How to Choose a Health Insurance Plan

In this post you’ll learn about:

Deciding what’s important to you in selecting an insurance planUsing a health insurance checklist to sift through the options

The vast number of choices and decisions involved in select­ing a health insurance plan makes the task complicated and confusing. This post replaces confusion with under­standing and clarity by examing some of the major factors that you will eventually rely on to make your choice. The Checklist in Table 10-1 at the end of this post gives you a way to track your priorities and needs as you learn about health insurance plans.

Refer to the Checklist often and change your rankings as needed.

If you’re employed and married or have a domestic partner, you may have some flexibility in choosing secondary cover­age under a spouse’s or partner’s plan. For example, two adults who each have individual coverage may pay less in premiums than if both are covered under one policy with a family plan.

If you and your spouse are each covered by a group plan, you may be able to get secondary (additional) coverage under the other’s plan, or you may decide to forego secondary coverage and stick with one plan per person. Or one spouse may drop his or her employer’s insurance altogether and obtain cover­age under the other’s policy. (Be sure that neither plan has provisions that prohibit this choice.) Weigh the cost of each option against the coverage you get before making a decision.

Some families include unmarried domestic partners. Check out your plan’s policies regarding coverage for domestic part­ners, but don’t be surprised if coverage isn’t available.

The issue of health insurance for domestic partners has no national legislation, nor does any state have regulations cov­ering its employees’ domestic partners.

To cover a person under your health insurance plan, that per­son must be considered a dependent. The definition of dependent is based on your plan’s legal requirements con­cerning financial support. (In an employer-sponsored plan, the employer may also have input into the definition of dependent.) Some plans consider a child a dependent only if the child meets all of the following very specific criteria:

The child is your responsibility by birth or legal adop­tion, or the child is a stepchild or a foster child.The policyholder provides more than 50 percent of financial support and maintenance for this child.The policyholder can claim the child as an exemption on his or her federal income tax return.

A child is considered a dependent if a legal court order man­dates that the policyholder must provide coverage for the child. Other individuals may be considered dependents if they satisfy IRS requirements.

Health insurance plans’ regulations regarding coverage for children and/or other dependents may vary greatly, so check out the plans carefully. To make administration simple and consistent, some companies use some variation of the birth­day rule, in which the primary coverage for eligible children is through the plan of the parent whose birthday falls in the earlier month of the year. For example, a parent born in May 1954 would assume coverage for the children, even though the spouse born in September 1950 is older.

Many health insurance plans have an arrangement between the insurer and a selected group (or network) of doctors and hospitals and other health care providers. Such plans offer significant financial incentives to policyholders to use the providers in that network, including reducing your benefits when you use doctors and hospitals outside the network.

Before you decide to buy a particular health insurance plan, find out which doctors and hospitals are included in the plan’s network. Use this section to evaluate those doctors and hospitals. If they don’t satisfy your needs, evaluate other doc­tors and hospitals with this section and then look for a plan that uses the doctors and hospitals of your choice.

Location of doctors and hospitals: If you prefer to deal with a nearby doctor or hospital, check to see whether these providers are part of the network of the plan you’re considering. If you travel much, find out what the plan’s benefits are if you need to consult doctors or visit hos­pitals outside the plan’s provider network.

Doctors are usually associated with a particular hospital. When selecting a doctor, keep in mind that you usually end up using the services of the hospital with which that doctor is affiliated.

Primary care physician (PCP): A primary care physi­cian is a doctor who provides or authorizes all care for a patient. Most HMOs and PPOs (see this post about How to Evaluate Your Health Insurance Plan Options for more information) require their members to choose a primary care physician.

If freedom of choice in selecting your primary care physi­cian isn’t that important to you, an HMO or PPO may be a good choice for you.

If you’re already happy with a doctor who isn’t part of a plan network, a fee-for-service plan (also known as an indemnity plan) may be a good choice for you. This type of plan allows you the greatest choice of doctors and hos­pitals. You can also ask your out-of-network provider to consider joining a network — check with your benefits administrator for the forms.

Some doctors require payment at the time of service. Others offer a grace period for payment. Still other doc­tors file your insurance claim for you or file directly with the insurer. If you prefer not to pay the doctor and wait for your insurance company to reimburse you, find out what the doctor’s policies are and whether you can make special arrangements for payment.

Specialists: Some plans require that you get a referral from your primary care physician prior to each time you see a specialist. Getting a referral usually involves a visit to the primary care physician for diagnosis and perhaps treatment to see whether the more expensive visit to the specialist is necessary. Check to see whether your pre­ferred specialist is in the plan’s network or whether the network has a specialist who deals with your particular condition. Using an out-of-network specialist may cost you more.Hospitals’ quality of care: Most hospitals participate in an accreditation program that the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) administers. This organization surveys hospitals every three years to assure that they meet specific quality stan­dards for staff and equipment, as well as for their success in treating and curing patients. Make sure that the hos­pitals within your plan’s network are accredited.

Be sure that you know exactly when your coverage begins. Insurance companies may sometimes impose a waiting period between the time you apply for or enroll in a plan and the date your coverage takes effect. The waiting period — some­times due to a pre-existing condition — may apply to some or all of a plan’s benefits.

If you enroll in a group plan when you begin a new job or when your employer offers an open enrollment period, you usually don’t have a waiting period. Individual plans are usu­ally stricter and most likely will impose a waiting period. Generally, you don’t begin paying premiums until your wait­ing period is over.

Keep in mind the kinds of medical care you may need when you’re switching insurance companies or plans and be sure that you remain covered, perhaps by extending your current plan and overlapping it with a new one.

You can check on the quality of the health insurance plan you’re considering through your state’s department of health or insurance commission or through consumer publications.

Investigate the insurance company itself by checking your library for insurance company ratings by organizations such as The A.M. Best Company, Standard & Poor’s, and Moody’s. These organizations base their evaluations on the insurance companies’ financial records, which may give you an idea of a company’s stability. A highly-rated insurance company generally won’t go out of business overnight and disappear without paying your claims.

Also check for accreditation, which indicates that a plan meets certain national standards set by independent organizations such as the Joint Commission on Accreditation of Health­care Organizations (JCAHO). An insurance company’s deci­sion not to participate in an accreditation program does not reflect one way or another on its quality. To find out whether the plan you’re interested in is accredited, ask your employer’s benefits manager or call the insurance company itself.

One company that offers accreditation of health insurance plans is the National Committee for Quality Assurance (NCQA). This company evaluates a health plan’s organiza­tion, structure, and quality improvement process. NCQA also uses the Health Plan Employer Data and Information Set (HEDIS), a group of about 50 factors, to measure plans’ quality of care.

Use the Checklist in Table 10-1 to track what’s important to you in a health insurance plan. As you work through the Checklist, keep in mind current medical conditions, as well as the possibility of accidents, serious illnesses, and other sur­prises that life may throw your way. For now, leave blank the areas that you’re unsure about. By the end of the list, you should have a clear and fairly comprehensive picture of what your needs are and what type of health insurance plan will satisfy those needs.

Check one of the boxes to indicate how important each serv­ice is to you. The Checklist indicates importance on a scale of 0 to 5 — 0 is for the services that you don’t need at all; 5 indicates those that you think you’ll need the most.

Use a pencil to fill out the Checklist; as you learn more, your priorities may change. Use the blank lines at the end of the Checklist to add items of special concern to you.

Table 10-1: Checklist for Determining Your Health Insurance Needs

0 1 2 3 4 5

Choice of doctors     q q q q q q

Nearby doctors and hospitals q q q q q q

Out-of-town doctors and hospitals q q q q q q

Costs              q q q q q q

Ease of getting an appointment   q q q q q q

Minimal paperwork    q q q q q q

Waiting period before coverage   q q q q q q

Covered medical services     q q q q q q

Adult day care         q q q q q q

Alternative treatments such as    q q q q q q

acupuncture, spiritual care, and so on

Ambulance          q q q q q q

Cancer screening (colorectal cancer tests, mammograms, Pap smears, and so on) q q q q q q

Chiropractic         q q q q q q

Cholesterol screening  q q q q q q

Dental care, braces, and teeth cleaning q q q q q q

Diabetes supplies       q q q q q q

Drug and alcohol abuse treatment q q q q q q

Family planning       q q q q q q

Hearing examinations, hearing aids q q q q q q

Home health care     q q q q q q

Hospice care         q q q q q q

Hospital care          q q q q q q

Immunizations         q q q q q q

Infertility treatment    q q q q q q

Inpatient hospital       q q q q q q

Maternity care         q q q q q q

Medical equipment for home use q q q q q q

Medical tests and X rays q q q q q q

Mental health care      q q q q q q

Nursing home care      q q q q q q

Office visits to your doctor   q q q q q q

Other covered services q q q q q q

Outpatient surgery      q q q q q q

Pediatric care         q q q q q q

Physical therapy      q q q q q q

Pre-existing condition care   q q q q q q

Prenatal care          q q q q q q

Prescription drugs      q q q q q q

Preventive care and checkups     q q q q q q

Rehabilitation facility care   q q q q q q

Skilled nursing care    q q q q q q

Smoking cessation counseling     q q q q q q

Speech therapy        q q q q q q

Surgery (inpatient and outpatient) q q q q q q

Vision care (eyeglasses, contact lenses, examinations, and so on) q q q q q q

Well-baby care        q q q q q q

Other needs

Types of insurance coverage that you can choose to meet your particular health insurance needs

Finding coverage for critical illnessTaking a look at long-term careThinking ahead about disability

This post helps prepare you before an accident, the onset of serious illness, or other critical health-related situations may occur by explaining the main points about types of insurance coverage that you can choose to meet your particular health insurance needs. Having this knowledge in advance can lessen the impact of a sudden change in health status.

You may live in an area with a high incidence of a particular disease or condition. Perhaps family history raises concerns about your susceptibility to a critical illness or disease. In these situations, you may want to consider setting up a finan­cial cushion — beyond what your health insurance policy offers — in anticipation of above-average medical expenses.

Some insurance companies offer specified or dread disease policies, most commonly cancer insurance. These policies pay a cash benefit for procedures and treatments that con­ventional medical insurance may not cover. The dread dis­ease plans pay a fixed dollar amount for every day you’re in the hospital or receive treatment on an outpatient basis only if you contract the specific disease or group of diseases that the policy cites.

Don’t think of a dread disease policy as a replacement for gen­eral medical coverage: The policy may limit the amount of benefits it pays. In fact, some states regard dread disease poli­cies as offering little value or protection to the policyholder and have banned or restricted such policies. The cost of a dread disease policy may not be very high because it covers very specific conditions. Even so, weigh the cost of the pol­icy carefully compared to the benefits it pays before you buy.

Think about your family history and lifestyle as you shop for a dread disease policy: These factors may help you get a sense of whether you’re at risk for a particular disease. Start by examining plans carefully, because they often exclude cover­age for problems resulting from the specified disease itself, such as infections, diabetes, and pneumonia. In some cases, you have to wait several years after you buy a policy before the plan will pay for treatments. Always check the fine print for the following:

All-inclusiveness: Benefits should include expenses for items such as hospital stays, medicine, surgery, doctors’ visits, radiation treatment, chemotherapy, and recon­structive surgery after a mastectomy.Additional benefits during a hospital stay: You may find a policy that offers additional benefits after you’ve been in the hospital for more than 90 days. Be warned, however, that research states that the average hospital stay for cancer is only 13 days.Travel expenses: When treatments mean traveling long distances to a hospital, you definitely want a policy that covers your travel expenses — and perhaps travel expenses for a companion.Double coverage pay: Keep an eye out for whether the dread disease insurance plan will pay benefits even though you’re covered under another policy. Also check whether the other policy will pay benefits if you have a dread disease policy.

Most dread disease insurance policies exclude people who have already been diagnosed with the disease.

Insurance companies often pay for bone marrow transplants and stem cell transplants to treat leukemia and lymphoma. However, insurers may not pay for these types of transplants when they’re used to treat other types of cancer, where they’re still considered experimental.

When you’re evaluating a dread disease insurance plan, ask about how the plan pays for experimental procedures.

Some dread disease insurance plans do one or more of the following:

Adjust premium payments based on your lifestyle or family historyPay an initial lump sum and then pay for various costsPay a single lump sum at the time of initial diagnosis and then end the coverage (which helps to lower their premiums)Increase premiums as you age

People are living longer, so they’re more apt to experience serious illnesses or injuries that can temporarily put them out of commission. A critical illness plan covers more than just one condition. When you don’t need disability insurance (because you expect to be back on your feet), critical illness insurance steps in to fill the void.

In general, although benefits vary from plan to plan, critical illness insurance pays you a lump-sum benefit if you suffer one of the covered critical illnesses or injuries.

Catastrophic limit is another way to refer to maximum out-of-pocket. In fact, major medical insurance is sometimes called catastrophic insurance. Major medical insurance may pay over an extended period for hospitalization costs and other health services that exceed the maximums your basic plan provides. See this post about How to Evaluate Your Health Insurance Plan Options  for more information on major medical insurance.

Most insurance plans, whether public or private, don’t cover home health care at all. If they do, the services they cover may be very limited. Some plans, for example, won’t pay for a care provider who is a member of the immediate family.

One way to enhance coverage for catastrophic illness is to pur­chase a catastrophic coverage policy. These policies are designed to pay for hospital and medical expenses that exceed a very high deductible, perhaps $20,000 or more. Such policies may also provide for a fairly high maximum lifetime limit.

Another approach is to add a living insurance rider to a life insurance policy. A living insurance rider provides benefits to the insured — while the insured is still living — in case of a catastrophic illness.

Long-term care insurance policies are special policies that pro­vide coverage for nursing home stays and home health care for a period established when you buy your policy. These policies are also called convalescent care or nursing home insur­ance. The policies are usually indemnity-type policies, mean­ing that they pay an established amount for each day of coverage you spend in a nursing home, regardless of the actual cost you incur.

The goal of home health care can be to maintain, improve, or restore a person’s health. Usually, a doctor orders home health care and writes a plan of care, or instructions for the patient and the caretakers. In addition to registered nurses and licensed practical nurses, many other kinds of care providers may play a role, including the following:

Home health aides and visiting nursesHomemakers from an outside service (housekeeping duties; no medical-related duties)NutritionistsPersonal care attendants (PCAs — meal preparation, bathing, laundry, light housekeeping, and so on)Physical, speech, and occupational therapistsSocial workers

Patients may also need certain pieces of equipment at home, such as hospital beds and accessories, respirators and oxygen tanks, wheelchairs, and walkers. Major medical policies usu­ally cover these expenses.

Nursing homes are characterized by the type of services they provide:

Custodial care homes: These facilities are intended to maintain and support the individual’s current level of health, while trying to prevent any further decline. Peo­ple in custodial care homes usually need a place to live and help with activities of daily living, which non-medically trained professionals can provide. This type of nursing home is the lowest level and least expensive of the three.Intermediate care facilities: These facilities provide planned, continuous programs of nursing care for resi­dents who can’t live alone. These programs are preven­tive and rehabilitative.Skilled nursing facilities (SNFs): A doctor must pre­scribe care for people in these facilities. Registered nurses and other medical personnel provide specialized medical care 24 hours a day.

Major medical coverage may cover the cost of a skilled nurs­ing facility, but not the cost of a custodial care facility.

See the Medicare and Medicaid sections in a later post for more information about catastrophic coverage and long-term care.

Beyond the challenges of suffering pain or discomfort and undergoing treatment, disability may also mean loss of income. To replace this loss, you may be able to draw on var­ious sources of financial compensation, such as the following:

Social Security: For those who are severely disabled and unable to work at allWorkers’ compensation: For work-related illness or injuryCivil service disability: For federal and state govern­ment workersAutomobile insurance: For disability due to an auto­mobile accident

Check with your state insurance department to see whether your state mandates and monitors disability plans. In states that do, your employer automatically deducts premiums from your paycheck. You file claims directly with the state.

If you aren’t eligible for one of these sources, you probably won’t receive compensation for lost income (other than sick-leave benefits from your employer), which is where disabil­ity insurance comes in.

Short-term disability insurance covers only loss from illness or disease; it excludes loss from accident or injury. Employer-sponsored plans may include STD insurance as part of a health insurance plan. Benefits generally pay a certain per­centage of your salary for a certain number of weeks, based on your years of employment.

For short-term disability, experts advise that you not rely on disability insurance — the cost of an STD policy may out­weigh the benefits. In addition to any sick-leave benefits your employer pays, live on your savings or the sale of an invest­ment for a couple of months.

Long-term disability insurance kicks in when short-term disability ends, usually after 52 weeks. Its goal is to lessen the threat of financial disaster. LTD plans pay monthly benefits — from periods of one year up to a lifetime, depending on your plan — when disability prevents you from returning to work. Your plan also specifies when your benefits begin, how much you will receive, and any coverage limitations.

Check with your employer to see whether a group long-term disability policy is available. Some LTD plans offered through employers may be more cost-effective than in individual plans.

Disability insurance replaces only a percentage of your lost wages, usually about 60 percent of your income at the time you buy the plan. This insurance doesn’t cover the cost of reha­bilitation, which is a medical expense. Medicare benefits, which cover medical expenses, take effect in your 25th month of disability.

Deciding whether to buy disability insurance depends on your individual situation. You need to consider several fac­tors, including the following:

How much financial risk are you willing to assume if you’re unable to work for an extended period?How long can you live on your savings and investments?What will it take, in terms of time and effort, to rebuild your savings and investments and recoup lost interest?Can your spouse’s income can make up for your lost wages?

If you decide to buy a disability insurance policy, think about the following:

How the insurer defines “disability”: One insurer may define “disability” as being unable to perform the duties of your customary occupation. Another insurer’s defini­tion may mean that you can engage in no gainful employment at all.When benefits begin: Benefits may begin from one to six months or more after the start of disability. If you can afford the lost income, lower your premiums by choos­ing a later starting date.Whether the policy covers both accident and illness.

Benefits may be taxable depending on who pays the premiums for the disability policy. The following parameters usually hold true, but you should consult your tax professional with any questions:

If you pay the premiums for an individual policy, the benefits you receive aren’t subject to income tax.If your employer pays some or all of the premiums under a group policy, some or all of the benefits may be taxable.