How To Correctly Buy Health Insurance: An Expert Guide (2023)

What is Health Insurance?

In its most basic form, health insurance is a contract between an insurance company and an individual or business. The person or business agrees to pay a premium and the insurance company agrees to pay for medical-related expenses as outlined in the contract. This will often include doctor visits, hospital stays, surgeries, prescriptions, etc.

The principle behind health insurance is similar to that of other types of coverage. A group of people pays into the “pool” in the form of premium payments, and when someone needs medical attention, the “pool” covers the cost. Health insurance is obviously much more complicated than that today, but the principle is still the same.

Who Needs Health Insurance?

In the past few decades, the cost of medical treatment has skyrocketed in the United States, at a rate much higher than inflation or income growth. Unpaid medical bills are one of the top reasons for bankruptcy today, and there are no signs of the cost turning around.

To put the answer simply, nearly everyone needs health insurance. Unless you have the financial resources to cover any health-related need out of pocket, you should have health insurance coverage. One trip to the hospital can cause lasting financial hardship if not properly covered.

Types of Health Insurance Plans

There are different types of health insurance plans in the United States, each with its own unique set of benefits and disadvantages. When searching for health insurance, it is important to look carefully at your own personal situation, and not simply choose what someone else has. One plan may work well for some, but not for others.

HMO (Health Maintenance Organizations) – HMOs provide healthcare directly to the insured through their medical providers within the organization. As stated by the US government, HMOs tend to limit coverage and care to “doctors who work for or contract with the HMO.”

An individual will typically be assigned a primary care physician who becomes the patient’s point of contact for just about everything. Any issue that arises will be addressed first by the primary care physician, then if needed, referred to a specialist within the HMO.

Doctors and healthcare facilities can become a part of an HMO if they agree to the pre-negotiated rates the organization is willing to pay for specific treatments. Patients that choose to go outside the HMO network for care will usually be forced to pay out of pocket unless it is a qualified emergency.

PPO (Preferred Provider Organizations) – A PPO allows individuals to see just about any doctor they want, as long as they are part of the PPO network. There is no primary care physician that must be consulted prior to seeing a specialist, so patients are free to visit whenever they choose.

PPOs usually have a deductible that must be reached before the insurance company will cover any cost. These deductibles can range from a few hundred dollars a year into the thousands. The higher the deductible, the lower the premiums will typically be.

Indemnity Plans – An indemnity plan is similar to a PPO, except the insurance company will reimburse an expense after it has been paid. Indemnity plans often come with coinsurance, which means part of the cost must be covered by the individual. For example, if an indemnity plan has a 20% coinsurance clause, the individual would have to pay $2,000 on a $10,000 procedure.

POS (Point-of-Service) Plans – POS Plans are kind of a hybrid between PPOs and HMOs. Patients can often choose to have their care provided through a general practitioner or a specialist.

Like PPO plans they will often have a deductible and possibly a coinsurance payment if they receive treatment. Patients can elect to visit a provider in or out of a PPO network, though the cost of visiting one outside is generally more.

Health Insurance Costs Explained

Health insurance can be very confusing, especially when trying to decipher the different charges that must be paid by an individual. Here is a breakdown of the main costs in a healthcare plan:

Premium – A premium is simply the monthly cost of having an insurance plan. This can be paid by the individual, an employer, or both. This cost is typically fixed for up to a year, and must be paid on a monthly basis to continue coverage.

Deductible – This is the amount that must be paid by the individual before the insurance company will start to pay for services. The deductible is in addition to the premium payments, and premiums do not count towards the deductible.

The health insurance deductible works the same way as an auto insurance deductible. If an individual has a $500 deductible and has a surgery that costs $1,000, the insured would pay the first $500 out of pocket before the insurance company began paying according to the health insurance policy terms.

Coinsurance – Health insurance plans often have coinsurance clauses, which is the amount the insured must pay alongside the insurance company. If a person has an insurance policy with no deductible and a 20% coinsurance clause, the individual would be required to pay $2,000 on a $10,000 procedure. The insurance company pays the other 80%.

Maximum Out-of-Pocket – The maximum out-of-pocket amount on an insurance policy is the most an individual or family is required to pay in a single year. Once the insured has reached the out-of-pocket maximum (generally through their coinsurance charges) the insurance company covers everything for the remainder of the year.

It should be noted that deductibles count towards the maximum out-of-pocket total, but premiums do not.

Where Should You Buy Health Insurance?

Luckily, many people are able to obtain health insurance through their employers. Much of what is offered to employees will often come in the form of private health insurance, which is any insurance offered by a private entity and not the government.

These plans are often subsidized by the organization, which can lower the overall cost of the premiums. Large companies in particular get good deals from health insurance companies because they buy policies in bulk. If your work offers insurance as part of their benefits package, that should be the first place to check.

For those that are not provided insurance through work, self-employed, retired, etc. it is important to do some shopping around in order to find the right coverage. There is no such thing as a one-size-fits-all health insurance plan, as each individual and family has different needs.

The best place to start is with a health insurance broker that is licensed to sell in your State. You will be able to view multiple insurance policies from the highest-rated firms in your area, and they can help you choose the right plan that fits your needs.

Case Studies: Exploring Different Health Insurance Plans

Case Study 1: John’s Experience with an HMO

John is a 35-year-old individual who opted for an HMO health insurance plan. When he started experiencing severe back pain, he visited his primary care physician within the HMO network. His primary care physician referred him to a specialist within the network, who diagnosed him with a herniated disc. John received the necessary treatment and only had to pay the copayment required by his HMO plan.

Case Study 2: Sarah’s Choice of a PPO

Case Study 3: Mark’s Indemnity Plan Coverage

Mark, a 50-year-old individual, had an indemnity health insurance plan. He underwent a major surgery that cost $10,000. According to his plan, Mark had to pay a 20% coinsurance amount, which equated to $2,000. After paying his portion, he submitted the claim to his insurance company, which reimbursed him for the remaining $8,000.

Case Study 4: Emily’s POS Plan Decision

Emily, a 28-year-old woman, opted for a POS plan that offered her the choice between a general practitioner and a specialist. She visited her general practitioner for routine check-ups and minor illnesses but chose a specialist outside the plan’s network for a specific treatment. As a result, Emily had to pay a higher cost for the out-of-network specialist but still received partial coverage from her insurance plan.