During open enrollment, millions of people are selecting their health care insurance. Many individuals become locked into their selected option for an entire year. Insurance plans tend to have premiums, co-insurance, deductible amounts, maximum out-of-pocket costs, and multiple other components that can make it difficult to determine the best choice. According to a study completed in 2017, 61 percent of customers incorrectly picked plans that ended up costing them money.
The upcoming year will present many people with the challenge of picking their health insurance plans: November is typically when workplaces have open enrollment, with the public marketplace opening its doors on the first of November. It can be complicated to know how to make the best choice, which is substantiated by a 2017 study that found that sixty-one percent of people made an incorrect selection that cost them an average of $372 a year. The study, which originated from economists from Carnegie Mellon University and the Wisconsin School of Business, examined the choices made by almost twenty-four thousand workers from a company based in the US.Complicating the decision even further is the fact that health plans come with a range of components, including premiums and deductibles, all of which have a financial effect on the consumer. Carolyn McClanahan, a certified financial planner, doctor, and member of CNBC's FA Council, spoke to CNBC about the difficulty of navigating the confusion and the fact that people may not be aware of how much they will have to pay. If an error is made, it carries a hefty price tag since people are usually locked into their chosen plan for an entire year.To help you understand the major cost components of health insurance and how they impact the bill, take a look at this guide.
You will pay an insurer on a monthly basis to be enrolled in a health plan. This could be viewed as the sticker price, considering it is the most noticeable cost. According to the Kaiser Family Foundation, a nonprofit organization, an individual worker will pay an average of $117 a month in 2023, and families will play $548 a month. Depending on the plan, size of the employer, your location and other determining factors your monthly rate could be different. "Low premiums may not mean good value."
Despite low premiums, health insurance should not be seen as a mere commodity. People tend to price shop when purchasing items like rice or tennis shoes, as they likely know what they are getting for the cost. However, as Karen Pollitz, co-director of KFF's program on patient and consumer protection, told CNBC, health insurance plans can be quite different from one another. Therefore, it is not wise to solely rely on the price, as you may find yourself liable for a pricey bill if you need to visit a doctor or get a procedure done.
Patients typically need to give a fixed-amount fee when they consult a doctor. This fee is known as a "co-pay" and is a kind of cost-sharing with medical insurers. According to KFF, the average fee for a visit to a primary-care doctor is $26, and for a visit to a specialty care physician it is about $44.
Patients may be liable for extra costs such as co-insurance, a proportion of medical costs that they share with the insurance company. This cost-sharing usually begins when the patient has paid their annual deductible (a concept covered in more depth beneath). According to figures from KFF, the standard rate of co-insurance for patients is 19 percent for primary care and 20% for specialty care (leaving the insurer to cover the remaining 81% and 80% of the bill respectively). As an illustration: if a specialty service costs $1000, the regular patient would pay 20% - or $200 - and the insurer would cover the rest. Co-pays and co-insurance may vary according to the service, with separate classifications for office visits, in-patient hospitalisation or prescription drugs, in line with KFF. Rates and coverage may also differ depending on whether the care provider is in-network or out-of-network.
Consumers are subject to deductibles as a form of cost-sharing. These are the annual amounts they must pay out of pocket before the health insurer covers services. According to the KFF, 90% of workers with single coverage carry a deductible of $1,735 generally in 2023. This deductible works in conjunction with other forms of cost-sharing. To illustrate, a $1,000 hospital charge would require a patient with a $500 deductible to pay the first $500 out of pocket, in addition to a co-insurance of 20%, resulting in a total payment of $600 out of pocket.
Pollitz stated that health plans may have multiple deductibles, such as one for medical care and the other for pharmacy benefits. Additionally, family plans might include an aggregate annual out-of-pocket cost for all family members, or each family member may be subjected to a different deductible. According to data from the KFF, which focuses on single coverage, the average deductible greatly differs between plan types- a PPO plan charges an average of $1,281, an HMO plan $1,200, a POS plan $1,783, and a high-deductible plan an average of $2,611. (Further information on plan types is below.)
Most people are limited to the total cost of expenses such as co-pays, co-insurance, and deductibles that they must cover for the year, called an "out-of-pocket maximum." Pollitz explained that consumers can be sure that the insurer won't ask for more than one co-pay, even at the doctor or pharmacy. Single coverage plans from KFF are expected to have such out-of-pocket maximums for 99% of workers by 2023, with ranges ranging from less than $2,000 to $6,000 or more. The Affordable Care Act marketplace caps these out-of-pocket maximums at $9,100 for individuals and $18,200 for families in 2023.
Health insurers handle services and expenses differently based on their preferred network, which is referred to as "in-network". The insurer will execute contracts and negotiate prices with these providers. On the other hand, the same cannot be said for "out-of-network" providers.The importance of this distinction becomes clearer when considering deductibles and out-of-pocket maximums, which are typically about twice as high when one seeks care outside of the insurer's network. In some cases, there is no limit to the annual costs for non-network care.Pollitz summed up the situation saying, “Health insurance really is all about the network” and “Your financial liability for opting out of the network can be really quite dramatic and expose you to significant medical bills."
Insurance plans can range in cost with different coverage features. For example, according to Aetna, HMOs are usually among the most economical. However, these plans typically restrict you to a network of healthcare providers and require physician referrals for specialist visits. EPO plans, on the other hand, also require in-network services for coverage - with somewhat more selection than HMOs - while POS plans require referrals for specialists, but include some out-of-network coverage. PPOs, having higher premiums, often offer the greatest flexibility in terms of being able to receive services from out-of-network providers and specialist visits without those referrals. "Cheaper plans have skinnier networks," said McClanahan. "If you don't like the doctors, you may not get a good choice and have to go out of network."
Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California, and a member of CNBC's FA Council, previously highlighted budget as one of the most important considerations. When comparing coverage options, Sun recommends considering whether you would be able to afford a $1,000 medical bill if necessary, as this might mean that a plan with higher monthly premiums and a lower deductible would better suit your needs. Similarly, older individuals or those who require extensive health care each year, or expect to need a costly procedure in the coming year, could do better by selecting a plan with a higher monthly premium but better cost-sharing. However, McClanahan notes that for those who are healthy and rarely max out their health spending annually, a high-deductible plan could be more cost-effective in the long run.
Advisors suggest that those who sign up for a high-deductible plan should use their monthly savings on premiums to bolster a health savings account. HSA's are available for those who select a high-deductible option.
McClanahan underlines the importance of doing your research, urging consumers to note the upfront premiums and back-end cost-sharing when selecting their insurance. Pollitz points out that all health plans have a 'summary of benefits and coverage', which should be consulted to better understand key cost-sharing information and plan details. She recommends taking the time to look at this before the deadline to avoid any unpleasant surprises.
McClanahan additionally advises to check if any current healthcare providers you use are covered under the new insurance, and the same goes for prescription drugs. Sun emphasizes the importance of checking whether the cost of your prescription drugs will change with the new health plan.
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