Healthcare is a major expense for working Americans of all ages, and while some folks don't get a choice in their coverage, many employees have the option to select the right insurance plan for their needs. Unfortunately, a large number of these workers inevitably end up making the wrong decision. In fact, only 10% of companies are very confident that employees understand the choices they're making with health insurance, according to a new report by HSA Bank, a health savings account administrator. And that lack of understanding could end up costing workers big time.
Why your health plan matters
The health insurance plan you choose could dictate how much you ultimately spend on healthcare over the course of a given year. And seeing as how more than 25% of U.S. adults struggle to keep up with their medical bills, it's an important decision to make.
So how do you find the right health plan? You'll need to look at a number of factors, both individually and collectively, including:
- Your premium cost, which is the amount you'll pay each year for having your health plan.
- Your copayments, which are what you'll pay each time you visit a provider or fill a prescription.
- Your deductible, which is the amount you're required to spend before your insurance company will start paying for services.
- Your plan's coverage and providers, which include the services and treatments your insurance company will pay for, and the network of medical professionals and facilities you're allowed to see and use.
Initially, you might find yourself drawn to the insurance plan with the lowest annual premium. After all, why pay $4,000 a year when you can pay $2,000 off the bat instead? But premiums and deductibles tend to have an inverse relationship, where the more you pay for the former, the less you pay for the latter, and vice versa. And it's that distinction that could end up costing you more money than necessary.
Imagine you're looking at an insurance plan with a $2,000 premium and a $6,000 deductible, versus a plan with a $4,000 premium and a $3,000 deductible. If you don't end up getting sick or hurt, and therefore never have to pay into your deductible, you'll come out ahead financially by choosing the plan with the lower premium. But what happens if you get injured and rack up $6,000 in medical expenses? At that point, you'd pay a total of $8,000 under the first plan, not counting copays: $2,000 in premium costs plus a $6,000 deductible. With the second plan, you'd wind up paying $7,000: that is, $4,000 in premium costs plus a $3,000 deductible. In other words, you'd actually save money with the more expensive plan.
Now this is a very basic example, but the point is to understand that when choosing a health plan, you really need to look at the big picture. A plan with a higher premium may not only result in a lower deductible, but also lower copays and access to a wider network of providers. All of these factors can come together to make your total out-of-pocket costs lower than what you'd ultimately pay for a cheaper plan.
Of course, the extent to which you use your health insurance will also dictate how much you wind up spending. Without a crystal ball, there's no way to know how often you'll end up at the doctor's office and how much your copays or deductible will cost you. But as a general rule, if you're single with no known medical issues, you can often get away with choosing the plan with the lowest premium. Just make sure your preferred doctors are in-network, or that you're open to new providers.
If you have a family, plan on using your insurance more. Children tend to get sick, and there's a good chance you'll frequent the pediatrician throughout the year. If that's the case, then you may be better off with a low-deductible plan, even if its premium is higher.
Finally, don't be afraid to play around with different options from year to year, especially as your healthcare needs change. The more research you do, the better equipped you'll be to choose the right health plan and save the most money in the process.