You probably hope to never use your life insurance or long-term disability insurance. You may use your auto insurance a few times in your life (or more often, if you’re accident-prone).
But your health insurance? You’ll probably use that at least once a year for the rest of your life. It’s a necessity: 60% of personal bankruptcies are linked to medical bills. But, for many people, it’s also something that’s handled by their employer, meaning they don’t take shopping for it all that seriously.
Whether you’re self-employed, your employer doesn’t offer health insurance, or you simply need to find a better plan, you may find yourself in the position of being a first-time health insurance shopper. Consider these five questions before jumping in, to make sure you get the most out of your health insurance purchase.
Do you need health insurance?
Short answer: Yes.
Long answer: You definitely need health insurance, for more than one reason. As mentioned, a majority or personal bankruptcies can be tied to mounting medical bills. Healthcare in America is expensive and, for better or worse, health insurance is a way to combat that. If you’re self-employed, the financial distress that medical bills can cause may bleed over into your business, putting your financial security even more at risk.
There’s also the matter of health insurance being legally required (for the time being, at least). If you don’t have health insurance coverage, you’re subject to an individual mandate tax penalty of $695 ($347.50 for minors) or 2.5% of your household income.
First-time health insurance shoppers might not be used to the consequences of not having health insurance, because they’ve been covered by their employer or even on their parents’ plan. It’s important to understand the short-term and long-term implications of being uninsured.
What are the basics of health insurance?
In a 2016 PolicyGenius health insurance literacy survey, only 4% of respondents were able to correctly define the four most common health insurance terms related to the financial makeup of a policy. First-time health insurance shoppers, relying on the guidelines of their workplace insurance, may not know that they actually have some control over how much they pay for health insurance.
Knowing these terms factors into the coverage you receive and the amount you’ll pay for that protection, which is a pretty big deal when you consider how much you pay for health insurance over the course of a year. So, let’s take a closer look at the most important ones:
Premium The upfront amount you’ll pay each month to have health insurance.
Deductible The amount you’ll pay for healthcare services before your insurance kicks in.
Copayment Also called a copay, it’s a flat amount that you’ll pay for specific services or medication, even if you’ve reached your deductible.
Coinsurance Unlike a copay, which is a flat amount, a coinsurance is a fee you pay that is a percentage of the cost of a covered service.
Out-of-pocket maximum This the the most you’ll pay for covered health services in a single year, including your deductible, your copay, and your coinsurance.
Subsidy Subsidies are the government’s way of helping you pay for health insurance. Three subsidy types currently available are advance premium tax credits, cost-sharing reductions, and Medicaid.
How do you shop for health insurance?
Okay, so how does shopping for health insurance actually work? You can’t rely on your HR department to tell you when to sign up, which plans you can choose from, and take care of the heavy lifting for you, right?
For most people, the only time you can purchase a private health insurance policy is during Open Enrollment. This three month window runs at the end of the year, into the following year (the most recent Open Enrollment period ran from November 1, 2016 to January 31, 2017). The reason there’s a set period is to share the risk involved in insurance; insurers don’t want healthy people only buying health insurance when they need it, and then dropping it for the rest of the year.
If you didn’t purchase health insurance during Open Enrollment, you may be eligible to shop during a special enrollment period. Each person receives a special enrollment period whenever their coverage changes. So if you’re a first-time shopper because you left your job and lost your employer-provided health insurance, you’d be eligible to buy a private policy. The same goes for if you get married or have a baby: Your coverage needs have changed, so you can shop. However, this doesn’t apply if you just stop paying your premiums and drop your current coverage. In that case, you’re just out of luck.
When you’re shopping, you have the choice of applying to on-exchange or off-exchange plans. On-exchange plans are bought through government marketplaces like HealthCare.gov or a state marketplace like CoveredCalifornia. Off-exchange plans can be purchased through independent marketplaces like PolicyGenius. The main difference between on- and off-exchange plans is that off-exchange plans may be more affordable and more flexible because they don’t have some of the same requirements as on-exchange plans. But note that all plans, no matter if they’re on-exchange or off-exchange, have the same consumer protections, like providing 10 essential benefits and covering preventative care.
Independent marketplaces like PolicyGenius offer all plans available, both on- and off-exchange, so you’ll find more options than if you use a government marketplace.
How do you find the right health insurance plan?
Choosing a health insurance plan through an employer is easy, because your options are usually limited and your HR department is on hand to answer questions. But when first-time health insurance shoppers have every plan at their disposal, things can be overwhelming. Luckily, you can follow these three steps to make sure you find the right plan.
First, study up. (By reading this guide, you’re already on the right track!) If you’ve never really had to dig into your health insurance plan before, you’re probably unfamiliar with the decisions you’ll have to make or the terms you’ll have to decipher, like the ones listed above. If you get frustrated during the shopping process, there’s a good chance you’ll just throw your hands up, pick a plan that looks "good enough," and probably regret it later on in the year. If you know your stuff, you’ll be more easily able to understand what you’re looking at and move on to actually making a decision about your coverage needs.
Second, figure out your budget. The average consumer spends around 5% of their annual income on health insurance premiums. Keep in mind that this doesn’t take into account other expenses that you’ll pay for out-of-pocket. Don’t worry, we’ll go into some ways to save on health insurance below. But you should have a monthly budget anyway, keeping track of how much you eat out or how much you’re putting toward a house down payment, and your healthcare costs should be built into this. If you do this, you can immediately dismiss plans that are outside of your budget, which should help you refine your options quickly. . Think of it like car shopping: If your budget is Camry-level, you don’t need to bother looking at Lamborghinis, and you’ll still end up with something that fits your needs and your budget.
Finally, have a plan. In addition to your budget, you need to decide which plan benefits are most important to you. Do you have a doctor that you absolutely need to have in your network? Is there a prescription drug that you’re willing to take the generic version of? Do you not care whether or not you need a referral to see a specialist? These are all decisions you’ll need to make. We recommend making a must-have and nice-to-have list – things that you can’t budge on, and things that you’re willing to compromise on. If you go with this method, you’ll know which plans you have to keep on the table (because they include your must-haves) and where you can be flexible.
How can you save on health insurance?
Just because you have to buy your own health insurance plan doesn’t mean you have to bust your budget to get covered. In order to get your hands on the most affordable plan possible, take these four things into account:
Subsidies. If you make between 100% and 400% of the poverty line, you’re eligible for federal subsidies. Depending on your individual circumstances, you may qualify for an advance premium tax credit, which you can receive with your annual tax return or as monthly installments toward your premium; cost-sharing reductions, which lower the out of pocket costs you’ll pay throughout the year; or Medicaid. You can use this calculator to find out if you’re eligible. Subsidies won’t automatically be included when you purchase health insurance, so make sure you note your eligibility when you apply.
High-deductible plans. High-deductible plans come at a (literal) cost: You’ll pay less each month in terms of premiums, but if you do have to use any medical services, you’ll pay out of pocket for longer thanks to that high deductible. Still, if you’re looking to lower your monthly costs and you’re someone who doesn’t frequent the doctor often, high-deductible plans are a valid option. Catastrophic plans are a specific type of high-deductible plan available to shoppers who are under 30 years old.
Health savings accounts. If you have a high-deductible health insurance plan, you can get a health savings account, or HSA. An HSA lets you put money aside pre-tax, similar to a 401(k), but rather than using it for retirement, you can use it for qualified healthcare purchases. That allows you to pay for your out-of-pocket medical expenses and lower your tax bill at the same time.
Your coverage needs. Health insurance plans are split into metal tiers, with platinum being the most robust (and most expensive) and bronze being the cheapest, most basic tier. Silver plans are the average across the country, and will likely fit your basic needs. Each insurer will also have a drug formulary that lists what medicines are covered; these are also divided into tiers, ranging from specialty medication to brand name drugs to generics. If you’re able to substitute a more expensive brand name drug with a generic, you may be able to save some money that way, too. Overall, take a look at your coverage needs and avoid plans with bells and whistles that will cost you more but won’t actually benefit you.
First-time health insurance shoppers may feel lost if they’ve relied on employer-sponsored health insurance up to this point. But health insurance doesn’t have to be complicated. Once you know what you’re looking for, where to shop, and how to keep it affordable, health insurance will be a regular part of your health – and your financial safety net.