Which health insurance plan is right for you?
Editorial staff, J.P. Morgan Wealth Management
- Even if you are a healthy young person, investing in health insurance is a highly recommended safety net in case medical costs occur.
- While particular plan details can differ among the many specific available plans, there are four main types of health insurance plans to choose from: health maintenance organizations (HMOs), exclusive provider organizations (EPOs), preferred provider organizations (PPOs) and point-of-service plans (POS).
- When choosing which type of plan is best for you, you’ll also need to consider your premium, the amount of your yearly deductible and other associated costs.
At face value, health insurance may not necessarily seem related to your personal finances, but the truth is that many health care expenses in the U.S., even one-time prescriptions, can make a significant and lasting dent in an American’s bank account. In terms of your health and your overall financial picture, health insurance is an important and worthwhile investment.
How many U.S. citizens have medical coverage?
According to data from the U.S. Census Bureau, 8% of Americans did not have health insurance coverage at any point in 2023. While 8% of the U.S. population may sound small, it translates to over 26 million people. Even if you are generally healthy, investing in health insurance is a recommended safety net in case medical costs occur. Considering that just one overnight stay in a hospital can be exorbitant, it’s important for everyone to take the time to evaluate which health insurance is best for them and their financial situation.
What are the options?
Generally, the major distinguishing features among coverage plans are:
- Whether or not you will need to choose a primary care provider (PCP) who will then refer you to other providers
- How large your network of doctors, hospitals and other medical service providers to choose from is
- What you will be charged for services both in and out of network
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While particular details can and do differ among the many specific available plans, there are four main types of health insurance plans to choose from:
- Health maintenance organizations (HMOs): In this type of plan, you generally choose your service among a local set of doctors and providers. First, you’d choose a PCP. From there, that physician refers you to other providers and services within your network. As long as you stay within network, your costs for care will most often be lower than on other insurance plans.
- Exclusive provider organizations (EPOs): This type of plan is typically similar to an HMO, except some EPO plans do not require you to choose one PCP. Therefore, with this plan, you are usually able to visit providers in your network without the referral from your PCP.
- Preferred provider organizations (PPOs): In this type of plan, you generally do not need to choose a PCP, and you don’t need referrals to see other doctors. Most often, you are given a wide range of providers and hospitals to choose from. You are also typically able to go out of network, but if you do so, your costs will increase.
- Point-of-service plans (POS): This type of plan typically charges low in-network costs but also tends to offer a relatively small in-network pool of providers and services to choose from. Generally, you need to choose a PCP who manages your care more closely than in other plans and who will refer you to other physicians and services. Often, you are able to see doctors who are outside of your network, but you’ll be charged more out-of-pocket expenses and will be responsible for filing your own claims.
When choosing which type of plan is best for you, you’ll also need to consider your premium, the amount of your yearly deductible and other associated costs.
What’s a premium?
A premium is the amount that you pay for your insurance. You can choose to pay a higher or a lower monthly rate for your overall medical coverage. If you pay a higher premium up front, then your insurance plan will typically cover more of your medical expenses later on. Conversely, if you pay a lower premium up front, then you’ll typically owe a higher amount when covering your expenses.
What’s a deductible?
A deductible is the amount of money that you pay for your health insurance expenses each year, before your plan begins to pay. The amount of your deductible is related to the plan that you’ve chosen. A deductible is basically a cap on how much you’ll end up paying for your health expenses each year. For example, if your plan’s deductible is $2,000, then you will have to pay that amount out-of-pocket before your plan begins to pay.
What’s a co-pay?
A co-pay is a fixed amount of money that you pay out-of-pocket when you go to the doctor or hospital. Many plans require co-pays of varying amounts for different types of specialties (such as PCPs, specialists like dermatologists or cardiologists, and emergency room care), which is the amount that you have to pay straight from your wallet when you go to them for a visit.
What is coinsurance?
Coinsurance refers to when your insurance coverage pays part of a medical bill, and you pay the remaining amount. For example, say you had a surgery that cost $10,000, and your insurance coverage is required to pay 80% of that cost: They will pay $8,000, and you will owe the remaining portion of the cost, which is $2,000. Not every medical service expense will leave you with a coinsurance amount to pay – some services are covered 100% by your insurance coverage, with some plans providing more coverage than others. Many plans have a max amount you need to pay for coinsurance, and after it’s been met, they’ll pay the full amount of the remainder of the costs. It’s important to note that coinsurance generally only kicks in once your deductible has been met.
Now that we’ve covered the basics, some general tips for choosing:
If you don’t have a lot of current medical expenses when you’re choosing health insurance, you may want to opt for the lower-cost plan because you don’t envision yourself needing a lot of medical care. If you currently have regular medical costs or you want to err on the side of caution just in case you end up needing more medical care than you currently do, you may want to choose to pay a higher premium up front with a more expensive but more comprehensive plan. If you don’t currently have high medical costs but anticipate that you might in the coming year, opting for a higher up-front premium might be the more financially wise option.
No matter your situation, it’s always recommended to consider how you’re covered for health insurance and how these costs fit into your overall expenses. If you’re in the process of switching jobs, retiring, renewing your coverage options for the upcoming year or seeking out coverage through an avenue not tied to employment, how you choose to enroll in health insurance should be a key financial priority. Since medical service expenses can be astronomical and can quickly and unexpectedly arise, it’s better to never go a day without being covered if possible.
If you’re signing up for health insurance through an employer, it’s likely you’ll review a list of plans to choose from during an enrollment period. If you have questions or are unsure of specific components of the plans you’re considering selecting, don’t shy away from asking for clarity. Many companies have health or HR departments dedicated to helping you determine the plan that makes sense for you.
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Editorial staff, J.P. Morgan Wealth Management
