Types of Insurance
The biggest choice in health insurance today is between two types: managed care and fee-for-service coverage.
In most plans, preventive services such as annual exams, cancer screenings and immunizations are covered without cost to you, but they usually don’t count toward your deductible. Neither do services that your plan doesn’t cover, such as cosmetic surgery.
Managed care requires you to choose healthcare providers that participate in your plan and have agreed to accept a specific fee for their services. Managed care includes Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). With a managed care plan, you choose a primary care doctor who acts as your gatekeeper and will refer you to specialists if your medical problem is outside his or her area of expertise. You pay a small charge, called a copayment, for each visit. This payment usually ranges from $20 to $30.
Fee-for-service medical plans, often known as conventional health insurance, allow you to choose the healthcare providers and specialists you want to use. Your plan sets a deductible, which is a predetermined amount of money that you must pay before insurance begins to cover medical expenses. Once you have paid up to the deductible amount, your insurance company starts to pick up part of future costs. Generally, you pay the bill first and then submit a claim to your insurance. Your plan reimburses you a portion – typically 70% to 80% – of the amount the plan approves for the particular service you’ve had.
High deductible health plans (HDHPs) have a higher deductible than traditional plans. In 2021, the deductibles are $1,400 for an individual and $2,800 for a family with out-of-pocket maximums set at $7,000 for an individual and $14,000 for a family. When you reach your deductible amounts, coverage begins, but only eligible medical expenses count towards your deductible. The premiums you pay for insurance don’t count towards these totals.
There are two main benefits to HDHPs. First, the premiums are lower, sometimes substantially lower, than premiums on traditional plans. Secondly, choosing an HDHP makes you eligible to open a health savings account (HSA).
An HSA is a type of savings account that allows you to make tax-free contributions and withdrawals to cover eligible medical expenses. You can use this for out-of-pocket medical costs such as deductibles, copayments, dental bills, prescription drugs and more. The amount you don’t use in one year will carry over to the following years.
The potential drawbacks of an HDHP are not being able to afford the care you need before your coverage begins and if you choose to have an HSA, not being able to afford the contributions to it. Even though you can comparison shop between providers, it can be challenging to determine the prices for required services.