My cousin is turning 26 in a couple of months, the age at which health insurance providers are no longer required to have parental coverage extend to their children. When he got the company email about health insurance options and pricing this month, he had to pay attention and read it closely for the first time in his 3-year tenure. Naturally, the information was confusing, and he reached out to me to explain the health savings account (HSA), high deductible health plan (HDHP), relationship between the two, and how they differ from other types of health insurance plans.
Here are the 5 main types of health insurance plans offered in the US:
Preferred Provider Organizations (PPOs):
These plans offer the most flexibility. If you’re enrolled in a PPO, you can receive both in-network and out-of-network care, with out-of-network care being more expensive. Compared to other plans, health care services will be less expensive with a PPO, however, premiums and deductibles may be relatively higher. Also, specialists do not require a referral. PPOs are good for people who routinely seek medical care.
Health Maintenance Organizations (HMOs):
These plans offer lower premiums and a restricted network. They also require that a primary care provider (PCP) coordinates care, so you need referrals for specialists. Patients are required to pay for out-of-network care on their own, except for special emergency situations. HMO’s are a good choice if your current doctors are in network and if cost is a high concern.
High Deductible Health Plans (HDHPs):
These plans have grown in popularity in recent years. As the name suggests, these plans have higher deductibles than other plans. The IRS defines a high deductible as over $1,400 for an individual and $2,800 for a family, however, the deductibles can be much higher. The tradeoff is that premiums are lower. Patients pay for health care services out of pocket until they reach the deductible, at which point the insurer pays. HDHPs are the best choice for healthy people who don’t often seek medical care and who are willing to risk having to pay a high deductible if an unexpected medical event occurs.
To hedge somewhat against this risk, HDHP’s offer health savings accounts (HSAs). If you have an HDHP, in 2020 individuals are permitted to put up to $3,550 pre-tax into an HSA (up to $7,100 for families, with a $1,000 catch up contribution for those over 55). Some employers will even put money into an HSA for you. That account is yours to be used if an expensive, unexpected medical event occurs. If such an event does not occur or if you decide to pay for it out of pocket, you can invest the money in the HSA, so it grows over time. As long as you use the money in the account for eligible health-related items and expenses (like dentist visits, chiropractic care, counseling, hearing aids, etc.), the principal you’ve contributed and the growth that occurs will never be taxed. An HSA can be used as a retirement account for medical expenses, since many sources say we’ll each need six figures saved to cover those expenses once we retire.
Point of Service plans (POS):
These plans are hybrids of PPOs and HMOs and are somewhat rare. They require an in-network PCP, like an HMO, and allow you to see out-of-network doctor for a higher fee, like a PPO. In this way, you would make these decisions at the point of medical service, hence the name. POSs are a good choice if you like the idea of a PCP coordinating care and still want the flexibility to go out-of-network.
Exclusive Provider Organization plans (EPO):
These plans take some qualities from each the PPO and the HMO as well. You don’t need to have a PCP coordinating care, nor do you have to get referrals. You do only have access to a limited network of health care providers though. So, if you don’t mind limited networks and value not having to get referrals, an EPO would be a good pick.
Adding a layer of complexity are the different levels for each type of plan, which you’ll see if you shop from the marketplace or an insurance broker:
Platinum: covers 90% on average; you pay 10%
Gold: covers 80% on average; you pay 20%
Silver: covers 70% on average; you pay 30%
Bronze: covers 60% on average; you pay 40%
These percentages are based on the average enrolled person in the plan.
In my limited experience, it seems most employers do not offer each of the above 5 types (although some organizations might) or each of the 4 levels. In my cousin’s case, the company offered a Silver POS, Gold POS, and an HDHP. When deciding which plan to choose, we first made some assumptions about his health over the next year. Since he’s almost 26 and healthy, we only anticipate one physical and one visit due to illness. He doesn’t take any daily prescriptions, nor does he see any specialists. My cousin also wants to keep costs down, since he’s not accustomed to paying for health insurance at all. When we ran the numbers, the Silver POS and the HDHP came out about the same in terms of cost.
The Silver POS would be the lower risk choice. Even though my cousin is healthy, he is an active guy in his mid-20’s and could get injured playing a sport, which makes the HDHP a somewhat risky choice. He learned he could wear that risk a bit if he built up the HSA though, so that’s what he plans to do. We went with the HDHP and a $100/month contribution to the HSA.
As you can see from my cousin’s example, which health insurance plan you choose depends on:
Your health and the health of others on your plan
Whether your providers are included in a certain plan
How much you value flexibility
Your level of risk tolerance
Once you take your health, budget, and values into account, you should find that a PPO, HMO, HDHP, POS, or EPO sticks out as the right plan for you. Remember, you’re only making decisions for the next year and will re-evaluate as life changes. For example, if you get married, plan to have a child, or your health changes you can refresh yourself on the types and levels of plans and make an informed decision once again.