In this economy more and more people will find themselves in need of purchasing health insurance on their own or comparing the cost of contributing to an employer's plan with buying private health insurance. How to Purchase Individual Health Insurance includes a list of places to get health insurance online quotes, but comparison shopping for costs and benefits requires a knowledge of certain basic insurance terms.
Group Insurance vs. Individual Insurance
As healthcare costs rise more employers are expecting employees to kick in part of their insurance premiums. According to a recent report by the Kaiser Family Foundation and the Health Research & Educational Trust, in 2009 24% of workers paid more than 25% of the cost for single coverage and 45% paid more than that amount for family coverage.
Workers qualifying under COBRA must pay the full cost of their group insurance and part-time employees sometimes have this option as well. Younger employees, especially, may find they can purchase individual health insurance on the open market for substantially less than the group insurance provided by employers. However, there are several advantages to choosing group coverage even when it is more expensive.
- Under current law, individual plans can deny coverage based on pre-existing conditions. Group plans may apply waiting periods but cannot totally deny coverage to any otherwise eligible individual.
- Under current law individual plans can and do find reasons to terminate coverage, often when it is most needed. Group plans cannot drop coverage on a single individual. Insurers can drop the entire group or increase premiums prohibitively, but this affects mostly small business and not large employers.
- Like auto insurance, individual health insurers will increase premiums based on usage. Group premiums can be increased across the board but not on any one individual.
Copay + Deductible + Coinsurance = Out-of-Pocket Costs
Comparing costs of individual health insurance plans involves more than just comparing health insurance premiums. Comparisons should be based on the total of potential out-of-pocket costs. These comprise:
- Copays-the amount paid up front for any service such as $25 for an office visit and $40 for a specialist.
- Annual Deductibles-as with auto insurance, the amount the insured pays before insurance kicks in. Copays are usually not included in the deductible.
- Coinsurance-the percentages paid over the deductible, usually 80/20 meaning the insurance company pays 80% and the insured pays 20%.
There may be an annual or a lifetime limit on out-of-pocket costs, and some plans have a maximum deductible per family. The higher the deductibles and the lower the copays the less the premium cost.
HMO, PPO, or Indemnity Plans
Generally the three types of plans available on the market today are:
- HMO (Health Maintenance Organization)-All medical services are referred through a primary care physician and must be provided by hospitals and physicians within the network. After a copay all expenses are generally covered at 100%.
- PPO (Preferred Provider Organization)-operates much like an HMO except that these plans may include deductibles and coinsurance and, unlike with HMOs, individuals can see providers outside the network and receive a lower reimbursement than they would for network providers.
- Indemnity Plan (otherwise known as fee-for-service)-individuals can choose any provider and will be reimbursed usually on a deductible/coinsurance basis, though sometimes there is a base fee paid for certain services like an office visit, above which costs fall into the deductible and copay.
There are also many hybrids that combine variations of PPOs and indemnity plans.
Healthcare Savings Account (HSA)
Certain high deductible/low premium plans* can be paired with a Healthcare Savings Account. Individuals can put aside money in an HSA toward their deductible and deduct that amount on their annual income tax filing. As of 2008 the maximum deduction allowable is $2900 per individual or $5800 per family. This can be a good deal for those who can afford it, however HSA contributions cannot be used to pay premiums, so consider that, in order to meet the deductible for a family plan, the insured would have to put aside $483 per month on top of monthly premium costs.
* Minimum deductible to qualify is $1100 per individual/$2200 per family in 2009.
(1)Smart Money, January 23, 2010
Nannette Croce - Nannette Croce is a writer and editor who has worked with online publications for more than ten years, most recently as Co-Managing Editor ...
