Your Family Psychiatrist.
“When you have a decision between purchasing your own insurance versus participating in an employer-sponsored plan, the corporate plan usually provides more benefits at a discount,” Heathman said.
Typically, insurance companies view a group of employees as a lower risk than individuals, and a large group of lower-risk employees protects insurance companies from losing money. A lower the risk for the insurance company means lower costs for you.
The main things to consider when deciding between a PPO and an HMO are providers and out-of-pocket costs.
When it comes to providers, a PPO gives you more options than an HMO: While you still have the option to work with in-network physicians (preferred providers), a PPO also gives you an advantage to visit out-of-network providers and hospitals.
“In simplified terms, you can see any physician you want, at any time, and you still may still receive some form of reimbursement,” Heathman explained.
Also, PPOs don’t require a referral to see a specialist, and you don’t need to designate a specific PCP (primary care physician).
But those perks will cost you.
“The downside is that insurance may require you to submit paperwork to prove you received out-of-network care, and the fees and deductibles are usually higher,” Heathman said.
If you can afford it, the cost is worth it; PPO plans are the most popular.
If you’re OK with staying in-network, an HMO may be the way to go. HMOs are organized around subscribers using a designated PCP but typically have lower monthly premiums. Unlike a PPO, you must have a referral to see a specialist, and out-of-network providers aren’t reimbursed.
Matthew Bahr of The Patient Financial Advisor suggests opting for an HDHP (high-deductible health plan) if you’re relatively healthy. With an HDHP, you can sign up for an HSA (health savings account).
With an HSA, you deposit pre-tax income into an account you can use for qualified medical expenses. Not only do the funds in your HSA carry over every year, but the money is 100% tax deductible.
Bahr had an HSA throughout his 20s. Because he was relatively healthy, he was able to save a considerable amount of money, which came in handy in his early 30s when he used his savings to pay for the cost of his wife’s labor and delivery of their first child.
It’s worth noting that if you withdraw funds from an HSA for something other than qualified medical expenses before age 65, that money is taxable and you could pay a 20% penalty to the IRS. After 65, you can use the money for nonmedical retirement expenses and it’s still taxable, but there’s no additional penalty. If you use the money for health insurance premiums after 65, there are no taxes.
While it worked out for Bahr, HSAs aren’t for everyone, he warns.
“If you have chronic illness or (are) expecting major surgery (in the upcoming year), look for a plan with a higher monthly premium and lower deductible.” With frequent doctor visits or a major surgery, you’ll meet your lower deductible sooner, so your insurance will be covering the costs sooner.
To learn more about HSAs, check out our post on making the most of your HSA.
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