Buying health insurance can seem complicated. Like, trying to figure out house allegiances in "Game of Thrones” complicated. And in the past, you could close your eyes, stick your fingers in your ears and ignore it until it went away (and pray that you didn’t get sick).
Then Obamacare was passed, health insurance became mandatory and if you ignore it you get fined. Now you have to suck it up and go shopping. This becomes even more complicated if you're running a company and have to make this decision for your employees as well.
It’s important to have health insurance, since up to 62 percent of personal bankruptcies are due to medical bills piling up. But truthfully, shopping for it doesn’t have to be an intimidating; with a strategic approach it’s totally manageable.
When it comes down to it, there are three things you need to know when it comes to shopping for a health insurance plan: Your budget, your coverage, and the extras you need to complement it. Before open enrollment kicks off this year on Nov. 1, here’s what you need to do to prepare yourself for one of the biggest financial decisions you’ll make this year. Once you've mastered it for yourself, share the knowledge with your colleagues or employees.
1. Figure out your budget.
It’s easy to fall down the health insurance shopping rabbit hole and overspend. That’s why, going in, you should have an idea of how much you’re able to budget for health insurance, and your health care more broadly.
Unless you qualify for a subsidy or Medicaid (more on those below), a handy benchmark is to spend around 5 percent of your annual gross income on health insurance premiums. That’s what the average U.S. consumer spends on health insurance, according to the government’s Consumer Expenditure Survey. In most states, spending 5 percent of your income on health insurance premiums will also land you squarely within range for a silver plan -- which is the mid-level plan in the “metal tier” system of health plans (platinum, gold, silver, bronze). Silver plans are a good match for a lot of people (and are the most commonly purchased plan) because they have a manageable balance between premiums and out-of-pocket costs (deductible, copays and coinsurance).
If you’re able to afford higher premiums to lower what you’ll pay on deductibles, by all means do so. But be realistic about what you can pay each month and remember that premiums should only be one part of your larger health care budget.
Plus, you might not even have to pay that much; a lot of folks don’t know that they qualify for Medicaid or tax credits toward their health insurance. There are three types of subsidies:
- Premium tax credits, which lower your premiums
- Cost sharing reductions that lower your copays, deductibles, coinsurance and out-of-pocket limits
If you qualify for a subsidy make sure you apply for it when you’re shopping, because it won’t be automatically applied for you and you don’t want to miss out on it.
Finally, know what kind of consumer you are. If you’ll be using your health insurance often -- managing ongoing health conditions that require regular doctor visits, lab tests, or medications, or if you have small children (in addition to being cute, they tend to need to go to the doctor more frequently) -- you’ll want to pay close attention to the deductible and copays. It might be worth paying a little bit more in terms of premiums so that your out-of-pocket expenses are lower.
On the other hand, if you’re healthy and typically only need to go to the doctor during an “everyone at work is sick” period each winter, you could probably get away with lower premiums. You’ll have to pay more when you do end up going to the doctor, but the overall savings could add up in your favor.
2. Know your network.
In a perfect world, you’d buy a health insurance plan and every doctor and hospital in the country would accept it, and they’d give out free lollipops to everyone, not just to kids.
But neither of those is the case. When you’re choosing an insurer, you have to keep in mind who’s covered and what’s covered. While you might have certain things you’re less willing to budge on, it may pay to be flexible when it comes to network and doctors.
For example, you might have a primary care physician or other doctors you want to keep seeing. But a plan that has your preferred doctor(s) in it could end up being a lot more expensive than other plans.
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And just because your doctor is in your network now doesn’t mean she will be a few months down the line. Your doctor could exit the network or the carrier could drop her. The unfortunate reality is that health care provider networks are always in flux. It’s like college sports leagues: If you get too attached to your team’s conference, you’re going to be really disappointed when they move to the Big 10. The stakes are (a little) higher for this, but the point stands. This is probably the most frustrating part of the health insurance experience, but there’s not a whole lot you can do about it besides grin and bear it.
Another thing to consider is whether or not an insurer covers certain expensive prescription drugs. Every insurer has an approved list of prescription drugs it covers, called a formulary. Some plans might also have restrictions on the dosage and strength that’s covered. If you can’t get a generic version of the drug, it’s easier to pick a plan that already covers your prescription than trying to appeal to your insurer to get an exception.
Again, you might need to be flexible in order to stay within your budget, but if you begin with a list of your top priorities, you’ll at least know where to start when you’re looking for plans. From there, you can narrow down your choices and keep from feeling overwhelmed. And you can find ways to meet those specifications; if you value network flexibility, for instance, look at PPO or POS plans. You’ll be able to choose an out-of-network doctor but it could be more expensive and will generally reimburse you at a lower rate.
Those are the kind of tradeoffs you’ll have to keep in mind when you’re shopping, but if you do you can find the sweet spot of coverage and affordability to make your health insurance work for you.
3. Determine additional need.
When it comes to health insurance, the actual health insurance is only a part of it. You’ll need other things to make sure you’ve got a full health safety net, and you should take them into account when you’re shopping for plans.
For example, did you know that dental procedures are covered for children in health insurance plans, but you’ll have to get a separate dental policy if you want to keep your pearly whites shining bright? The same goes for your vision coverage. Consider those other insurance types when you’re deciding how much to spend, and don’t make the mistake of assuming they’re included.
If you’re a frequent consumer of health care but can’t afford higher premiums, look into a flexible spending account (FSA) or health savings account (HSA). There are a few key differences between them -- an FSA is only available through employers, for instance -- but when it comes down to it they both play the same role: You get to set aside money pre-tax for medical expenses. So while you’ll be paying out-of-pocket for things throughout the year, you could save some major dollars when April rolls around and you submit your tax return. It’s a nice workaround that lets people who need to pay for health care costs save some money instead of shelling out for a higher-premium plan.
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You can also look into what’s called gap or deductible insurance. It’s basically insurance for your insurance: If your plan has a high deductible and you don’t want to (or can’t afford to) pay for a plan with a lower deductible, you can opt for gap insurance, starting at around $50 extra a month, to cover those out-of-pocket costs so you don’t have to foot the whole bill.
Since you’ll usually only be shopping for health insurance once a year, it’s something you want to get right instead of being stuck with a plan that doesn’t fit your needs or your budget. The most important thing is to go into Open Enrollment with a strategy so you don’t immediately get overwhelmed. You’ll still have to dig through plans before you find the one that works for you and your family, but if you start with these three things -- knowing your budget, knowing your coverage, and knowing where you need to fill in gaps -- it’ll make the process less painful than a trip to the doctor’s office.