In the first installment of “Demystifying Health Insurance”, we covered how to determine the total cost of a health plan. The answer is: Premiums + Deductibles + Cost Share = Total Cost. In the second installment, we discussed the “3 Ds”… whether or not your doctors, drugs, and devices are covered by the plan.
In this segment, we’ll unravel the alphabet soup that gets thrown around in the morass that you are wading through when it comes to plan types. For an added bonus, we’ll talk taxes and show you how to save real money! (Aren’t you excited to talk about taxes AND health insurance?!!)
So let’s start with the secret code of plan descriptions: PPO, HMO, EPO, and HDHP. These are types of plans that will give you an idea of how restrictive their networks may be and the relative price you may pay.
PPO: Preferred Provider Organization
Despite the name implying restrictions (which there are), this is typically the most open network you will run across. PPOs are most likely to cover the 3 Ds, and have fewer limitations on specialist care. This type of plan may have either a $0 or separate deductible for drugs and tends to be the best coverage money can buy, but you may have to spend a lot of money in premiums. (Remember to factor in total cost when comparing plans.)
HMO: Health Maintenance Organization
This is more about maintaining a restrictive network of healthcare providers than maintaining your health. You will typically encounter a “gatekeeper” in order to see a specialist. They didn’t invent prior authorizations, but they perfected the process to inflict maximum pain to dissuade you from going anywhere other than your primary care provider. Out-of-network providers are typically not covered at all unless it’s an emergency, so be absolutely sure about your Ds; however, premiums tend to be lower due to these restrictions. If you can accept their list of providers, this may be a less expensive option.
EPO: Exclusive Provider Organization
This is the most restrictive network you will find, but if your Ds happen to be included, you may save significantly. Unlike an HMO, there may not be a gatekeeper requirement, but check the fine print (which usually isn’t where the finer selling aspects of any contract are found) to see what happens if you need a specialist. Like an HMO, out-of-network providers are usually only covered in emergency situations. However, if your Ds are covered, it may be your best option.
HDHP: High Deductible Health Plan
WARNING, your deductible will be HIGH! The minimum deductible in 2023 will be $1,500 for an individual and $3,000 for families. Many plans will be significantly higher than this. Prescription drugs in general are required to be part of the deductible, but some drugs, like insulin, may be excluded at the discretion of the plan administrator. Again, check your total cost as premiums tend to be lower. It’s also important to note that an HDHP may have an open or restricted network, so you still need to figure out if your Ds are covered and what hurdles you may need to leap in order to reach the specialist that gives you the most TLC.
Now that you’ve mastered the fundamental alphabet, let’s move up to tax savings!
Depending on your tax bracket, you can save a reasonable percentage of your out-of-pocket costs (deductibles + copays, but not premiums) by using pre-tax money. So here are two acronyms that are your friends – FSA and HSA.
FSA: Flexible Spending Account
These are offered with employer-based non-HDHP health plans (HDHPs have HSAs – see below). In 2023, you can put up to $3,050 into an FSA. If you’re in a 30% bracket, that would save you $915! (I’m a whiz with a calculator!) An important caveat – this is a use it or lose it opportunity. Your employer may offer one of two options to ease this pain. You may be given until March 15th of the following year to use the funds, or they may allow you to rollover up to $570 to the next year. It is important to do an estimate of your expected costs before you enroll. You can’t change your election once made. An added bonus is that you can use the entire amount of your election in January and then deduct through payroll the remainder of the year. You don’t have to wait until you’ve accumulated the funds to use them. That could help your cash flow immensely.
HSA: Health Savings Account
These are only available with HDHPs and offer a higher level of savings. In 2023, you can deposit up to $3,850 as an individual or up to $7,750 for a family. Unlike an FSA, this is an actual bank account in your name and not just a ledger entry by your employer. You can carry over these funds forever, but they can only be used for qualified health care expenses. You do have to accumulate the funds in your account before you can use them, but you can retroactively pay yourself once they’re there as long as the costs were originally incurred while you were in an HSA-eligible plan. If you can afford the cash flow, put as much as you can into this since a person with diabetes is definitely going to have future healthcare costs.
To summarize, do the math. Calculate your total cost. Check if your 3 Ds are covered, and take advantage of a tax-deferred savings or reimbursement option if available.
Lastly, be aware that premiums paid through an employer are usually taken out pretax, so they have a natural advantage over an individual exchange plan that you may be considering. That may be important if you’re evaluating the option of joining an employer or taking a freelance opportunity. In the end, choose what makes you happy as that usually leads to better health, and is an article for another day!
Good luck and good health!