What is health insurance?
Health insurance provides coverage for medicine, visits to the doctor or emergency room, hospital stays, and other medical expenses, if you are injured or sick.
There are several different types of health insurance plans, but the most common are the following three:
1) HMO – HMOs provide a wide variety of services ranging from preventative care to office visits to surgery. HMOs typically require you to receive medical treatment from providers in the network and make you see your primary doctor to get a referral to another doctor. Generally speaking, HMOs are the least flexible and the least expensive option.
2) PPO – PPOs provide greater flexibility, but cost more. They allow you to visit any doctor, but encourage you to visit doctors within the PPO network by reimbursing you at a higher rate when you do so. PPOs also allow you to call any doctor within the network and make an appointment without obtaining permission from your primary doctor.
3) POS – A POS is a hybrid between an HMO and a PPO. Like an HMO, you can use the doctors in network, but unlike an HMO, you’re not stuck with just the doctors in the HMO network. Like a PPO, a POS plan allows you to choose doctors outside of your plan. So if you find a doctor you really like but she’s not in the network, you can still see her. One caveat though: Like a traditional HMO, you are still required to get permission from your primary doctor.
Each of these plans has advantages and disadvantages. The greater the flexibility the greater the cost. If you want a plan where you can go to any doctor without obtaining permission, a PPO might be right for you. On the other hand, if you’re watching your budget and don’t mind going through a few hoops, an HMO or a POS plan might be appropriate.
Common Health Insurance Terms
Deductible – This is a set dollar amount per year that you must first pay before the health plan begins paying claims.
Co-Insurance – A percentage of the bill the patient is responsible for paying on an insurance claim. For example, most insurance companies pay only a percentage of a claim, such as 80%. The remaining 20% is the “co-insurance” amount the patient must pay.
Co-Payment – This is a specified dollar amount the patient must pay the medical provider at the time of an office visit. Typically it is between $10 and $30.
Formulary – A listing of drugs the insurance policy covers.
Stop Loss Clause – This is the maximum dollar amount per year the patient must pay. Once the stop loss clause is met, the insurance policy pays 100% of all charges up to the policy limits.
Lifetime Benefit Cap – This is the maximum amount of coverage your health insurance plan must pay over the course of your life—typically $1 million.
Do I need Health Insurance?
Absolutely. Regardless of your age or health, you need health insurance. Without it, you are putting yourself and your family in financial jeopardy. With medical costs soaring, all it takes is a trip to the emergency room or a surgery to be in debt thousands and sometimes hundreds of thousands of dollars.
How much Health Insurance do I need?
At the very least, you need a comprehensive policy that will pay your medical bills if you get seriously ill or injured. These plans are called catastrophic health plans because they only kick in after you’ve paid a high deductible—sometimes as much as $5,000 per year. They’re much cheaper than a traditional health insurance plan because of the high annual deductible. The objective with this type of plan is to have coverage if something really bad happens and you need costly medical care.
Catastrophic plans are plans of last resort.
Choose them only when you must choose between no insurance and catastrophic health insurance. Of course, if you can afford a traditional health plan, you should buy one. Since many Americans get their health insurance through their employers, the decision between an HMO, PPO, or POS will depend on not only your own needs and budget, but also what choice of plans your employer gives you.
The proceeding blog post is an excerpt from The Six-Day Financial Makeover: Transform Your Financial Life in Less Than a Week!, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.