There are many health insurance plans, structures, terms, and costs that are often as clear as mud. Below, I have provided you with the most important parts of each plan, relative costs, as well as other important information to help you navigate some of the complexities of the health insurance world.
Health Maintenance Organization (HMO)
HMO plans charge a monthly premium in exchange for access to a network of healthcare providers. In addition to the premium, a copayment ranging from $5-$50 is usually required in order to receive a particular service or see a doctor.
In order for the HMO plan to cover all or the majority of the costs, the policyholder must go to hospitals and clinics that belong to the HMO network. If the policyholder seeks any care from doctors or facilities that do not belong to the network, the HMO usually will not pay for those services, leaving the insured with possibly high out-of-pocket costs. Some exceptions may be made in the case of emergencies or when the HMO network does not, or cannot, provide certain services.
In-network services are cheaper because the insurance provider has previously negotiated prices and contracted certain service providers in exchange for a flow of patients.
In order to keep medical care costs to a minimum for it’s insured, it is in the best interest of the HMO plan to encourage preventative healthcare and regular doctor visits in order to catch health problems before they become more complex and therefore more expensive.
The majority of HMOs will require policyholders to choose a primary care provider (PCP) upon enrolling in the program. The PCP will be the first contact for the policyholder and will act as the gatekeeper into the network. If the PCP can’t manage a particular health problem or concern, a referral will be made to a specialty doctor that also belongs to the same HMO.
For employers, HMOs are cheap in the long-term and represent the majority of healthcare plans offered through the workplace today. Policyholders generally know exactly how much they will have to pay out-of-pocket, and where to go to receive healthcare services. Also, in order for a doctor or a healthcare facility to belong to an HMO, strict quality standards must be met and maintained otherwise these providers risk losing the contract with the HMO.
Preferred Provider Organizations (PPO)
A PPO is a plan that combines the somewhat older tradition of Fee-For-Service with certain aspects of an HMO.
Both PPOs and HMOs:
- Have an established network of healthcare providers and facilities
- Require a copayment for each visit
The major differences between the two?
- PPOs are more flexible
- Monthly premiums are more expensive with a PPO
- PPOs usually don’t require a referral from PCP to see a specialist
Most PPOs cover preventive care which usually includes visits to the doctor, well-baby care, immunizations, and mammograms. The higher monthly premiums are due to the fact that unlike HMOs (whose more restricted network allows for a contract with lower costs), PPOs have a comparatively less restricted network. Costs are therefore less predictable and result in higher monthly premiums.
For employers, employer-sponsored PPO plans therefore tend to be more expensive than HMOs for the same reason.
In a PPO, the policyholder can seek specialty care services without having to see the PCP first to receive a referral. Some PPOs may have you choose a preferred PCP but it is not an absolute requirement like with an HMO and the PPO prefers that you see in-network providers (hence the name of the plan).
However, you can use out of network providers and still receive some health insurance coverage. Some people like this option because even if their doctor is not a part of the network, it means they may not have to change doctors to join a PPO.
As you can see, a PPO offers a higher degree of flexibility to the consumer and allows patients to avoid the hassle of making multiple appointments for the purpose of receiving a referral to a specialist provider. A drawback for some, may be higher associated costs.
Always perform due diligence and check to make sure if your insurance will be accepted or not at a given healthcare provider or facility so that you are fully aware of your expected costs.
Point of Service (POS)
A POS plan is yet another plan that shares some of the qualities of HMOs and PPOs. Like an HMO plan, you may be required to designate a primary care physician who will then make referrals to network specialists when needed. Seeking care from doctors that are not part of the POS network will result in higher out-of-pocket costs for the consumer. Depending upon the plan, PCP healthcare services don’t have a deductible and preventive care benefits are usually included.
Exclusive Provider Organization (EPO)
An EPO is also very similar to an HMO or PPO as well and is a health plan that offers a large, national network of doctors and hospitals for you to choose from. This net is exclusive, so seeing out-of-network providers will result in you having to cover the costs. Like a PPO, you don’t have to see your PCP prior to seeking a specialist, just make sure that the specialist belongs to the network
EPOs are often considered to be a hybrid plan between an HMO and a PPO as they offer more flexibility than an HMO (since you don’t need a referral to see a specialist) but are generally cheaper than a PPO.
Catastrophic Plan
Catastrophic health insurance has changed over the years. Today it is a plan that provides a narrow range of healthcare services but enough to meet the minimum coverage mandate stipulated by the Affordable Care Act (ACA). Like the name sounds, the idea behind the plan is to protect plan participants in moments of dire healthcare needs.
Catastrophic plans have lower monthly premiums but high deductibles as well as high out-of-pocket expenses until reaching the plan’s annual deductible, at which point the plan pays for costs.
To be eligible, an individual must be under age 30 or be any age with a “general hardship exemption” and unable to afford the more traditional health plans.
These plans may cover a limited number of primary care visits per year but all “essential health” components such as hospitalization, emergency care, and prescriptions, among others, are covered.
Policyholders may be presented with a copay requirement for care as catastrophic plans can be arranged in an HMO or PPO structure. This plan is best for young and otherwise uninsured individuals.
Cadillac plan
First of all, there is no actual plan for sale that is called a ‘Cadillac plan.’ Rather, a Cadillac plan, also known as a “gold-plated” plan, refers to any expensive healthcare plan. The term was born out of the focus that journalists and politicians have placed on the issue of healthcare costs. Any plan could be considered a Cadillac plan based on cost, regardless of its structure type. In fact, many typical employee-sponsored plans would be considered to be gold-plated.
Technically, a high-cost plan is one whose combined annual employer and employee premiums exceed $11,200 for an individual or $30,150 for a family- these indices are adjusted periodically to account for inflation and rising costs. A ‘Cadillac plan’ is one that has high monthly premiums with low deductibles which is essentially the opposite of catastrophic plans.
Even though the Cadillac makes reference to the luxury car maker, these plans are not reserved for the rich and famous. Many employees have what are technically considered Cadillac plans. Also, many small businesses that have a small number of employees may also have these gold-plated plans since the smaller number of employees means a smaller pool of money with which the company can use to bargain for lower premiums so the name is misleading.
Proposed Tax on Cadillac Plans Set For 2022
Cadillac plans were in the eye of the Obama administration as a possible factor in increasing healthcare costs as well as providing excessive tax advantages for employers. According to The Tax Policy Center (TPC), an excise tax of 40% will be applied starting 2022 (originally set to take place in 2018, but delayed by Congress) to high-cost health plans that exceed the aforementioned high-cost thresholds. The tax would kick in to effect on every dollar that exceeds the annual premium limits not on the entire cost of the plan.
The ‘Cadillac Tax’ is intended to generate more tax revenue to help finance the Affordable Care Act, reduce healthcare spending, and thereby make more expensive plans less appealing. However, the TPC projects that the costs of the tax will be passed along to workers with either a change in wages and/or a change in health plans in the form of less coverage for the same cost or simply charging more expensive premiums.
High Deductible Health Plan (HDHP)
HDHPs come with lower monthly premiums compared to cadillac plans. However, the policyholder has to pay higher out-of-pocket costs, known as the deductible, before the insurance company starts to pay its share. HDHPs can be combined with a Health Savings Account, but not all HDHPs are eligible for one.
The IRS defines an HDHP as a plan with a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,650 for an individual or $13,300 for a family.
Health Savings Accounts (HSA)
A Health Savings Account (HSA) can help patients with HDHPs pay for medical expenses. HSA are treated similar to a bank account and you can contribute money to the account in a similar way to the way you contribute to a retirement account. Plus HSAs have some further unique benefits.
In order to be eligible to use an HSA, you must have a qualified HDHP through work or a spouse. Not all HDHP plans will qualify you for HSA use and the IRS publishes a list of ‘qualifying’ medical and dental expenses that can be recorded as deductions.
Additional eligibility requirements include:
- You can’t be covered by any other insurance plan, including Medicare Parts A and B
- You can’t have used VA medical benefits in the past 90 days if you plan to contribute to an HSA
- You can’t be claimed as a dependent on another person’s tax return
- You must be covered by the qualified HDHP on the first day of the month
Benefits of HSAs include:
- Ownership of the account (you can keep the account even if you change jobs, etc.)
- Money within the HSA can be invested so that the value can grow
- Unused money in the account can be rolled over yearly and interest earned on the principle is not subject to federal taxes
- Currently California and New Jersey do not provide state tax deductions
- Tennessee and New Hampshire requires taxpayers to report dividend and interest earnings. Exact amounts differ depending on tax filing status
- Residents living in states that have no income tax don’t receive additional state tax deduction benefit
- Tax free distributions on qualified medical expenses
- After age 65, use HSA like a retirement account. No tax penalties on non-qualified expenses
- A Way to save for future health related expenses
- Triple tax advantage
- Contributions are tax deductible
- HSA assets grow tax free
- Funds can be used tax free for qualifying medical expense or after age 65
For 2019, the HSA contribution limit for an individual is $3,500 and $7,000 for a family. Those over 55 years of age can contribute an additional $1,000.
Some HSA plans may not allow you to invest the funds. If this is the case, you can rollover the funds in that HSA into another HSA that does allow for investment of funds once per year.
Health Plan Cost Analysis
According to ValuePenguin, a consumer spending research agency, average monthly premiums for a 21 year old are:
- HMO: $230
- POS: $244
- PPO: $251
- EPO: $254
Premiums usually only increase with age and will vary from state to state.
Plans can be further divided into tiers- catastrophic, bronze, silver, gold, and platinum. The catastrophic tier offers the least amount of coverage whereas the platinum offers the most.
Average monthly premiums by tier for a 21 year old look like:
- Catastrophic: $167
- Bronze: $201
- Silver: $247
- Gold: $291
- Platinum: $363
The Kaiser Family Foundation produced the following graph of average costs per plan type for 2018.
Who Should Use An HDHP With An HSA Account And Who Should Use A Cadillac plan?
It would be beneficial for the following people to use an HDHP with an HSA:
- Healthy individuals and families
- High income earners
If you are healthy and have a healthy family free of chronic illness associated with high medical costs, an HDHP is probably a good choice because of its lower premiums and low expected use of the healthcare system.
High earners can take advantage of the benefits of an HSA. High earners are also more likely to have the ability to make HSA contributions in the first place while at the same time taking advantage of using these contributions to lower their annual tax liability.
Having an HSA is a huge component of having a sensible HDHP. Those that cannot afford to make contributions to an HSA will not benefit as much from the HDHP and may be left with huge out-of-pocket costs that they aren’t prepared. If this is the case, it would make sense to stick with a cadillac plan.
Experts agree that American consumers are accustomed to shopping around for good deals, until it comes to health care. As an educated consumer, you should also shop around and compare healthcare plans. Consider not only monthly premiums, but also the deductibles. Low premiums, although attractive, may mean high or even huge deductibles in certain health scenarios.
Best Plan For Giving Birth, In Terms Of Cost
You could probably guess that there is no simple answer to this question as several factors will affect the cost. For starters, the cost of maternity care can fluctuate dramatically from city to city and state to state. Keep in mind that there is much more to maternity care than just giving birth. There is prenatal care, possible emergency care, the delivery, possible hospitalizations, and postnatal care that includes immunizations, tests, and diagnostic procedures that may arise.
Researchers from The University of California have documented the cost range of an uncomplicated vaginal birth from $3,500 to over $37,000 and cesarean sections ranging from $8,000 to $71,000.
Regardless of the plan type, it makes the most sense to seek prenatal, birth, and postnatal care from ‘in-network’ providers, clinics, and hospitals. Doing some extra research may also save you money, so it’s worth calling your insurance provider and finding out what birth-related costs to expect and how to keep them at a minimum.
Look for a plan with higher premiums and lower deductibles. This would save money in the long run because although the monthly costs would be higher, the out-of-pocket costs and annual limit will be lower, allowing the deductible to be reached quicker, at which point the insurance policy would begin to pay.
Lower income women may qualify for Medicaid and those that earn too much for Medicaid may be eligible for CHIP. Each state has its own qualification rules and criteria.
When Can You Switch Plans?
Switching plans can be accomplished during open enrollment periods or when you have a qualifying life event.
Open enrollment periods begin in November and extend through December 15th during which you can choose to stay with the same plan or elect to enroll in a different one. The continued or new plan will go into effect on January 1st of the entering year. The open enrollment period is the same whether or not you have purchased a plan through your state’s marketplace, private insurance, or you are offered a plan from your employer.
Outside of the annual open enrollment period, the only way to make a change in health insurance is to do so by qualifying for ‘special enrollment’ via a qualifying event.
The government considers the following as ‘qualifying events’ for eligibility for a special enrollment period:
- Losing health coverage
- Losing existing health coverage, including job-based, individual, and student plans
- Losing eligibility for Medicare, Medicaid, or CHIP
- Turning 26 and losing coverage through a parent’s plan
- Changes in household
- Getting married or divorced
- Having a baby (but not pregnancy) or adopting a child
- Death in the family
- Changes in residence
- Moving to a different ZIP code or county
- A student moving to or from the place they attend school
- A seasonal worker moving to or from the place they both live and work
- Moving to or from a shelter or other transitional housing
- Other qualifying events
- Changes in your income that affect the coverage you qualify for
- Gaining membership in a federally recognized tribe or status as an Alaska Native Claims Settlement Act (ANCSA) Corporation shareholder
- Becoming a U.S. citizen
- Leaving incarceration (jail or prison)
- AmeriCorps members starting or ending their service
The special enrollment period lasts for 60 days and if you fail to obtain coverage in that time period, you will have to wait until the next annual open enrollment period.
What Options Do You Have If You Lose Your Job And Need Health Insurance?
Losing employer-sponsored health care coverage related to quitting, being laid off, or fired qualifies as a life event and therefore makes you eligible for a special enrollment period.
After leaving a job, health care coverage can be obtained from:
- COBRA law
- Affordable Care Act (ACA) Marketplace
- Private plans
- Christian pooled plans
COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows you to retain your employee health coverage for up to 18-36 months provided that you pay the full premium and administrative fees that were previously paid for by your employer.
If you choose to search for another plan, this can be done via the ACA Marketplace. The Marketplace, or exchange, is a platform of government operated insurance policies that may be subsidized. Upon applying, you’ll see if you qualify for any savings on deductibles, copayments, and other costs as well as possible tax credits.
You may also be eligible for Medicaid and/or CHIP (Children’s Health Insurance Program). Medicaid is a federal program that extends coverage to those with low income or disabilities. CHIP stands for Children’s Health Insurance Program and provides health coverage to children and pregnant women, and in some states, to families whose income surpasses the allowable limit for Medicaid.
An additional factor to keep in mind in the case that you need to qualify for a new plan under the ACA is the income from tax-deferred investment accounts such as a traditional IRA, SEP IRA, SIMPLE IRA, 401(k), 401(a), 403(b), 457, certain HSA withdrawals, and certain bond types. In most cases, withdrawals made from these accounts are considered taxable income and therefore may limit the ability to qualify for some marketplace plans or Medicaid.
Early Roth IRA or Roth 401(k) distributions can be made penalty-free provided that you have held the account for 5 years and:
- You are 59 ½ years of age or older, or
- You are disabled at the time of the withdrawal
Other Roth withdrawal exceptions exist but aren’t relevant to this discussion on health insurance. Also, some employers may also extend long-term disability insurance to laid-off employees which may provide an additional source of income.
Non-Marketplace Health Insurance (private insurance) is also an option, especially if you are not satisfied with the options offered via the Marketplace and if your income or family size doesn’t qualify you for ACA tax credits. Non-marketplace plans don’t necessarily cost more and you may find broader coverage options with private insurance.
Christian pooled plans also referred to as ‘medi-share’ plans, provide Christian faith members with a way to cover medical costs by pooling the monthly gifts of all members and using those funds to pay for the members that are in need. Christian pooled plans qualify as eligible healthcare coverage under national law.
In 2018, the Christian Health Ministries reported over $388,000,000 used in shared funding to cover medical expenses.
Don’t navigate the insurance or financial system alone! We are here to help you with any questions regarding your financial present or future. Please contact us to schedule a talk and see how we can best serve you.
Sources
https://thehsareportcard.com/the-hsa-report-card-1/2017/12/2/any-bank-basiconlinecom
https://www.verywellhealth.com/hmo-ppo-epo-pos-whats-the-difference-1738615
http://www.foreignborn.com/self-help/health_insurance/4-what_types.htm
https://www.ehealthinsurance.com/health-plans/pos
https://khn.org/news/cadillac-health-explainer-npr/
https://www.taxpolicycenter.org/briefing-book/what-cadillac-tax
https://www.healthcare.gov/glossary/special-enrollment-period/
https://www.cigna.com/health-care-reform/cadillac-tax
https://quotewizard.com/health-insurance/cadillac-vs-catastrophic-health-plans