The one constant when buying health insurance is uncertainty. A sudden illness can carry in its wake a flood tide of unwelcome medical bills. The point of health insurance is to minimize the havoc from such bills. But you can't plan your illnesses, so how can you know how much insurance you might need? The ever-rising cost of healthcare, moreover, has driven insurers and employers to shift much more of the burden to policyholders through higher deductibles and coinsurance and slapping copays onto more services. It can be a challenge just to figure out in advance how much you'd wind up paying out of pocket if you do get sick.
Nowhere are unknowns a bigger concern than in the so-called individual market, where consumers purchase health coverage directly from an insurer rather than through an employer or the government. In many states, insurers can require you, and members of your family if you're shopping for a family plan, to pass a medical exam to qualify for coverage. If you don't pass, or you have a prexisting health condition, the plans can turn you down. (That will change in 2014, when a provision of the recently upheld Affordable Care Act takes effect and outlaws rejection for medical reasons.) You also could be charged much more per month than the published premium may have led you to believe if you are deemed likely to run up medical bills.
The tripwire that may be the least expected, until it wrecks your budget, is the annual out-of-pocket limit. Almost always displayed as a flat dollar amount, the term refers to the maximum you have to pay for your care in a given year before the plan picks up your expenses from then on—or so it would seem from the term. Unfortunately, many plans still impose deductibles, copays, and coinsurance after you reach the supposed limit of your out-of-pocket expenses. Retaining even one of these cost items could vacuum thousands of dollars from your pocket. What's more, a plan can put a limit on the total amount it pays out in a year. All charges above that maximum benefit are your responsibility, regardless of the stated out-of-pocket limit.
How could a mere copay, which you may think of as that annoying $20 or $30 flat charge you pay when you see a doctor, have such financial impact? Isn't coinsurance usually a small percentage? Both can carry more weight than you'd think. A copay can be hundreds of dollars if it is your share of an emergency-room bill. And coinsurance, your percentage of the cost of a service, may be a modest 10 percent or it could be the entire 100 percent. It also matters whether the copay or coinsurance is charged before you've met your deductible or afterwards. If before, you no longer have to make these payments when you've paid off your deductible. If after, the obligation is open-ended and may cost you more.
Here's a reality-grounded example: a plan in the U.S. News universe with a premium of $500 a month and a relatively low annual deductible of just $750. But U.S. News Best Health Insurance Plans shows that the plan's out-of-pocket limit of $2,500 doesn't include the deductible. That effectively pushes the out-of-pocket limit to $3,250.
That's not all. The out-of-pocket limit also doesn't include coinsurance on prescriptions, physician visits, hospital stays, or any other medical expense. Coinsurance is pegged at 30 percent or more in this plan for virtually every costly service, so in addition to your premium and deductible, you'll be responsible for nearly one-third of every medical cost you accrue, from brand-name drugs to ER care. If you get a hospital bill of $10,000, you'll pay $3,000 of it in addition to your deductible.
Another complication: Some of these hospital or doctor fees apply even after you've met your annual deductible, pushing your out-of-pocket costs higher. Oh, and there's also a $200 copay every time you use an emergency room.
Best Health Insurance Plans helps you spot these tripwires in advance by in some cases giving higher ratings to plans that clearly describe their cost sharing. Plans that shift less of the cost to consumers through coinsurance receive potentially higher ratings as well.
Besides these factors, you should also check those listed below. Be on the alert for:
- The percentage of applicants denied enrollment, which is a measure of a plan's selectivity. Some issuers offer plans but turn down two-thirds of applicants or more, based on concerns about their medical risk or other factors. A high denial rate may be an indication that, if you or someone in your family has medical issues, you may want to look at more inclusive plans.
- The percentage of applicants charged more than the stated premium. Just as some plans turn down many applicants for medical reasons, some issuers charge a high percentage of policyholders more than the stated premium for coverage. Plans may accept these policyholders anyway, but charge more because their medical history suggests that they are likely to use more services.
- Specific categories of care that aren't covered by a given plan, such as cosmetic surgery, children's eye exams and weight-loss therapy.
- Plans with a narrow scope of benefits or strict limitations that may leave you exposed to high medical costs related to catastrophic injuries or ailments. Generally speaking these are plans that are more likely to have received fewer stars in the U.S. News analysis. Always read the fine print before you settle on a plan.
- Plans with high deductibles (generally defined as $1,200 or more for an individual and $2,400 and up for a family) that may cover you for severe medical problems but could saddle you with mounting bills for routine care. Under the Affordable Care Act, a high-deducible plan purchased after March 2010 must offer free preventive care whether or not you've met the deductible. (If you're healthy and want to minimize your monthly premium, you may prefer a high-deductible plan. They can be coupled with tax-deductible health savings accounts, which allow you to put aside money for routine medical expenses.)
- Plans that do not cover specific drugs that you need. Visit the plan's website to see whether your medications are included in the plan's formulary.
- Plans whose networks don't include the doctors and hospitals where you get your care.