How to Choose a Health Plan: 12 Helpful Tips

Open enrollment means it's that time of year (again) to wade through the options on the table.

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Choices, choices. Which health insurance plan would be best for the coming year? No problem: the one that offers the best balance of coverage and total cost. Thanks a lot, you say. How can anybody predict the coverage a family might need or what health expenses might be lurking out there? The future could hold routine checkups and a prescription or two—or weeks of testing and hospitalization—so picking a plan will always be something of a guess. But the following dozen tips should make it an educated one.

1. Survey the field. There are three basic flavors of health insurance plans, each providing a different degree of freedom in choosing caregivers. A health maintenance organization (HMO), which limits members to physicians in a defined network, may offer enough choice and coverage for someone young and healthy. A point-of-service (POS) plan or preferred provider organization (PPO), which provide unrestricted access to specialists, might be preferable if someone has a chronic illness such as diabetes.

[See America's Best Health Plans and search for one for you.]

2. Fill in the blanks. Most employers provide an online calculator to help make a rough estimate of the amount of coverage that families need, but only a small percentage of employees use them. Online plans for individuals also offer calculators.

[Read A Quick Guide to Health Insurance Lingo.]

3. Figure the cost. With your coverage needs in mind, see how each of the plan options might affect your budget. Remember that your costs will be more than the total of the monthly premiums. There is the deductible (how much you have to pay before coverage starts), cash out of pocket for copayments (fees charged by providers), and coinsurance (your share of the bill for hospitalization and prescription drugs). Someone young and healthy, who probably will need mostly preventive services, may save with a high-deductible plan, which won't start paying until $2,500 in charges, say, are run up. Warning: Make sure you can afford to pay the deductible yourself, plus a safety margin, should unexpected medical costs pile up.

[Read Affordable Health Insurance for Young Adults.]

4. Check for changes. Aside from a higher premium or deductible, the plan you had last year could have raised the out-of-pocket maximum, the total you pay before 100 percent of expenses are covered—from $1,000 to $1,500, say. As healthcare costs escalate, checking is especially important this year, says Randall Abbott, a senior healthcare consultant at Watson Wyatt.

5. Look for favorite docs. To continue seeing the same primary-care doctor and familiar specialists as before, make sure they are in your favored plan's provider network.

6. Don't bump the ceiling or fall through the floor. Plans often put annual caps on coverage for specific services—the number of visits for physical therapy following an injury, for one. And some coverage may be entirely absent—maternity, for example. But a law to take effect in 2010 will soften the once harsher limits on mental-health and substance-abuse coverage.

7. To save, start saving. One way to afford out-of-pocket costs is with an individual savings account created to cover ordinary healthcare expenses such as copays, prescriptions, and eyeglasses. A health savings account, offered by an increasing number of companies, has to be paired with a high-deductible plan. Anything left in the account at the end of the year rolls over to the next year. A flexible spending account is another option; it does not have to be linked to a high-deductible plan, but leftover amounts at year's end will be forfeited unless the employer adds a grace period of up to 2 ½ months (many do), as permitted by law. Contributions to either an HSA or FSA are subtracted from your pretax income.

8. Don't overpay for prescriptions. The plan's formulary shows the prescription medications that are covered. This year, you could see your copay for generic drugs dip. Those with chronic conditions may have the option to get meds for less or free in some cases. Opting to get them by mail can save even more.